Gold finds its mojo as stimulus winds down and inflation winds up

The global energy crisis dominated headlines this week with fossil fuels defying the rush into renewables, feeding fear of an inflationary spiral which, in turn, sparked a jump in the price of gold.
14th October 2021
Tim Treadgold

A move back towards $US1800 an ounce by gold was a measure of the uncertainty in financial markets as government start to unwind post-pandemic economic stimulus spending just as the climate change debate heats up.The net result is a cocktail of confusion, and perfect conditions for gold to shine even if part of the stimulus unwinding is an increase in official U.S. interest rates.

But the best example of muddled markets and puzzling comments can be found at the highest levels of international organisations, with the International Monetary Fund (IMF) and the International Energy Agency (IEA) publishing conflicting comments about Australia’s outlook.

The IEA view is that Australia’s coal, oil and gas industries will plunge into a crisis within a decade as countries push for a goal of net zero emissions.

The IMF reckons the net zero drive will trigger a bonanza for Australian minerals, especially new energy metals such as copper, nickel, lithium and cobalt.

What the IMF and IEA see developing is a situation which many investors have already identified as energy metals rise, though the more difficult question is how fast coal, oil and gas will fade – if at all.

Consumer hardship in Europe and China caused by rising power prices will become a potent political factor in how quickly governments adopt net zero emissions policies, setting the scene for more financial market turmoil.

Zinc and aluminium, which are not on the IMF list of metals benefitting from energy transition, are already big winners from the fossil fuel squeeze with both trading at multi-year highs thanks to power shortages causing smelters to cut output.

Gold, however, is the commodity/currency to watch because it loves financial market confusion, which is why it rose by $US30/oz to last trade at $US1787/oz, taking most Australian stocks with it.

Sector leader Newcrest was the star of the week thanks to a combination of the high metal price and the unveiling of a range of growth projects which could see the company’s all-in sustaining costs fall to less then $US500/oz. On the market, Newcrest added $1.54 (6.6%) over the week to $24.82.

Northern Star followed Newcrest with a rise of 54c (6%) to $9.70 and Evolution added 25c (6.7%) to $3.89.

Other gold moves included: De Grey, up 11 to $1.29 after reporting fresh exploration success at its Mallina project. Perseus, up 16c to $1.65, also thanks to positive exploration news, and Capricorn, up 34c to $2.70, slipping past the $2.40 target set on Monday by Macquarie Bank and on its way to Bell Potter’s target of $2.87.

Overall, the Australian resources sector looks primed for a strong finish to 2021 despite the flow of contradictory international news.

Morgan Stanley, a leading investment bank, reckons the twin stars of the next three months will be lithium and uranium. Lithium for its leading role in new energy applications and the prospect of positive news from the Glasgow climate change conference and uranium for the same reason and also thanks to a significant policy change in France.

In a move which shocked anti-nuclear Germany, the French President, Emmanuel Macron, declared a major nuclear power station building program, backed by other members of the European Union, including Finland, Poland and Hungary.

The French announcement produced an immediate reaction in the uranium market with the price rising by $US8.60 a pound (21%) to $US48.30/lb with local uranium stocks following. Paladin rose by 13c (17%) over the week to 86c. Deep Yellow added 15c (16.5%) to $1.06. Boss Energy put on 4.2c (17.5%) to 28c and Vimy did best of all with an increase of 6c (28.5%) to 27c.

Lithium continued its upward move with J.P. Morgan refreshing its positive views on the metal as well as rare earths, driven by a 17% increase in the price of spodumene ore over the past month and a 28% increase in lithium hydroxide. Rare earths, after a strong upward run, were largely steady over the past month.

Morgan Stanley said it expected the lithium market to remain tight for the next six-to-nine months, but warned that as supply catches up and the rate of demand growth slows, an over-supplied market could develop next year.

