Record EV sales see lithium stocks make one more dart for 2021 finish line

Lethargy ruled on the Australian stock market this week as investors started to pack up for the Christmas trading break, though not before placing fresh bets on a handful of battery metal stocks while casting a wary eye over gold miners as higher official
16th December 2021

Lithium led the way in the battery sector, though this time with a relatively new player, Kalamazoo Resources, doing best with a rise of 3.5c to 38c after announcing an exploration deal with Chile’s lithium champion SQM over an exploration project in WA’s Pilbara region.

Though only a grass roots undertaking, the Kalamazoo deal near the historic gold mining centre of Marble Bar is significant because of SQM’s reputation as a major producer of the metal and its 50% stake in the rapidly developing Covalent joint venture in the south of WA with Australian conglomerate, Wesfarmers.

Pilbara Minerals was another lithium winner with rise of 27c to $2.75 amid reports of record-breaking sales of electric vehicles and growing concern about a global shortfall in lithium supply, while Allkem, the new name for the merged Orocobre and Galaxy, put on 50c to $9.12.

Also getting into the latest round of the lithium exploration rush was gold explorer, Tulla Resources, which struck a deal on ground close to its Norseman project in WA with Mineral Resources, which is keen to grow its lithium business.

Internationally, the big news in battery metals was the unveiling of a plan by Galp, a Portuguese oil company, and Northvolt, a Swedish battery producer, to develop Europe’s biggest lithium processing plant in another sign of the drive to replace fossil fuels with renewable energy and battery storage.

Next year should see more of the same as the overarching energy transition thematic drives demand for all battery metals, including nickel, copper, cobalt and manganese.

Nickel in particular could be the headline maker as corporate activity swirls around the metal, led by this week’s all-cash $3.36-a-share offer from IGO for Western Areas, and Fortescue Metals raising its offer for Canada’s Noront Resources to $C1.10 in an attempt to finally beat off BHP for a nickel prize in Ontario.

Prices for all battery metals have moved up over the past 12-months. Lithium, in its carbonate form, has tripled to more than $30,000 a tonne, with S&P Global Market Intelligence tipping a continuation of the trend thanks to an expected supply shortfall next year amid soaring demand.

Other themes likely to emerge in’22 include the potential for a continuation of the gold price slide with this year’s $UUS120 an ounce fall to around $US1770/oz likely to be replicated with gold dropping back below $US1700/oz.

This week saw a taste of what’s to come as investors adjusted their gold exposure after the strongest hints yet from the U.S. central bank that it will soon end bond market support while penciling in three rates rises next year, three more in ’23 and two more in ’24.

Gold traders reacted with uncertainty to the bank’s plan with some seeing a chance for one last hurrah before the rate rising process starts, bidding gold up from a midweek low of $US1762/oz to a high on Thursday of $US1781/oz, roughly were it was on Monday. But as the higher rates kick in, gold will take a hit.

Rising interest rates will be one of the big issues for ’22 but there is a long list of other likely market-moving events for investors to watch out for next year, including:

  • Profit-eating cost increases which have already battered the Iron Bridge project of Fortescue Metals and this week set back the Woodlark gold project in Papua New Guinea of Geopacific Resources, which warned of a “material increase in capital costs.”
  • A slow easing of clogged transport routes which have added to the costs burden and led to shortages of key items of equipment, complex technology items such as computer chips and simple equipment such as wooden pallets and shipping containers.
  • Ongoing problem with outages at major mining projects with a close eye being kept on South American copper projects and South African iron ore and manganese, and
  • What seems to be a never-ending round of Covid scares with the latest Omicron variant forcing a return to lockdowns and governments breaking their promises about opening up which will pile pressure onto an already tight labour market.

 

Offsetting the challenge of rising costs and a global skills shortage is the promise of more discovery news to match the Gonneville nickel and palladium find of Chalice on the outskirts of Perth, the Kathleen Valley lithium deposit of Liontown in outback WA and the potentially game-changing Emmie Bluff Deeps copper discovery of Coda Minerals in South Australia.

Looking back, the year was marked by a significant (and overdue) correction in the iron ore price which had ballooned out to an unsustainable $US230 a tonne but is now back to a still handsomely profitable $US109/t and the gold price correction, which was magnified on the stock market as investors ducked for cover, rubbing 20% off the gold-stock index on the ASX.

News and market moves of interest this week included:

  • Lunnon Metals adding 2c to 40c after reporting an encouraging drill hit in the first hole drilled at its East Cooee project near Kambalda in WA. Assays are pending but Lunnon said the hole had encountered 1.9 metres of high tenor (grade) nickel sulphides from a depth of 168m.
  • Miramar Resources said it had outlined two large iron oxide copper gold targets at its Whaleshark exploration project in the Gascoyne region of WA. The targets are said to be under about 100m of cover, a shallow depth which should minimise drilling costs. On the market, Miramar added 3c to 22c.
  • Encounter Resources put on 2c to 15c after reporting high grade copper from surface samples over 6km at its Sandover prospect in the Northern Territory. The samples assayed up to 20.9% copper but more importantly are located in a setting and of an age similar to copper deposits in the prolific Zambian copper belt.
  • AIC Mines has increased the mineral resource at its Eloise copper mine in Queensland to 103,500 tonnes of copper metal and 93,300oz of gold, a 58% lift after incorporating additional survey data.
  • Altura Mining returned to the ASX after is ill-timed failure last year, just before the lithium price took off. Key assets are the Mallina lithium project in WA and the Fish Lake Valley lithium project in the U.S. First sales of the relisted Altura after re-listing where booked at 1.6c, before the stock slipped to 1.2c.
  • Lucapa added 1.1c to 10c after completing the acquisition of the historic Merlin diamond project in the NT. The stock has now doubled in six months thanks to a strong increase in diamond prices.
  • Sovereign Metals said its Kasiya rutile deposit in Malawi was now a globally significant project with an upgraded calculation lifting the mineral resource to 304 million tonnes at 1.02% rutile with another 301m/t at 0.93% in the inferred category. On the market, Sovereign added 2c to 58c.
  • Venture Minerals added 0.3c to 4.1c after reporting a record drill hit of 147m at 1% tin from a depth of 90m at its Mount Lindsay project in Tasmania.
  • Centaurus Metals boosted the resource at its Jaguar nickel project in Brazil to 730,700t of metal as part of a fresh resource estimate. The stock added 2.3c to $1.10, and
  • Genmin rose by 2c to 20c after signing a non-binding deal to supply four million tonnes a year of iron ore from its Baniaka project in Gabon, a west African country which has also attracted the attention Fortescue Metals Group which this week signed a deal to study the potentially big Belinga iron ore project.

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