It looked bad and smelt worse, but there were some juicy morsels to be found

Winners were hard to find on most markets this week as multiple uncertainties bruised investor confidence but a dive into the detail revealed a surprising number of upward moves and equally surprising upbeat views from leading investment banks.
25th September 2020
Tim Treadgold

Winners were hard to find on most markets this week as multiple uncertainties bruised investor confidence but a dive into the detail revealed a surprising number of upward moves and equally surprising upbeat views from leading investment banks.

Best in class was undoubtedly Chalice Gold Mines, which continued its stellar run as analysts and investors gained a greater insight into its emerging Julimar platinum group metals (PGM) discovery near Perth.

Unique in many ways, Julimar is shaping as Australia’s first commercially significant PGM development with a cocktail of metals that feature a mix of high-value palladium, plus nickel, copper and cobalt.

A site visit for analysts late last week refreshed interest in Chalice, followed by a report of the discovery of a new anomaly (drilling target) which has the potential to elevate Julimar into a world-class category of PGM structures.

The net result of the news flow and enthusiastic stockbroker reports was Chalice shares  rocketed 80c (45%) over the past five trading days, with the latest price of $2.48 just short of the all-time high of $2.59 reached on Wednesday.

At its latest price, Chalice is valued at $765 million, almost certainly on its way to becoming a member of the $1 billon club, a remarkable rise by a company which was knocking on the door of the penny dreadful club as recently as March when it was trading at 16c.

The speed at which Chalice has been moving has been too much for analysts to keep up with,  Macquarie Bank being an example of those left behind.

Before last week’s site visit, when Chalice was priced at $1.63, Macquarie rated it a buy with a price target of $1.80.

Four days later, after the site visit, Macquarie upped its price forecast to $2.52 – only just ahead of the mark on what looks to be one of Australia’s most interesting mineral discoveries in decades.

Chalice, as mentioned, was not alone among smaller stocks gaining ground in a week when the big names tumbled as prices for most commodities retreated.

The fall in iron ore from an unsustainable $US130 a tonne to $US119/t hit all producers of the steel-making material. Fortescue fell by 50c over the week to $15.88 to be down $3.67 (18.7%) from $19.56 less than a month ago.

Iron Road was a rare example of an iron ore stock moving against the price, up 3c to 16.5c, after announcing plans to push ahead with its Port Hardy project that could handle exports from its proposed Eyre Peninsula iron ore project in South Australia.

Goldman Sachs, an investment bank, warned that iron ore leaders faced the challenge of rising costs and reduced earnings as a result of regulatory changes forced on them by Rio Tinto’s Juukan Gorge mess.

The bank said overall costs of the major iron ore producers could rise by $US1 a tonne and production be trimmed five million tonnes a year – a hit, but not a big hit.

Macquarie disagreed with the caution of its rival bank, telling clients on Wednesday that “iron ore fundamentals remain strong” and good enough for it maintain buy tips on all producers, including Fortescue, which it expects to rise back to $19.50

A $US$90 an ounce fall in the gold price to $1859/oz stung local gold stars hard. Saracen fell by 45c to $4.98. Bellevue lost 20c to $1, and De Grey shed 30c to $1.26.

But even as those stocks were being trimmed, it was interesting to see how stocks reporting positive developments managed to move up against an outgoing tide, a sign that investors have retained their appetite for opportunities as they arise. Positive moves during the week included:

  • Encounter Resources added 5c to 19c after reporting a farm-in deal with BHP over its Elliott copper prospect near Tennant Creek in the Northern Territory.
  • Mont Royal Resources rose by 6c to 34c after it also revealed a copper deal which will see it farm-in to earn a 70% stake in a copper and gold project in Canada.
  • Wiluna Mining shrugged off the gold market blues to rise by 11c to $1.99 after reporting high grade intercepts from the latest drilling at its namesake project in WA with a best hit of 118 metres at 1.46 grams a tonne, with higher grade sections of up to 40m at 3.09g/t.
  • Lindian rose by 0.7c to 2.5c after announcing the acquisition of a big bauxite resource in Guinea.
  • Liontown continued its run of exploration success with the discovery of a big and strong electromagnetic anomaly near the WA wheatbelt town of Moora. On the market, Liontown added 1c to 19.5c, and
  • Jupiter Mines added 1c to 28c after releasing a strong September quarter of manganese production at its part-owned South African operations.

That upward move by Jupiter was mirrored by other manganese stocks such as Element25, up 9c to 78c as confidence grows in its Butcherbird project in WA, and Euro Manganese, which added 6c to 20c thanks to interest in its plan to extract high purity manganese from tailings in the Czech republic.

What ignited interest in manganese was publicity flowing from the Tesla Battery Day event in the U.S. which saw the electric car’s chief showman, Elon Musk, roll out a series of fresh promises about battery capacity, car production and metal requirements – more nickel and manganese, less cobalt, and plans to mine its own lithium in Nevada.

Nickel stocks, despite their metal being named as having a bigger role in Tesla’s battery development plan, weakened. Mincor slipped 7c lower to 87c and Western Areas lost 7c to $2.20.

Reaction to the Tesla promotion was mixed. The car maker itself crashed, losing $US65 a share to $US380, largely because investors expected more.

Morgan Stanley was one of the investment banks to attempt an analysis of the implications for miners from Battery Day, with lithium rated as an ongoing key to battery design, but with hard-rock miners expected to outperform brine operators.

As well as enjoying a share price rise, Euro Manganese earned a speeding inquiry from stock exchange regulators who have been extra vigilant in recent weeks dishing out inquiries for the slightest unusual price moves.

Iron ore hopeful Fe Ltd was queried over a 24% share price rise to 3.1c on Monday. It’s now trading at 2.4c. VRX Silica copped a similar speeding inquiry when it rose from 11c to 14.5c. It’s now trading at 14c.

Fund raising remained a feature of the market despite the weaker overall tone, which saw a 5% fall in the metals and mining index, a 9.7% drop in the gold index, but only a modest 1% fall in the all ordinaries as investor confidence about the opening of the Australian economy grew.

Miners to tap the market for fresh capital this week included: Minotaur ($3.4 million), Argonaut ($2.7 million), Alto ($5.5 million), Pure Minerals ($4.4 million), and Austar ($1.96 million), while a new float, Megado Gold, closed its $6 million prospectus early and oversubscribed.

Other news events which had little effect on share prices, or resulted in a price fall, included:

  • Alderan holding a price of 12c after Rio Tinto reported encouraging assays from the Cactus Canyon copper project in the U.S. with a best hit of 73.96m at 1.1% copper, plus useful grades of gold, silver and molybdenum.
  • New World Resources slipped 0.5c lower to 3.5c despite reporting a 23m thick intersection of predominantly massive sulphides from drilling at its Antler copper project in the U.S.
  • Greenland Minerals was steady at 29c after reporting further progress in the government permitting process for its Kvanefjeld rare earths project in Greenland, and
  • Calidus shed 1c to 57c after announcing that it would buy the high grade (and historic) Blue Spec gold mine in WA’s Nullagine region. Blue Spec is named after a Melbourne Cup winner and located just 70km from Calidus’ Warrawoona project. It is also a difficult mine which one foiled mine attempts by the then biggest gold producer in the world, South Africa’s Anglo American Corporation.

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