Market pre-empts benefits of a Biden victory, with strong focus on battery and technology metals

Battery metals and rare earths could emerge as the big winners if Joe Biden is confirmed as the winner of the U.S. Presidential election
6th November 2020
Tim Treadgold

Battery metals and rare earths could emerge as the big winners if Joe Biden is confirmed as the winner of the U.S. Presidential election, though the more likely winner in the short term will be gold as market volatility rises until all votes are counted and legal claims resolved.

With policies that clearly favour renewable energy over fossil fuels, a Biden-led government will accelerate the shift to electric cars, wind turbines and solar panels. Coal, oil and gas will be the big losers from the shift.

For investors, that creates an opportunity to ride a wave of demand for copper, nickel, lithium, graphite and the family of elements produced by rare earth specialists such as Lynas Corporation.

A glimpse of the new order, should Donald Trump lose his legal appeals to challenge Tuesday’s election, could be seen on the Australian market this week as most rare earth and lithium stocks edged higher.

Lynas, the rare earth leader, hit a 12-month high of $3.03 on Wednesday before easing under profit-taking pressure to close at $2.96 for a gain over the week of 16c.

Australian Strategic Materials, the spin from gold producer Alkane Resources, was another strong rare earth performer, rising 29c to $3.45, a closing price down on the mid-week high of $3.58.

RareX, Greenland Mining and Arafura also rose modestly as investors regained interest in rare earths and their key market of emerging technologies where they fulfill essential roles such as the permanent magnets in electric motors.

Copper, nickel and lithium, essential metals in rechargeable batteries, had a mixed week with local copper stocks hit by reports of a Chinese ban on Australian metals.

Sandfire, which said it was unaware of the possible Chinese action, was hit hardest, shedding 38c to $4.22. OZ Minerals lost 4c to $4.90.

Whether China pursues a policy of cutting Australian supplies of minerals as well as food and fibre will be one of the most keenly watched development in the early days of a Biden administration, assuming he makes it to the White House.

Banning imports of specialty products such as rock lobster and wine make good headlines, but the reality is that both sides in a trade war pay a price, as the U.S. has discovered in its war with China.

According to a study by the Federal Reserve of New York (an arm of the U.S. central bank) and Colombia University, the trade war has cut the value of U.S. listed companies by $US1.7 trillion, equivalent to a 6% fall in the value of the Standard & Poor’s top 500.

That drop is a result of “lower profit margins, lower wages and fewer jobs as well as higher prices for U.S. consumers”.

An Australia v China trade war might also produce an unexpected result as a midweek study by the investment bank, Morgan Stanley, demonstrated.

While China can cut imports of some minerals and farm products, it can’t cut iron ore because Australia supplies 60% of global seaborne trade and Brazil could not fill the gap. The same could be true with metallurgical (steel making) coal with 55% of world seaborne supply coming from Australia.

Companies which China wants to hit will quickly find alternative markets because of the high quality of what Australia produces and the relatively small share of the global markets. Only 4% of the world’s copper is shipped out of Australia and 9% of the world’s nickel.

The next few weeks are likely to see an increase in investor concerns about U.S. political uncertainty, always associated with a change of government in the world’s biggest economy – if, in fact, there is a change.

That’s why gold and U.S. Treasury bonds have seen a fresh inflow of cash given their shared safe-haven roles.

Gold, for example, oscillated between $US1913 an ounce and $US1888/oz as the election count progressed before settling around $US1907/oz.

In theory it could go higher, but a lot depends on whether the U.S. President (whoever that turns out to be) signs a whopping economic stimulus package which could debase the U.S. dollar and drive gold higher.

Australian gold producers reacted positively to the U.S. election coverage and the renewed upward trend in the gold price with moves that included: Saracen adding 23c to $5.80. Bellevue rising by 11c to $1.24, and Northern Star putting on 70c to $15.42.

Gold explorers also had a solid week with a number of noteworthy moves, including:

  • Wiluna Mining adding 11c to $1.81 after reporting an upgraded resource at its namesake gold project in WA of 8.04 million ounces in ore averaging 1.63 grams a tonne with a high-grade measure of 4.24m/oz at 4.89g/t.
  • Alkane Resources lifted the number of ounces in its Roswell deposit in NSW by 50% to 660,000oz made up of 10.1 million tonnes of material grading 2.04g/t. On the market, Alkane added 14c to $1.34, and
  • Tesoro Resources rose by 6c to 32c after reporting high-grade assays from drilling at its El Zorro gold project in Chile with best hits of 4m at 5.34g/t from a depth of 142m contained within a broad zone of 0.75g/t over 61m.

Iron ore stocks had a mixed week. Sector leader Fortescue Metals fell by 78c to $16.64, with the steepest part of the decline coming just after speculation of fresh Chinese cutbacks on Australian exports.

It was a different story for newly listed royalty owner Deterra which added 30c to $4.22 as investors warmed to the pure cash stream which flows from royalties.

Events in the iron ore market went largely unnoticed during the media coverage of the U.S. election but one development could prove to be significant and that’s the remarkable closing of the gap between high-grade and low-grade ore.

Earlier this year, low-grade ore grading 58% iron and less was being discounted by more than 20% compared with high-grade (62%) ore. Trading over the past week saw the gap narrow to 2% as Chinese steel mills scrambled for supplies to catch high profit margins on steel in a fast-growing Chinese economy.

Other developments of interest which moved the market up, or down, included:

  • Talga cemented its status as a leader in the development of graphite materials for the battery industry with a pair of mid-week announcements covering a joint venture in Sweden with that country’s top miner, LKAB, and Japan’s Mitsui, plus the backing of the British Government for a study into a battery anode refinery. On the market, Talga added 14c to $1.24. The stock has now doubled since mid-August.
  • Western Areas clawed back 3c of the 50c lost after heavy selling which followed a poor September quarter report effected by a seismic event in its Flying Fox nickel mine in WA. Two big-name investment banks, Credit Suisse and Canaccord saw the fall as a buying opportunity with the stock tipped to rise from last sales of $1.94 to $2.35 (CS) or $2.50 (Canaccord), and
  • SolGold reported a whopping 570m intersection assaying 0.69% copper from near the surface in its first hole at the Porvenir prospect in Ecuador. The London-listed but Australian-based explorer has attracted the interest of several major mining houses, including BHP and Newcrest, but the new drill result failed to move the market with SolGold slipping 5-pence lower in London to 31.35 pence.

 

 

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