Iron ore, coal and oil to take FY21 gold medals, but no medal for gold; Copper hot tip for FY22

Iron ore, coal and oil ore will be the commodity winners when the financial is ruled off next Wednesday. Gold, however, will end flat when looked at over the full 12-months, while copper and other battery metals continue to shape as next year’s winners.
25th June 2021
Tim Treadgold

In a nutshell, that’s where we have been in financial year 2020/21 and where we appear to be headed as financial markets say goodbye to a roller-coaster ride dominated by the Covid-19 pandemic and government spending designed to stave off a depression.

By this time next year, a different picture will emerge, probably one dominated by the struggle to reel in the excess cash created in reaction to the pandemic which means inflation and interest rates will be one of big issues to watch, with energy transition another.

Battery metals, as investors have been told repeatedly, are one of the most powerful themes in recent times as governments encourage a switch out of fossil fuels and consumers embrace the change.

Ivan Glasenberg, perhaps the best commodity trader of his generation, reiterated the case for copper during the week with a warning that supplies of the metal need to double by 2050 and that means producing an extra one million tonnes a year to hit a target of 60 million tonnes annually.

The challenge is that producing an extra million tonnes of copper a year will not be easy. “If you look at the past 10 years, we’ve only added 500,000 tonnes a year,” Glasenberg told a conference in Qatar. “Do we have the projects,” he asked. “I don’t think so.”

Glasenberg’s promotion of copper as a future metal winner was echoed during the week by another sage observer of financial markets, Jeremy Grantham.

In a Bloomberg interview, Grantham, one of the grand old men of investing (at 82 years old he qualifies for that description) singled out copper and lithium as scarce resources in a decarbonising world, saying that “their prices will go much higher”.

No prize for working out that if a significant gap opens between copper demand and supply the price will rise sharply,which is why the world’s biggest mining companies such as BHP and Rio Tinto are investing heavily in expanding copper output.

At the smaller end of the market, stocks such as OZ Minerals and Sandfire Resources have been among the copper winners. OZ is up $12, or 110% to $22.93 over the past 12-months. Sandfire is up 39% or $1.92 to $6.90, while the emerging copper star, Venturex has rocketed up by 1380% to 74c.

But before we get too far ahead, it’s worth having a look back at what’s happened over the past 12-months because there were some surprises, especially the return of coal and oil and the fact that gold today is trading at almost exactly the same price as this time last year, $US1766 an ounce v $US1775, a miniscule rise of 0.5%.

That snapshot of the gold price 12-months apart obviously does not tell the whole story because in August gold hit an all-time high of $US2067/oz before falling to a low of $US1683/oz in late March.

Most leading gold stocks struggled to make headway when looked at on an annual basis with the best performers being those with discovery stories to tell.

Sector leader Newcrest fell by $5.49 (17%) over the past 12-months. Evolution is down 15%, and Northern Star is 26% weaker – while among the discovery and development situations Lefroy Exploration is up 400%, Coda Minerals has risen by 245% since listing last October, and Emerald Resources is up 66%.

Iron ore producers rode China’s post-pandemic steel demand but are starting to show signs of fatigue. Fortescue Metals is up 60% on this time last year, but has actually fallen by 8% since January. Champion Iron is a bigger winner in the iron ore sector, up 124% on a 12-month basis and 39% since January.

The weakening iron ore trend in the second six months of the financial year is a pointer to a sector which has performed brilliantly but is coming to the end of a growth phase.

It’s a more positive story in the old-fashioned world of fossil fuels which are benefitting from a lack of new supply as governments and consumers turn away before the promise of renewable energy is delivered.

Whitehaven Coal, a prime target of environmental crusaders, saw its share price rise by 28% over the past 12-months but with the potential for more to come because its primary product, thermal coal, is up by 142% from $US52 a tonne to $US121.75/t.

Santos has been the best of the big oil and gas stocks over the past 12 months with a rise of 35% to $7.24 while Strike Energy has led the way among small and emerging producers with an increase of 55% to 34c – though both those stocks and the rest of the Australian oil patch is well behind the oil price itself, which is up 87% from $US40 a barrel to $US77/bbl.

Those differences between producer share prices and the underlying price of coal and oil speak loudly about investor uncertainty as to the long-term outlook for both fossil fuels.

Other events of interest this week, the last full trading week of the financial year, included:

  • Macquarie Bank naming its top mining picks for the year ahead with bulk miners (iron ore and coal) preferred ahead of base metals and gold. Mineral Resources and Champion iron topped the bulk sector. Galaxy was the preferred lithium stock while Pilbara Minerals and Orocobre were rated as buys, and
  • China stepped up its attack on Bitcoin and other cryptocurrencies as did the central banks “banker” the Swiss-based Bank for International Settlements which chimed in with a warning that cryptocurrencies “worked against the public good”.

Looking solely at the week just past, it is fair to say that not much happened as the June 30 deadline for book balancing weighed on investors.

Over the week, the all ordinaries index slipped by 0.7%. The metals and mining index crept up by 0.55%, and the gold index fell by 1%.

Other market moves and news events of interest included:

  • Pilbara Minerals trading up to an all-time high of $1.58 before easing slightly to $1.54, a gain of 19c in the week after reporting encouraging exploration news close to its Pilgangoora processing plant. At its latest price, Pilbara is knocking on the door of Australia’s top 100 list stocks with a market value of $4.5 billion, up $500 million in a week.
  • Coda Minerals continued its stellar run by adding another 25c to trade at $1.55 while also successfully raising $14.4 million through a share issued priced at $1.20 with the funds earmarked to accelerate exploration at its Emmie Bluff copper and gold discovery in South Australia.
  • De Grey Mining added 7.5c to $1.35 after reporting a maiden 6.8-million-ounce gold resource at its Hemi discovery in the north of WA, lifting the overall resource in the broader Mallina project area to 9Moz.
  • Bellevue Gold said it was eyeing a bigger than originally planned mine after receiving exceptional drill results at its namesake project in WA. On the market, Bellevue rose by 10c to 93c.
  • Catalyst Metals added 15c to $2.05 after reporting rich gold assays from the latest drilling at its Henty project in Tasmania with best hit of 221 grams a tonne over 2.65 metres.
  • Thomson Resources caught the eye of investors with an interest in the red-hot tin market after reporting a 118m intersection grading 0.43% tin starting at 57m. On the market, Thomson added 0.5c to 13c.
  • Future Metals, the new owner of the long dormant Panton platinum project in the north of WA added 2c to 25c after reporting a restart on exploration and site development work.
  • Emerald Resources rose by 2c to 94c after reporting a maiden gold pour at its Okvau mine in Cambodia.
  • Capricorn Metals said ore processing had started at its Karlawinda gold project in WA, a development which helped the stock add 2.5c to $1.94.
  • Cyprium Metals reported a shopping 232m drill intersection grading 0.4% copper and 392 grams a tonne of silver from a depth of 109m at its Nanadie project in WA. On the market the stock rose by 1.5c to 27c.
  • Arafura Resources lost 3.8c to 13c after raising $40 million via a share placed priced at 12c to fund work on its Nolans rare earth project in the Northern Territory, and
  • Los Cerros added 1.8c to 18c after reporting a drill hit of 36m grading 3.31g/t gold from the surface at its Tesorito project in Colombia. The 36m section was within a 222m thick zone assaying 1.51g/t of gold.

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