Lithium tipped for comeback, nickel seen as set for better days but gold still metal of choice for time being

No prize for guessing that gold was the top performing commodity in the first six months of 2020
3rd July 2020
Tim Treadgold

No prize for guessing that gold was the top performing commodity in the first six months of 2020, up 17%, but there might be more to gain from picking the next winner and while it’s a long shot, there were more hints this week of a lithium revival.

The rush into gold saw it reach $US1790 an ounce on Monday (with futures reaching $US1800/oz) before profit-takers moved in, providing a double-barreled lesson for investors, with the first being that events in the US are the key to the gold price and that the higher a commodity rises, the more sellers it attracts.

In theory, given the Covid-19 outbreaks in the US, gold should power through the $US1800/oz mark ( Macquarie Bank yesterday tipped $US1825/oz for early next year) and set sail for the once unimaginable level of $US2000/oz, especially if the US adopts negative interest rates ahead of November’s Presidential election.

But, just as high prices bring sellers into a market, so they also attract curious new players which, in the case of gold, comes in the form of companies making a mid-course correction, switching from what they were created for into gold.

Three reports to the ASX this week highlighted the conversion issue. Australian Potash reported on a gold exploration joint venture it has with St Barbara Mines. Red River said it was building a gold portfolio around its Thalanga copper and zinc assets, and Toro Energy updated its shareholders on gold exploration near the Bronzewing gold mine in WA.

There is absolutely nothing wrong with potash, copper and uranium companies seeing an opportunity in gold, but it is worth wondering whether they’ve left it too late or whether they’re just keen to get a lick of the flavour of the day.

At 2020’s halfway mark, the only other commodity to deliver a positive return was iron ore, up 9%, while coal was the big loser, down 23%.

What makes that coal fall particularly interesting is that it plays into the lithium-revival theme that is developing traction.

Two lithium events during the week were a reminder of comments made in mid-June by Pilbara Minerals boss Ken Brinsden that the world risked being “caught short” on lithium as demand rises and supply doesn’t.

The first of this week’s lithium developments was news that the world’s leading electric vehicle (EV) maker, Tesla, had passed Toyota to become the world’s most valuable car company with a stock-market value of $US205 billion versus Toyota’s $US200 billion.

The importance of consumer interest in Tesla and other EV makers is at the heart of the latest research from Citi, an investment bank, which reckons the price of lithium is “approaching a bottom” and should spring back over the next two years.

Citi expects a final 5% slide in the lithium carbonate price to $4800 a tonne in the current (third) quarter before rising by 42% to $UD7200/t in 2022.

Just as important as that spot-market price forecast is an estimate from Citi that lithium needs to reach $US9000/t to “incentivise” new production. In other words, there should be no new mines before the lithium price recovers, meaning that mothballed mines should have the field to themselves, for a while.

“Medium-term demand prospects for lithium are still bullish,” Citi said. “A 6% forecast drop in lithium demand this year is a small blip amid a 19% five-year compound annual growth rate in our base case and a 25% forecast (demand) surge in 2021.”

Lithium is not the only metal likely to emerge strongly from the Covid-19 crisis. Nickel is the hot tip from another investment bank, UBS.

Nickel has been moving higher since bottoming at $US5 a pound during the March sell-off of all assets, with last sales at $US5.75/lb, But that modest recovery could be just the start of a much higher move with UBS tipping $US7/lb next year – and up again in 2022 to $US8/lb.

Iron ore, the second-best performer of the past six months, received a second warning about a coming decline with Morgan Stanley picking up where UBS left off in last week’s edition of Prospector’s Diary.

The tip last week, based on a Chinese commodity consultancy’s forecast, was for iron ore to fall from $US100/t to $US75/t by Christmas. Morgan Stanley said this week that it expected $US80/t during the fourth quarter as Brazilian supply recovers.

Other market news and price-moving events included:

  • Paladin Energy won back a few supporters after years in the sin bin with a rise of 3c (33%) to 12c after revealing plans to restart its mothballed Langer Heinrich uranium mine in Namibia. Shaw and Partners reckon Paladin could more than double again as interest grows in uranium with the broker tipping a price of 26c.
  • Centaurus Metals reported a maiden 517,500 tonne resource at its Jaguar nickel project in Brazil comprising 48 million tonnes of material assaying 1.08% nickel. On the market, Centaurus added another 3c to 47c – up 85% on the stock’s 25c price early last month.
  • Rex Minerals rose by 3c to 10.5c after reporting the discovery of a new and large-scale gold trend at the Hog’s Ranch project in Nevada.
  • Great Southern Gold reported visible gold in drill core at its Cox’s Find gold project near Laverton in central WA. The stock added 4c to 14c on the news.
  • Sandfire Resources rose 4c to $5.01 thanks to a slightly stronger copper price and a management shuffle designed to position the stock for future growth at its emerging U.S. and African projects.
  • Strandline Resources booked another zircon sales deal to cement the financial side of its Coburn mineral sands project in WA, adding 1c on the market to 27.5c though that price was down slightly on the 12-month high of 29c reached in early trade yesterday.
  • Kalium Lakes and BCI Minerals filed upbeat reports during the week on their potash projects. Kalium Lakes said the resource in its Beyondie project had been upgraded. BCI said a feasibility study had confirmed the world-class potential of its Mardie project. On the market, Kalium Lakes added 3c to 17c while BCI was up 2c at 18c.
  • Westgold Resources said it sold approximately 65,000oz of gold in the June quarter, ending the period with $137 million after repaying its gold-loan debt in full. On the market, the stock added 4c to $2.25.
  • Legend Mining reported encouraging assays from drilling at its Mawson nickel, copper and cobalt project in WA with a best hit of 19.8m at 2.7% nickel, 1.8% copper and 0.13% cobalt. The stock added half-a-cent to 14.5c, and
  • MetalsX firmed a marginal one-tenth of a cent to 8.6c after reporting that it planned to sell all of its copper assets, including the ill-fated Nifty mine in WA’s north-west, and a refinancing proposal for its Renison tin mine in Tasmania.

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