Investors show appetite for strong exploration results in better week for resources stocks

Discovery and development news, plus a rare “speeding ticket”, were highlights of what has been one of the better weeks for Australian resources stocks since the coronavirus flattened confidence
17th April 2020
Tim Treadgold

Discovery and development news, plus a rare “speeding ticket”, were highlights of what has been one of the better weeks for Australian resources stocks since the coronavirus flattened confidence, with fingers crossed that the trend can continue.

Chalice Gold led the way with a 50c (80%) rise to 99c after releasing fresh results from its Julimar nickel and palladium discovery near Perth, a find with the potential to become Australia’s first palladium mine.

Best hit in the latest round of drilling by Chalice was a 19-metre zone assaying 8.4 grams of palladium a tonne, plus 1.1g/t of platinum, 2.6% nickel and 1% copper from just 48m.

Predictive Discovery, which reported highly encouraging gold assays from its Bankan prospect in the African country of Guinea, did better than Chalice on a percentage basis thanks to a low starting point of less than 1c, which meant the stock’s latest price of 6.6c is a gain of more than 1000%.

Best assay from Predictive was 46m at 6.58g/t gold starting just 4m from surface, with a core of 10m at 26.52g/t.

Resolution Minerals had the distinction of copping a speeding ticket from stock exchange regulators after its shares more than doubled from 5.8c before Easter to latest sales at 12c.

While the grey gnomes at the exchange needed an explanation for the rise, most investors got the message that Resolution’s flagship, the 64North gold project, is adjacent to Northern Star’s Pogo mine in Alaska and that the gold price has topped $US1700 an ounce.

That fresh upward surge in the gold price lifted the entire gold sector with Northern Star getting its Mojo back after a sell-off that followed a profit and dividend warning last month which rubbed the gloss off the stock, until a rise this week of $1.41 (13%) to $12.88.

The development news which caught the eye of investors was Sandfire Resources receiving a milestone development approval from a government of Montana for its Black Butte copper project, a step which helped Sandfire shares add 41c (12%) to $4.18, but with an influential investment bank, Morgan Stanley, tipping a price target of $6.10.

Most of the positive events in the short post-Easter trading week were linked to small miners whereas the next few days will see the big boys of mining, Rio Tinto, BHP and Fortescue reveal how they performed over the March quarter.

More importantly, it will be the outlook comments from the majors which could set the tone for the rest of the year because they have direct exposure to the complexities of supply and demand at a time when both sides of that equation are falling.

Demand for virtually everything is down because of the global economic slump though the effects of the fall are being offset for most mining companies by supply reductions caused by coronavirus shutdowns.

In what’s become a remarkable game of one-step back and one-step forward, the world’s top investment banks have been turning themselves inside out trying to judge whether Covid-19 demand destruction is being fully offset by Covid-19 supply destruction – and what will happen when mines restart.

As the debate stands today, it’s all square, with most metal prices holding up, buoyed by mine closures which are cancelling out demand falls – but whether that’s a long-term solution to what looks like the start of a global recession seems unlikely.

Oil is the sick man of the commodity sector, with worldwide demand down by a remarkable 30% and the price continuing to sink despite a production cut agreement by the major producers which has been described as too little, too late.

J.P. Morgan, in its “Covic-19 impact tracker”, found that iron ore is balanced with rising Chinese demand matching a rest-of-the-world decline, leaving the price at around $US80 a tonne, but heading for the high $US70s by year end – which would still be good news for Australian iron ore producers.

Base metals, such as copper, nickel and zinc, could be hit harder with demand down and mines currently suspended returning to production over the next few weeks.

Gold has re-emerged as Australia’s best performing commodity (alongside wheat as the world rushes to shore up food supplies), with more investment banks rushing to join the return of Goldman Sachs as a gold bull.

This week it was the turn of Credit Suisse to pull a golden tip out of its Swiss hat, forecasting a price of $US2000 an ounce by the end of the year.

Among other commodities, it was the turn of uranium to stage a price breakout with a rise back to $US29.50 a pound, up $US5/lb (20%) in a month, as Canada and Kazakhstan made deep production cuts.

Local U-stocks reacted positively. Deep Yellow added 4c to 26c. Boss Resources rose by 2c to 6c. Paladin put on 4c to 10c, and Vimy added 1c to 4.2c.

Diamond miners, on the other hand, are having a torrid time as consumers zip their wallets in the face of Covid-19. Rough-diamond sales events are cancelled and even the big two of diamonds are suffering, with De Beers forced to close its flagship shops in a number of location and Russia’s Alrosa suffering a 30% share price drop after poor sales results.

Rare earths have gone the other way, with fresh warnings of a shortage developing in non-Chinese supply, a situation playing into the hands of Lynas Corporation, which rose by 8c during the week to $1.46 despite being hit by a Covid-19 shutdown at its Malaysia processing centre.

 

Other market-moving and market-news of note included:

  • Recently-listed copper explorer Cobre added 3c to 19c after reporting encouraging assay results from drilling at its Perrinvale project in WA, with a best hit of 6m at 8.39% copper, plus 3.52% zinc and 30g/t of silver from a depth of 49m.

 

  • Liontown, best known for its lithium assets, attracted fresh interest after reporting the completion of the first phase of nickel exploration at its Moora project in WA’s wheatbelt and close to the Julimar palladium/nickel of Chalice Gold. On the market, Liontown added 2c to 9.9c.

 

  • Poseidon enjoyed a short-lived rise of half-a-cent to 3.9c before retreating to 3.3c despite encouraging assays as high as 8.8% nickel over 7.6m from drilling at the historic Black Swan project in WA.

 

  • Silver Lake upgraded its gold-production guidance after a strong March quarter output of 65,548oz, a move which helped the stock rise by 25c to $1.86 and for Macquarie Bank to lift its price tip for the stock to $2.10.

 

  • Panoramic Resources went from a trading halt into a full-blown suspension after stopping operations at its Savannah nickel mine. The stock last traded at 12c.

 

  • New Century Zinc went into a trading halt at 15c ahead of an expected capital raising of $20-to-$30 million which is expected to be priced at 10c.

 

  • Manganese specialist Jupiter Mines saw its shares rise by 2c to 25c despite reporting an extension of the countrywide mining lock-down in South Africa. Manganese is seen by investment banks as one of the minerals likely to successfully ride out the Covid-19 crisis.

 

  • Kingwest Resources added 3c to 16c after reporting high-grade intersection at its Menzies gold project in WA with a best assay of 3m at 158.4g/t from a depth of180m.

 

  • Metals X said it had now outlined enough material for starter pits to be constructed at its Wingellina nickel and cobalt project in WA. The stock added 1c to 7.9c, and

 

  • Medusa Mining said it was restarting operations at its Co-O gold mine in the Philippines after a Covid-19 shutdown. On the market, Medusa added 7c to 53c.

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