One old and one new, iron ore and battery metals loved by many and a few

Gold regained a little of its recently-lost ground, but the more interesting developments on markets this week were the seemingly unstoppable rise of iron ore
11th December 2020
Tim Treadgold

Gold regained a little of its recently-lost ground, but the more interesting developments on markets this week were the seemingly unstoppable rise of iron ore and a reminder that battery metals is a sector with great growth potential.

Independence Group, which already has a foothold in nickel, one of the key ingredients in batteries, demonstrated its determination to dive deeper into the sector by snapping up a 24.9% stake in the world’s biggest and best lithium mine at Greenbushes in WA.

The complex deal will also see Independence acquire a stake in Australia’s first lithium hydroxide plant nearing completion at Kwinana, south of Perth.

With trading on hold pending a big capital raising to help pay for the $1.9 billion acquisition from troubled Chinese company Tianqi Lithium, investors are yet to pass judgement on the merits of the move by Independence, which has been itching to expand its battery metals exposure.

Other lithium stocks had a solid week despite late weakness. Pilbara Minerals, knocked flat earlier this year during the early stages of the Covid-19 pandemic, hit a two-year share price high of 89c on Wednesday before easing to 85c for a week’s gain of 7c. Orocobre rose to a 12-month high of $4.25 before dropping sharply to $3.97 and Galaxy repeated the move with a rise to $2.26 followed by a fall to $2.04 for a gain over the week of 10c.

What worries investors about the latest lithium rush is a feeling that they’ve seen it before, a stampede into battery-metal deals, followed by over-investment, a flooded market and a price crash.

In WA alone there are several big lithium projects on the sidelines looking for a way in, including a re-start of the mothballed Wodgina mine, a commitment by Wesfarmers to its lithium project and the re-start of small, previously failed mines such as the Bald Hill project, which has been acquired by a U.S. company from the receivers of Alita Resources.

Nickel and graphite also caught the battery-metals bug this week, fired by rising prices, corporate deals and a rush of fresh funding.

Andrew Forrest used a small portion of his iron ore fortune to continue re-building his nickel interests, which faded after problems at the Murrin Murrin project he developed and then sold to Glencore. This time around, Forrest has exposure to Poseidon Nickel and Mincor in WA and a freshly acquired 22.7% stake in Canada’s Noront Resources, which has assets in an emerging nickel province in northern Ontario.

Locally, nickel stocks moved up with the price of the metal, which topped $US7.50 a pound for the first time since the middle of last year. Mincor added 9c to $1.08, down on its 12-month high of $1.14 reached on Tuesday. Western Areas traded up to $2.58 before fading to be steady at $2.44, and Centaurus rose by 3c to 60c after reporting strong drill result from its Jaguar project in Brazil.

Graphite, a sometimes-forgotten member of the battery-metals family, also had a good week following the latest hugely bullish set of forecasts from Benchmark Mineral Intelligence which expects electric vehicle battery demand to grow from 200,000 tonnes a year to three million tonnes in 2030.

Encouraging as that forecast might be, the immediate concern of investors is the same as with lithium, a re-run of the over-supply event which trashed the price three years ago. Talga, a recent graphite star, shed 10c to $1.78, perhaps influenced by a fresh round of funding support for Syrah Resources, a potential rival, which sucked in a fresh $56 million despite years of underperformance. Syrah stock was in a trading halt at the end of the week.

Iron ore, as mentioned, had a good week thanks to China’s steel industry showing signs of suffering a supply shortfall, which can been seen in severely reduced port stocks which have pushed the price of high-grade ore to more than $US150 a tonne, exactly A$200/t at the latest exchange rate. At this time last year, iron ore was selling for $US84/t.

On cue, Fortescue Metals rallied with the iron ore price to hit an all-time high of $22.58 yesterday for a gain over the week of $2.10 and a stock market value of $69 billion, displacing ANZ Bank at $65 billion and hot on the heels of Westpac at $72 billion. Andrew Forrest, with his 36.25% stake in Fortescue, would rank 15th on the list of ASX companies if it were possible for an individual to be listed on the stock exchange.

Other iron ore stocks rode the price higher. The big two, BHP and Rio Tinto, hit 12-month price highs of $42.68 and $116, respectively. Mineral Resources reached a high of $35.89 on Monday before fading to $34.80 while Deterra Royalties lost 16c over the week to $4.98, well down on Monday’s all-time high of $5.35, and CZR Resources, led by former Atlas Iron boss David Flanagan and backed by prominent prospector, Mark Creasy, rose by 0.3c to 1.5c after announcing a positive pre-feasibility study into its Robe Mesa iron ore project in WA.

Gold rose to a three-week high of $US1868 an ounce on Tuesday but was trending down later in the week, leaving the share prices of most players in that sector largely where they started the week, with a few exceptions.

Gascoyne Resources managed a 2c rise to 45c after reporting high grade drilling results close to its Dalgaranga mine. Breaker added 1c to 19c thanks to encouraging in-fill drill results at its Bombora project which pave the way for an April resource upgrade, but most other moves were modest, or down, including S2R which dropped by 7c to 18c despite reporting a reasonable gold intercept in the first deep hole at its Aarnivalkea project in Finland.

Copper stocks were steady, as was the price of the metal at around $US3.46 a pound, which appears to be taking a break after a hectic run up from $US3.20/lb three weeks ago. Among the copper miners, Sandfire was steady at $5.70 but did receive a solid buy tip from Canaccord which sees a future price of $6.50. OZ Minerals slipped 13c to $18.60 despite releasing a positive prefeasibility study into its West Musgrave project.

Other news events and market moves were modest, thanks to a marked decline in companies filing updates at the stock exchange, a sign that the Christmas slowdown has started. Among the more interesting reports were:

  • Citi, a leading investment bank, warned clients that the 30% uplift in global mining equities over the past month meant that it would be a lot harder to find value over the next few months, but reckoned gold would move back towards $US2100/oz over the next six-to-nine months.
  • ANZ Bank added its end-of-year opinion to the mix, tipping base metals such as copper and nickel being in the “sweet spot” of rising global demand.
  • Lucapa Diamond Company edged up by 0.2c to 5.7c thanks to the recovery of more big diamonds from its part owned Mothae mine in Lesotho and the Lulo mine in Angola. The lack of investors reaction to the twin reports of stones weighing more than 100 carats a piece spoke volumes about the lack of interest in diamonds.
  • Uranium stocks rose early in the week despite the uranium price falling, a disconnect which could presage a recovery in the sector or be a case of irrational exuberance. Deep Yellow added 4c to 46c and Lotus rose by 1c to 9.8c as the uranium price eased by US5c to $US29.50 a pound, and
  • Panoramic Resources slipped 1c to 13c despite raising at least $12 million from the sale of dormant Panton palladium project in the north of WA. Panton could reappear soon if the new owner, Great Northern Palladium. lists on the ASX, which seems likely.


Image: BHP Iron Ore

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