Palladium and iron ore find favour on back of cars and Covid

Corporate moves, including takeovers and fund raising, took the limelight this week as the destabilising effects of the Covid-19 pandemic continued to hit most commodity markets, except gold.
15th May 2020
Tim Treadgold

Corporate moves, including takeovers and fund raising, took the limelight this week as the destabilising effects of the Covid-19 pandemic continued to hit most commodity markets, except gold.

Chalice led the fund-raising, attracting $30 million in fresh capital to accelerate work at its promising Julimar palladium and nickel discovery near Perth.

Such is the interest in Julimar and palladium that Chalice could have raised more than double what it accepted with applications for the new shares, priced at $1.05, totalling $75 million.

Institutional and professional investors who subscribed for the fresh capital are in front already with Chalice, after a fall to $1.08 on Monday, storming back to $1.19 yesterday.

What might have encouraged the rush to get more Chalice shares was a fresh study of the palladium market by Citi, an investment bank. It reckons the metal, mainly used as a catalyst in cars with petrol engines, will rise from its current $US1835 an ounce to $US2500/oz in the next six-to-12 months, with the potential to hit $US2700/oz.

It appears to be a different story with one of Australia’s emerging potash hopefuls, Kalium Lakes, which last week was seeking $60 million to complete construction of its Beyondie project in WA at a heavily-discounted price, perhaps as low as 15c, which would be 70% down on last on-market share sales at 49c.

Potash is one of the commodities whacked by Covid-19 uncertainty with farmers around the world reported to be limiting their applications of the crop fertiliser in order to husband their spare cash.

On the takeover front, the big deal of the week was a zero-premium merger of locally-listed Alacer Gold and Canadian-based SSR Mining (formerly Silver Standard Resources), which values the combined companies at $US1.7 billion.

Macquarie Bank, in a report which suggested merger and acquisition activity would be a consistent theme in the gold sector for the rest of the year, said its top gold picks among established producers were Evolution (for its low costs) and Saracen (for production growth).

That wasn’t a bad tip, with Evolution rising during the week to a 12-month high of $5.61, before easing back to $5.47 for a gain of 6c, while Saracen rose to a 12-month high yesterday of $4.83 before easing to $4.71, up 25c in the week.

Macquarie’s top juniors are Westgold Resources (up 11c this week to $2.21) and West African Resources, which ran out of puff, shedding 8c to 74c, though the fall came after a after strong increase from 41c in early April.

Iron ore stocks staged a late rally as reports emerged of another potential setback for Brazil’s mining industry as an outbreak of Covid-19 threatens to hamper its big iron ore industry, adding to woes that started with a series of tailings-dam collapses.

Fortescue Metals, with a share-price rise of 30c to $12.16, was the major Australian winner from the latest events in Brazil which helped lift the benchmark iron ore price back above $US90 a tonne. Mineral Resources eased early in the week but stormed back over the last two days with a rise of 43c to $16.97.

Other resources-sector “themes” to develop traction during the week included:

  • Copper is a commodity with attractive investment fundamentals, according to one of the world’s biggest goldminers, Mark Bristow, chief executive of Barrick Gold. “The gold price is up and the copper price is down, so there are bound to be opportunities,” he told London’s Financial Times newspaper.
  • Silver continues to reclaim some of the ground lost against its sister precious metal gold. After plunging to an 11-year low of $US11.62 an ounce in mid-March silver is now back to $15.56/oz. That means the gold/silver ratio which had blown out to 125-times (the ratio is determined by dividing the price of an ounce of gold by the price of an ounce of silver) – the highest in more than 300 years, is back to 109-times, and
  • Zinc could be poised for a correction after an unexpected rise triggered by short-sellers being forced to buy back into the market, according to Morgan Stanley, an investment bank. The rally had pushed zinc to more than $US2000 a tonne with Covid-19 disruptions at a number of mines squeezing supply but as mothballed mines return zinc will be more exposed to weak fundamentals.

Overall, the Australian market has had a reasonable week considering the backdrop of a sharp (but expected) increase in unemployment and the negative sentiment created by the trade dispute with China which has, so far, only hit agricultural exports.

Gold was the strongest sector with the ASX gold index rising by 5% whereas the broader metals and mining index could only manage a rise of 0.5% and the all ordinaries was down 1%.

Other newsworthy developments and market moves included:

  • Alderan Resources, Castle Minerals and Triton Minerals receiving “speeding tickets” from stock exchange regulators after sharp share-price moves. Alderan, which is exploring for copper and gold in the U.S. doubled from 1.9c to 3.7c. Castle, which announced a deal late last month to buy two WA gold projects, also doubled from 0.5c to 1c, before easing back to 0.7c, and graphite developer Triton rose from 3.5c to 5.5c.
  • Centaurus Metals came within sight of its 12-month share-price high of 26c after releasing more encouraging assays from its Jaguar nickel project in Brazil, including 14.9 metres at 2.94% nickel from a depth of 56.8m. After the brush with its high, Centaurus eased back to 24c, a gain of 3c.
  • Capricorn Metals touched a 12-month high of $1.53 on Wednesday amid growing interesting in its Karlawinda gold project in WA, before easing to $1.45 for a gain over the week of 13c.
  • Rex Minerals added 1c to 6.5c after upgrading the resource at its Hogs Ranch gold project in the U.S. to 1.4 million ounces in 97.6 million tonnes of material averaging 0.45g/t.
  • Mincor rose by 2c to 64.5c but could go higher if analysts at Bell Potter, a stockbroking firm, are right about the quality of the company’s Cassini nickel discovery at Kambalda in WA. The brokers see Mincor rising to 87c.
  • Sultan Resources gained 2.5c to 10c after reporting plans to accelerate exploration at its recently acquired tenements in the Lachlan Fold Belt of NSW.
  • Tietto Minerals reported encouraging results from metallurgical test work at the company’s Abujar gold project in Ivory Coast. On the market, the stock added 2c to 38c.
  • New World Resources was steady at 1.4c after reporting more high-grade copper assays from its Antler copper project in the U.S., including 13.25m at 3.45% copper and 5.2% zinc from a depth of 128.3m, with useful grades of lead, silver and gold.
  • Horizon Minerals added 1c to 9.1c after reporting the start of development at the Boorara gold project near Kalgoorlie in WA. The small project is expected to yield up to 9000oz of gold at a cost of around $A1640/oz.
  • Tanga Resources added 0.5c to 1.9c after reporting encouraging results from gold sampling on its Damara project in Namibia, and
  • Carawine resources slipped 1c lower to 19c despite reporting promising gold assays from drilling at its Hill 800 project in north-east Victoria with a best hit of 67m grading 2.94g/t of gold and 0.1% copper, from a depth of 231m.

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