Investors’ Chalice runneth over as Gonneville and gold deliver in abundance

Gold, Gonneville, and Glasgow dominated news flow this week but hovering over everything was the inflation genie who burst out of her bottle to send a shudder through global financial markets.
11th November 2021
Tim Treadgold

The gold price, which is a distillation of multiple events, rose to a six-month high of $US1862 an ounce before slipping back to around $US1846/oz.

A surprise 13.5% increase in official Chinese producer prices for the month of October was the spark for the inflation alert, which is expected to bring forward central bank interest rate increases and an end to the era of super-cheap money.

Australian gold producers continued their rise, led by Northern Star and Evolution, with both rising by around 13% over the past week, while Newcrest managed a modest 3% increase thanks in part to another big North American asset purchase.

Most other gold stocks moved higher, helping the ASX gold index rise by an impressive 10.8% over the week, comfortably outperforming the broader metals and mining index, which was up 3.5% and well ahead of the all-ordinaries, which lost 1%.

Locally, the big news events were Chalice Mining and its whopping maiden resource for the Gonneville nickel and palladium discovery on the outskirts of Perth, and Liontown, which reported a world-class lithium resource of 156 million tonnes at l.4% lithium oxide at its Kathleen Valley project in WA.

Chalice led the way with a rise of on $3.11 (45%) for the week to $9.99 thanks to the 10-million-ounce initial resource estimate for Gonneville, a discovery with the potential to re-rate an entire region, the West Yilgarn, which runs along the eastern side of the Darling Scarp, the line of hills which forms the eastern backdrop to Perth.

Unlocking the geological secrets of an area roughly 1200 kilometres long and 100km wide will be a challenge for explorers and the WA Government because much of the land is locked up in national parks or being farmed. The mine approvals process promises to be quite interesting.

Investment banks and stockbrokers are falling over themselves to try to value Chalice and Gonneville, which is Australia’s biggest nickel sulphide discovery in 20 years and the biggest ever platinum group element (PGE) discovery.

Macquarie Bank upgraded its share-price tip for Chalice from $8.70 to $9.80, but was quickly swamped as the stock raced higher. Bell Potter then pushed the boat out further with an upgraded price prediction of $11.73.

Other stocks looking for Gonneville look-alikes in the same broad region performed well. DevEx added 7.5c to 40c after reporting encouraging drill result from its Sovereign project. Venture Minerals rose by 0.2c to 4c after reporting a re-start by Chalice on a joint venture in the far south of WA, and Tambourah rose by 7c to 28c after reporting an expansion in its landholding near Gonneville.

Liontown had a rougher ride, slipping 25c to $1.68 despite its highly encouraging lithium resource announcement, though another way of looking at the stock is its rise of $1.26 (300%) since the start of the year.

Other lithium stocks had a mixed week. Pilbara added 3.5c to $2.34 while Orocobre lost 61c to $9.31 and Arizona Lithium fell by 1.8c to 11c despite reporting a doubling in its land holding near the promising Lordsburg project in the U.S.

Glasgow, the home of the United Nations COP26 climate change talks, is finishing with a bang that heaps more pressure on coal miners, especially with a commitment by the U.S. to fully phase out coal by 2030, along with a surprise climate deal with China.

Most coal stocks lost ground over the week, but remain elevated compared to where they were a few months ago as investors try to digest what it might mean to ostracise fossil fuels before renewables are ready to plug the global energy gap.

Whitehaven, the local coal leader slipped 1.5c lower to $2.41. New Hope resisted the sell-off with a 7.5c rise to $2.03 while Stanmore, which was revealed as the buyer of BHP’s second-grade metallurgical coal assets, lost 9.5c to 97c.

The irony with coal, which seems to have been lost on Glasgow conference delegates, is that driving big western-world companies out of the sector will not reduce coal production, as beautifully illustrated by Thungela Resources, the South African coal spin-off from Anglo American.

The plan was for Anglo American’s coal assets to be quietly worked out until the mines closed. That’s not the way Thungela management sees the future with the chief executive, July Ndlovu, telling Bloomberg that: “I didn’t take up this role to close these mines, to close this business”. Indeed!

Iron ore stocks were expected to be under pressure as the price of their commodity dipped below $US90 a tonne, though Fortescue Metals raced the other way with a rise of $1.24 over the week to $15.54, perhaps an early sign that some big-name international investors see Fortescue as a “green” commodities play rather than a stock largely exposed to Chinese steel demand.

Uranium stocks, which have been on a winning streak for much of the year, were a Glasgow disappointment despite new-found enthusiasm for nuclear power – perhaps another example of it being better to travel than arrive.

Paladin, up 70c (290% since the start of the year, slipped 1c lower this week to 96c. Boss, up 21c (205%) since January, managed a 1c rise this week to 31, while Deep Yellow, up 52c (105%) since early this year, eased back this week by 2c to $1.02.

The bad news of the week for local uranium followers was confirmation from the government of Greenland that it will not approve uranium mining, which could be the end of the road for the Kvanefjeld uranium and rare earth project of Greenland Minerals, which was in a trading halt this week.

The good news from the sidelines of the Glasgow conference is that British jet engine maker Rolls Royce is pushing ahead with its modular nuclear power plant project that involves small developments roughly 10% the size of conventional nuclear developments, with a corresponding reduction in capital cost while generating enough power for one million homes.

The U.K. Government is helping with funding with the aim being to construct 16 of the modular power plants around the country – all requiring uranium as fuel.

Other market moves and news event of interest included:

  •  Lucapa Diamond Company had its best week since February with a rise of 1.5c (25%) to 7.5c after reporting encouraging bulk samples from the Lulo kimberlite in Angola, perhaps a sign that it has found the source rock of the alluvial gems it has been mining.
  • De Grey Mining reported consistent infill drilling at the Brolga deposit which is part of the broader Mallina gold with best hits of 80m at 1.6g/t from 36m and 148m at 1g/t from 44m. On the market, De Grey added 16c to $1.25.
  • Red 5 added 3c to 28c after reporting steady progress on its King of the Hills gold project in WA. Morgans, a stockbroking firm, reckons the stock will rise to 33c.
  • Centaurus continued to enjoy exploration success at its Jaguar nickel project in Brazil with the latest drill result including 40.8m at 1.22% nickel, good enough to lift the stock by 5c to $1.07.
  • Catalyst Metals added 8c to $2.05 after reporting high grade gold intersections at its Henty mine in Tasmania with a best drill hot of 2.2m at 125.8g/t, and

 

  • Westgold Resources said it was pushing ahead with develop of the Fender orebody as its next mine in company’s backyard near the historic WA mining centre of Cue, news which lifted the stock by 17c to $2.11.

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