Local lithium leader Pilbara Minerals reflected the potential market shift next year with a 4.5c weaker share price of $1.99 despite reporting the start of concentrate production from the restart of the Ngungaju processing plant. Other lithium moves included Orocobre, up 18c to $8.60, and Liontown Resources, up 16c to $1.59.

Coal, the black sheep of the commodities world, continued to defy its critics (and gravity) with a fresh rise to $US243 a tonne for thermal material, while metallurgical coal was reported to be trading at a whopping $US396/t, up 308% from its low of $US97/t at the end of last year.

The next few months could see investors faced with interesting tests of their views on coal with BHP likely to face criticism for retaining its metallurgical coal interests, which have returned as major profit contributors, and reports of Glencore and Teck hatching a deal which could see a merger of coal assets, leaving Glencore to become a new-energy metals specialist with its exposure to copper, nickel and cobalt.

Locally, coal stocks faded this week after a strong 12-months. Whitehaven slipped 4.5c lower to $3.22 (it was trading at 95c at this time last year), while New Hope was steady at $2.56 (it was $1.14 a year ago).

Iron ore continued its price recovery with benchmark 62% ore returning to $US121/t and 58% material trading at $US91/t.

Fortescue Metals led the way up with a rise of 18c over the week to $14.35, followed by Champion Iron which added 13c to $4.66, Mt Gibson rose by 3c to 45c and Fenix gains 2c to 24c.

Deal flow and capital raisings accelerated during the week, led by Adriatic’s big London debt and equity deal, which is pulling in $US244.5 million to help pay for its Vares silver and zinc project in Bosnia.

Other capital moves included the successful float of Minerals 260 by Liontown, with the new company’s 50c shares first trading at 75c before easing to 54c. Hannans raised $5.5 million for its lithium scrap project. Kingwest raised $4 million for work on its Goongarrie gold project. Kin is seeking to raise $13 million for its Cardinia gold project, and Kalium Lakes is seeking $50 million to expand its Beyondie potash project.

Other news events and market moves this week included:

  • Strickland Metals shot up by 2.7c (43%) to 9.2c after reporting a high-grade zinc and lead discovery at its Iroquois project in central WA with best assays of 5.5% zinc and lead combined over 23 metres from a depth of 108m.
  • PVW Resources confirmed the presence of high-grade heavy rare earths at its Tanami project near the WA/NT border with assays up to 12.45% total rare earth oxides from surface samples. On the market PVW added 9.5c (54%) to 27c.
  • Aurelia Metals added 3c to 35c after reporting what it called exceptional copper results from the latest drilling at its Great Cobar project in NSW with a best intersection of 13m at 5.4% copper and 0.6g/t gold from 995m.
  • Silex Systems added 11c to $1.31 after returning to the headlines with news about its laser uranium enrichment technology, followed by a buy tip from Shaw and Partners which see the stock heading to $2.45.
  • White Rock Minerals reported high grade gold assays from drilling at its Woods point project in Victoria with a best hit of 1m at 34.2g/t, including 0.3m at 107g/t. On the market, the stock added 4.5c to 32c.
  • Turaco Gold added 2.5c to 15c after reporting what it called a large-scale gold discovery in Ivory Coast, including assays of 1m at 4.9g/t from 1m deep and 1m at 9.91g/t from 9m.
  • Auroch said it would assess the lithium potential of pegmatites encountered during drilling at the Nepean Deeps nickel project with one pegmatite measuring a whopping 350m thick.
  • Poseidon Nickel said it had signed a memorandum of understanding with Pure Battery Technologies to investigate the potential for a battery materials refinery in WA, news which lifted Poseidon’s share price by 1.3c to 11c, and
  • Alicanto added 2c to 13c after reporting exceptional silver and zinc assays from the latest drilling at its Sala project in Sweden with a best hit of 3.9m at 313g/t of silver plus 9.6% zinc with a high-grade core of 1m assaying 663g/t silver.

 

 

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