Nickel hits 7-year high but mounting troubles in China cloud commodities outlook

Nickel led the way this week with its price at a seven-year high, followed by fresh moves in a takeover duel pitting BHP against Andrew Forrest, but the more important development was news the house prices in China fallen for the first time in seven years
21st October 2021
Tim Treadgold

While not directly affecting Australian investors, yet, falling home values add to China’s problems of soaring energy costs and the potential collapse of a big property developer.

Those events will be making Chinese consumers feel poorer and therefore less liable to spend which will have an effect on companies selling material to China, while rising costs in its manufacturing industry will see China start to “export” inflation.

ANZ Bank is the latest financial institution to draw a connection between China’s woes and the Australian economy, warning that a slowdown in China “which feeds into a sustained drop in commodity prices could means a period of below trend growth for Australia”.

It’s not happening, yet, but recent developments in a number of markets, especially energy, where prices for oil, gas, and coal have rocketed, are piling pressure on China. Oil this week traded up to $US86 a barrel (more than double the price of 12-months ago) while lithium is rising even faster.

Interest in oil and coal stocks is at a multi-year high as investors re-think the pace of energy transition and the potential for a slowdown.

Strong production reports and rising revenue for the local leaders, Woodside and Santos, were capped this week by a takeover bid for mid-tier oil producer, Senex, from an arm of Korea’s big steel maker, Posco, which helped Senex’s share price rise by 67c to $4.47, higher than the $4.40 offer from Posco and a possible pointer to a rival offer.

Coal stocks went the other way even as the price for thermal quality material remained above $US230 a tonne with the negative factor being a threat from the Chinese Government to release material held in government stockpiles – a suggestion which knocked 32c off the price of Whitehaven Coal, taking it back to $2.94.

Nickel, a member of the new energy group, rose by 4.5% over the week to $US20,960 a tonne with the key being a steep slide in supply with stockpiles at multi-year lows and production dropping thanks to a strike at Vale’s Canadian mines and reduced output by Russia’s metal leader, Norilsk.

The rising price came as Forrest and BHP traded bids for Canadian-based Noront Resources. First move came from Forrest, who upped his offer to C70 cents, winning the support of the Noront directors, followed by BHP pitching C75c, which saw the Noront board change camps immediately and recommend BHP.

The game, which is all about winning access to what could be a major nickel discovery in northern Ontario, could have further to run with Noront last trading on the Toronto stock exchange at C82c, indicating that investors expect Forrest to counter BHP’s bid, a game that can be played until someone blinks and the smart money says BHP will be the drop out.

Other nickel news this week included:

  • The release by Nimy Resources of its prospectus seeking up to $7.5 million to help fund exploration on its Mons prospect near the historic BHP iron ore mining centre of Koolyanobbing in WA. Early work by WMC resources and more recent drilling by Nimy has revealed hints of Kambalda-style nickel mineralisation.
  • Panoramic Resources reporting the production of first nickel, copper, and cobalt concentrate from the re-developed Savannah mine in the north of WA, news which lifted the stock by 2.5c to a 12-month high of 25c, and
  • Western Areas and Mincor joining the nickel rush with price increase of 10cc and 4c respectively to $3.39 and $1.40.

Lithium stocks had a solid week, driven by a combination of battery demand for electric vehicles and the overall increase in energy prices. Pilbara Minerals, which also announced an investment in a major solar power array at its Pilgangoora mine, added 10c to $2.15. Liontown was up 4c to $1.63 and Orocobre rose by 41c to $9.06.

Potash was another sector in the news, but not entirely for the right reason, with Salt Lake Potash finally succumbing to equipment failures at its Lake Way project and receivers appointed.

It was a different story at BCI Minerals, which gave the go-ahead for its Mardie salt and potash project, which lifted the stock by 7c to 51c, while Australian Potash added 2.5c to 13c on reports that the European potash price has risen by 45% over the last three months to $US760 a tonne thanks to a sharp increase in the price of gas needed to produce the fertiliser.

Gold and silver had a good week with discovery news and corporate activity attracting more interest than a modest rise for gold of around $US20 an ounce to last sales at $US1787/oz, while silver added US80c to trade around $US23.95/oz.

Lode Resources, a silver explorer, was the best of the precious metal stocks with a sharp increase of 24c (162%) to 38c after reporting strong lead, zinc and silver drilling result from its Webbs Consol project in NSW.

Apollo Consolidated was the centre of corporate action after Gold Road crashed a party organised by Ramelius Resources which had a bid on the table for Apollo priced at 56c a share, but in a mix of cash (34c) and shares. Gold Road’s offer is 56c cash.

As with the battle for Noront in Canada it seems that investors are expecting a counter bid from Ramelius with Apollo shares trading on the market at 58c.

In other gold news:

  • Sunstone added 1.4c (24%) to 6.7c after filing a well-received September quarter report which highlighted the gold and copper drill results from its El Palmar project in Ecuador which included 163.55 metres assaying 0.71 grams of gold per tonne and 0.2% copper (1.05g/t gold equivalent).
  • Western Gold reported near surface high grade gold intercepts at its Gold Duke project near Wiluna in central WA with a best hit of 11m at 3.8g/t from a depth of 26m. On the market, the stock added 3.5c (20%) to 21c, and
  • Northern Stare eased back by 19c to $9.54 after reporting what analysts called a soft quarter, but with the stock retaining buy tips from banks such as Credit Suisse, which reckons it is on track to trade up to $11.65.

Iron ore had a mixed week with two big-name banks talking it down. Morgan Stanley reckons the immediate threat is not so much demand but the prospect of the global majors, including BHP and Rio Tinto, to continue expanding output to capitalise on their market dominance which could threaten smaller producers.

Jefferies, another U.S. investment bank, added to the negative sentiment by downgrading the world’s big four of iron ore, Vale and CSN of Brazil, and Australia’s leaders, BHP and Rio Tinto.

Other news and market moving events (up and down) included:

  • London-listed Alien Metals added 15-pence (21%) to 85p after reporting a positive scoping study for its Hancock iron ore project in WA’s Pilbara region. The British company reckons its needs just $US30 million to develop a mine producing 1.25 million tonnes a year at an operating cost of less than $US60/t.
  • Zenith Minerals reported additional high-grade zinc and lead assays from drilling at its Earaheedy joint venture in WA with a best hit of 15m at 4.02% zinc and lead combined plus 4.86g/t of silver. On the market Zenith added 1.5c to 25c.
  • Jupiter Mines added 1c to 24c after reporting a major boardroom shakeup which saw the removal of form BHP chief executive Brian Gilbertson as a director along with Jupiter’s managing director, Priyank Thapliyal. Euroz Hartley sees Jupiter rising back to 40c, in line with manganese prices. Macquarie leans the other way tipping a fall to 22c.
  • Walkabout Resources lost 1c to 19c despite reporting the star of drilling at the Blackcraig silver, lead, and zinc project in Scotland. The region produced metals as far back as the early 18th century, and
  • Duketon Mining rose by 2c to 41c after reporting high grade assays from the latest drilling at its Rosie project in WA, including 4.14m at 1.18% nickel, plus 0.36% copper and 1.42g/t palladium group metals.

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