Punters peer past politics, pandemics and public protests to push up prices

Gold took a back seat to other commodities this week as investors decided that the Covid-19 pandemic is over and it’s time to make some money.
5th June 2020
Tim Treadgold

Gold took a back seat to other commodities this week as investors decided that the Covid-19 pandemic is over and it’s time to make some money.

It might be stretching the point but one interpretation of recent events is that financial markets have “de-coupled” from politics and assorted health and public order concerns such as those seen in US unrest.

This flip to riskier assets could be tested in the second half of 2020 but right now there’s a rush underway which can be seen in rising share prices, a blizzard of deals and local fund raisings, as well as the remarkable performance of the US market even as troops patrol the streets of some cities.

More than a dozen capital raising programs were launched by small to medium mining stocks this week, along with big ticket deals such as Aeris embarking on what could be a company-making deal with the $125 million acquisition of the Cracow gold mine from Evolution Mining.

Despite its lowly pre-deal market value of just $23.2 million, Aeris is boldly raising funds for the acquisition through a combination of a share placement and high-cost bridging finance carrying an 11% interest rate (gulp!).

The fund raisings, which included share issues by Titan Minerals, Lucapa, St George, Peninsula Energy, Legend Mining, Auroch Minerals and Antippe Resources, are being driven by the improved performance of the market and a need for some smaller companies to get their balance sheets in order before June 30.

Gold, which has had a stellar run over the past 12-months, fell by $US30 an ounce to hover around the $US1700/oz mark, but was hit more severely on the local market thanks to the Australian dollar moving towards US70c.

The combination of gold down and dollar up saw the Aussie gold price plunge by $A150/oz to A$2469/oz, taking with it most gold mining stocks such as Evolution, which dropped by 40c to $5.64. Newcrest was down $1.10 to $29.13 and Northern Star fell $1.30 to $13.40.

Normally gold-friendly Macquarie Bank expressed concern about the gold market in a note which pointed out how gold was “struggling” for traction at prices below $US1750/oz but was holding “relatively firmly despite continued risk-asset recovery”.

Unlike its tip sheets of a few weeks ago, a large number of the gold stocks followed by Macquarie have been shifted into the neutral category, including Gold Road, St Barbara, Silver Lake and Perseus – which was in deal mode this week via the acquisition of Exore Resources in a $60 million transaction which will extend the life of the Sissingue mine.

Among the industrial metals, it was iron ore to the fore again this week as Brazil struggled to restore normal output and Chinese demand for steel continued to grow – a perfect combination for the benchmark ore price to reach $101 a tonne and for Fortescue Metals to reach an all-time high of $14.88 on Tuesday, before easing fractionally.

UBS, in its latest iron ore report, said the steel-making material would remain well-supported for the rest of 2020, a view shared by Morgan Stanley, which is tracking the spread of Covid-19 in Brazil that has led to labour shortages at mines and ports.

Copper, the bellwether base metal, added another US5c to $US2.46 a pound this week despite some weakness towards the close to now be up US16c over the past four weeks and US40c since the mid-March low point of $US2.10/lb.

Nickel also continued its strong upward move, rising by US20c/lb to $US5.66/lb, giving local nickel stocks a boost. Western Areas added 5c to $2.35 while Mincor added 2c to 72c before easing to 70c. Nickel Mines was steady at 53c but Bell Potter maintained a buy tip and a price target of $1.08.

The new-found confidence in commodities is largely a result of China’s fast recovery but what worries some analysts is that the rest of the world is not yet following.

Lithium stocks continued their climb out of the cellar as part of the improving overall mood of the market. Pilbara Minerals, which had fallen as low as 14c in March traded up to 30c this week before settling at 29c for a gain of 3c. Galaxy added 5c to 83c.

Alumina and titanium minerals, two important commodities which are not always well followed, are heading higher as demand grows for aluminium and paint, the ultimate end market for titanium minerals.

UBS this week upgraded Alumina from neutral to buy, lifting its price target for the stock to $2.10, which is 38c up on last sales at $1.70.

Like iron ore, aluminium is on “Brazil watch” as Covid-19 threatens the operations of Alcoa and Norsk Hydro with Morgan Stanley telling clients that it is a “fluid situation which merits monitoring”.

Goldman Sachs dusted off its Iluka recommendation with an upgrade from neutral to buy and a price forecast of $10.10, up $1.05 on last sales of $9.05.

On the fund-raising front, most deals were modest to miniscule. Xantippe Resources’ $1.25 million placement to accelerate drilling at its Southern Cross gold project in WA was typical as was Auroch’s $2 million share issue to fund work on its nickel project.

Bigger fund raisings which have the potential to deliver a meaningful boost to operations came from:

  • Legend Mining, which pulled in $20 million from a placement at 14c a share with the fresh funds earmarked for work on the company’s Rockford and Mawson projects in the Fraser Range of WA. On the market, legend added 1.5c to 16.5c over the week.
  • Peninsula Energy raised $40.3 million at 7.1c a share with the funds to be used to extinguish debt and support work on the Lance uranium project in the U.S. On the market, Peninsula eased back by half-a-cent to 9.1c.
  • American Pacific Borates raised $US30 million to fund construction of the first phase of its Fort Cady borate mine in California. The ASX-listed stock slipped 3c lower to 64c though that price is still four-times higher than the late-March price of 14c, and
  • Titan Minerals raised $14.5 million for work on its gold projects in Ecuador. On the market, Titan eased back by 0.6c to 6.5c.

Discovery and development news helped a number of stocks gain ground, led by Aurelia Metals, which added 14c to 47c after reporting encouraging assays from its Kairos and Peak gold projects and Federation base metals project in western NSW.

Best assay from Kairos was 23 metres at 28.4 grams a tonne from infill drilling, while the best assay from Peak drilling was 6m at 39.9g/t. Work at Federation included 22m at 37.6% combined zinc and lead.

Other market moving discovery and development news included:

  • Musgrave Minerals reporting bonanza grades from drilling at its Starlight prospect near Cue in WA with assays up to 112.9g/t over 12m from a depth of 36c, with a 6m core of 143g/t material – good enough to see the stock add 9c to 24c.
  • Hastings Technology Metals added 4c to 14c after signing a long-term agreement with the German car parts supplier Schaeffler Technologies, and
  • Perenti Global added 20c to $1.40 after Canaccord Genuity told clients that Perenti subsidiary Barminco had reported to its debt providers that it was tracking ahead of expectations. Canaccord reckons that Perenti is heading for a share price of $1.81.

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