Investors shun fossil fuel stocks despite corporate maneuverings as renewables shine bright

Deals displaced discovery and development news in the Australian resources industry this week
23rd July 2021
Tim Treadgold

Deals displaced discovery and development news in the Australian resources industry this week, led by hints of mega-billion-dollar mergers at the top end of the oil sector, followed by asset shuffling among gold and rare earth players, and a flow of production news.

Reports of an attempt to merge Santos and Oil Search, followed by rumours of Woodside acquiring BHP’s oil division, put petroleum back in the news after years on the sidelines as investors switched out of fossil fuels into renewables.

Both big oil moves, if they occur, are not so much about growth as survival for a few more years by cutting costs as inflation bites and uncertainty reigns in oil and gas markets.

Interestingly, and despite the media coverage of oil industry events, investors seemed to be unimpressed, with most oil stocks losing ground this week while renewables continued to march higher – very much a sign of the times.

Santos slipped 27c lower to $6.73 and Woodside was 50c weaker at $22.21 while Oil Search, the takeover target, added 28c to $4.15 in an example of the well-proven maxim in M&A situations of selling the predator and buying the prey.

Meanwhile, over among the renewables, it was all up, led by Orocobre’s rise of 28c to $7.45. Galaxy’s 18c increase to $4.26. Pilbara’s 7c lift to $1.62 and Vulcan’s 8c gain to $9.16 after reporting a deal to sell lithium from its novel German hydrothermal project.

Rare earths, another sector benefiting from energy transition alongside lithium, saw its own significant deal with a South Korean consortium outlaying $US250 million to buy a 20% stake in the Dubbo zirconium and rare earth project in NSW.

Long a development waiting for a catalyst while locked inside the gold miner, Alkane Resources, Dubbo has burst into life since being transferred into its own corporate vehicle, Australian Strategic Materials, which added $1.07 over the week to trade at $8.55, joining the $1 billion market-cap club.

Other rare earth stocks firmed, led by Peak Resources which added 4c to 13c after receiving government approval to proceed with its Ngualla project in Tanzania. Lynas Rare Earths rose by 21c to $6.24, while RareX was steady at 8.9c after announcing a major resource upgrade at its Cummins Range project in WA.

Gold stocks had a mixed week as the price of their metal struggled to stay above $US1800 an ounce, leaving most interest in the sector to deal flow and production news ahead of profit reporting season.

Evolution and Northern Star were the deal leaders with a neat asset exchange which will see Evolution acquire Northern Star’s Kundana operations in WA at a price of $A400 million. Both sides look like winners with Evolution able to expand its Mungari production centre and Northern Star able to bank a handy pile of cash.

The price of gold is being heavily influenced by a strengthening of the U.S. dollar which is offsetting concern about the continued spread of the Covid-19 virus. A tug-of-war appears to be underway, pitting pessimists who see the global economy slowing (good for gold) against optimists who see a sustained economic recovery (good for other commodities).

Most gold stocks lost ground this week, including Northern Star, which managed a 25c rise yesterday (Thursday) but was unable to claw back earlier losses to end 37c weaker at $10.47 despite strong June quarter gold sales totalling 444,012 ounces. Evolution was in a trading halt as it seeks to raise the A$400 million to pay for the Kundana assets, but was down 61c (13%) at $4.07 when trading stopped.

Wiluna Mining was one of the handful of gold miners to rise, up 3c to $1 after reporting bonanza grade intersections at its Happy Jack project, including 1.99 metres at 298.8 grams of gold per tonne, and 8.67m at 18.44g/t. Predictive Discovery also gained ground with a 1.5c rise to 15c after reporting encouraging results from drilling at its Bankan project in Guinea, including 49.6m at 11.7g/t.

De Grey slipped 7c to $1.14 despite a new round of encouraging drill results from its Hemi project, including 173.7m and 1.5g/t from a depth of 271.3m at the Diucon prospect. Bellevue was 16c weaker at 97c as it finalises funding for its namesake development while Perseus was steady at $1.54 despite solid June quarter production numbers and a buy tip from Canaccord Genuity which sees the stock heading to $1.85.

Iron ore stocks continued to ride a buoyant market which has anchored the benchmark price for 62% ore above $US200 a tonne, a result of sluggish supply meeting strong demand with the big iron news this week being Rio Tinto’s predictable cost blow out after the Juukan Gorge mistake, which has forced the company to take greater care at its operations.

Two smaller iron ore producers, Grange Resources and Fenix, had a good week. Grange added 2.5c to 83c (a 10-year high) thanks to strong demand for its high-grade Tasmanian magnetite pellets, while Fenix added 3c to 43c after hedging 45% of its planned production at A$230/t.

Copper stocks had a mixed week as the price of the metal hovered around $US4.30 a pound with a drought in Chile potentially cutting supply next year from the world’s biggest source of copper, which could help lift the price closer to the $US5/lb level.

Sandfire, which reported a 34% increase in copper in the A4 satellite deposit at its Motheo project in Botswana, slipped 18c to $6.50, while Rex Minerals added 4.5c to 42c after reporting a doubling of reserves at its Hillside project in South Australia.

Other news events and interesting market moves included:

  • Iluka Resources added 43c to $9.26 after Rio Tinto ratcheted up the pressure on the titanium minerals and zircon market by announcing the closure of furnaces at its big Richards Bay project in South Africa because it had consumed stockpiles after the closure of mining operations.
  • Nickel stocks weakened in line with the price. Mincor, Western Areas and Centaurus were all 1c lower, though Centaurus was also the subject of a speculative buy recommendation from Canaccord which sees it rising from its latest price of 82c to $1.20. In a separate nickel sector development, BHP said it had signed Tesla as a client for its high-grade, low-carbon nickel produced in WA.
  • Coda Minerals said it had encountered exceptional visual sulphides indicating nearby mineralisation in the latest drilling at its Emmie Bluff project in South Australia. Assays are pending but on the market the stock added 27c to $1.40.
  • Antipa Minerals added 0.6c to 5.3c after reporting further high-grade gold mineralisation at its Minyari project in WA’s Paterson Province with a best intersection of 172m at 1.68g/t from a depth of 230m, and
  • Ausgold reported encouraging gold assays from the latest drilling at its Katanning South project in WA including 10m at 2.89g/t from 84m with an enriched zone of 3m at 8.35g/t. On the market, the stock was steady at 4.2c.

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