Rising copper and nickel prices point to something much more significant than just a gold boom

Gold starred this week as it powered through the $US1800 an ounce price-ceiling, but it wasn’t alone.
10th July 2020
Tim Treadgold

Gold starred this week as it powered through the $US1800 an ounce price-ceiling, but it wasn’t alone. Copper and nickel marched higher, and that could mean that something more significant than a gold boom is underway.

The forces driving gold, perhaps to a record high of more than $US2000/oz, are well understood: economic and political uncertainty flavoured with fear of an outbreak of double-digit inflation.

Industrial metals, including iron ore, which refuses to lie down, are in another category and while an across-the-board revival in commodity prices is welcome, there is no simple explanation for what’s happening.

It is possible that a V-shaped recovery from the Covid-19 slump is underway, driven by Chinese growth and pandemic-linked mine outages, in which case copper offers the best exposure, but it’s also possible that gold is signalling more problems ahead, in which case a touch of gold is recommended.

Combining copper and gold is well-proven investment strategy and can be seen in the latest “most preferred” investment list compiled by Morgan Stanley, an investment bank.

Although the bank’s preference list provides a global view of mining stocks, it is significant that most offer exposure to both copper and gold – a sort of industrial + monetary insurance policy for uncertain times.

Australia’s Newcrest is the top pick of Morgan Stanley, but not just for its gold assets. Copper too got a mention. Two Chinese copper/gold players come next, China Molybdenum and Zijin Mining, with KAZ Minerals, Freeport and Grupo Mexico the other copper/gold stocks. Glencore, a diversified miner and trader, also made the list, as did iron specialist, Vale. BHP and Rio Tinto did not.

The appeal of a copper/gold combination could be seen on commodity markets this week as gold rose to peak of $US1815/oz before easing, while copper moved up to $US2.84 a pound, its highest since January – wiping out all of the Covid-19 fall.

Nickel wasn’t far behind with a US25c a pound rise over the week to $US6.06/lb a price which, like copper, was the highest since January.

On the gold front, the big news was the fresh flow of cash into gold-linked exchange-traded funds, with the World Gold Council reporting a seventh consecutive month of positive investment as 104 tonnes of metal were added to ETFs.

Credit Suisse, an investment bank, chimed in with a gold-price forecast of $US2200 based on a view that governments are “inflating their way out of a financial crisis” with negative interest rates here for the long haul, including a key US rate (Treasury Inflation-Protected Securities, or TIPS) already down to negative 2%.

Macquarie Bank is a little more cautious, telling clients yesterday that it sees gold moving higher but being more likely to trade in the $US1800/oz range with “a move towards $US2000/oz as a potential overshoot rather than a sustainable base case”.

Locally, the top gold stocks had an excellent week, led by Northern Star, which rose by $1.11 to $14.86. Saracen was up 43c to $6.26, Newcrest added $1.15 to $33.86 and Bellevue was up 18c to $1.12 before it unveiled a whopping $120 million equity raising to accelerate development of its high-grade Bellevue Gold Project in WA, which was also the subject of a maiden indicated resource of 860,000 ounces.

Fund raising was a feature of the week in the gold sector, with other capital raisings such as:

  • Bardoc’s $24 million share issue to advance permitting and front-end engineering at its namesake project near Kalgoorlie.
  • DevEx receiving $5.5 million to fund exploration in the Lachlan Fold Belt of NSW and the Julimar region of WA.
  • Mithril raising $3.5 million to expand drilling at its Copalquin project in Mexico.
  • Kingston finalising its $8.4 million raising with an oversubscribed $2 million share purchase plan, and
  • Antipa Minerals raising $3.27 million and striking a $30 million farm-in deal with Independence Group over its highly prospective copper and gold tenements in WA’s Paterson Province.

Encouraging as the latest developments in the gold sector might be, there was also a reminder that booms can produce unexpected events, with the most obvious at this stage of the game being a high number of “gold converts” – companies that were doing something else but reckon it’s time for a change.

The list of converts grew significantly during the week with:

  • Cobalt explorer Twenty Seven Co (the name is a giveaway, 27 is the atomic number for cobalt) reported sampling results from its new-found interest, the Rover gold project in WA.
  • Marquee Resources, a one-time lithium explorer, signed an option to buy a gold and nickel prospect near Wattle Dam in WA, raising $1.6 million in the process.
  • Auteco Minerals, a one-time vanadium explorer said it was raising $30.4 million to fund exploration work at the delightfully-named Pickle Crow gold project in Canada, and
  • Toro Energy, once a uranium hopeful, said it had completed a first-phase magnetic survey of its Yandal gold project in WA.

Production and profit results for the 2020 financial year which ended on June 30 started to flow this week, with a number of encouraging reports from companies such as:

  • Northern Star, which said it ended the year with $769.5 million in cash and bullion, a net cash position after allowing for $700 million in bank debt after producing 905,200 ounces of gold.
  • Saracen Minerals reported record full year gold production of 520,414/oz, comfortably ahead of the company’s 500,000oz target.
  • Gascoyne Resources produced 73,116oz of gold in the latest 12-months, and
  • St Barbara reported full year production of 381,887oz, well ahead of guidance.

Copper news was almost as encouraging as gold news with a number of reports that included:

  • Cyprium Metals recovering high-grade surface samples of copper at its Cue project in WA and while surface material is not necessarily a guide to what’s underground, assays as high as 13% copper are a useful pointer and a factor in the stock’s 7c rise to 20.5c.
  • Buxton Resources, with Independence Group, has restarted exploration at the West Kimberley nickel and copper project, helping the stock add 0.5c to 7.9c, but with stockbroking firm Hartleys tipping a price target of 12c.
  • PolarX said it would soon start a fresh round of drilling at its Zackly copper-gold project in Alaska. The stock was steady at 4c, and
  • New World Resources reported thick massive sulphides at its Antler prospect in the U.S. The stock was steady at 1.3c.

OZ Minerals led the way among copper stocks with a rise over the week of 46c to $12.02, followed by Sandfire, which added 18c to $5.15.

Other news and market-moving events during the week include:

  • Chalice Gold added 25c to $1.15 after reporting a new intersection of high-grade platinum group metals, copper and gold zone at its Julimar discovery near Perth. Bell Potter, just before the latest announcement, described Chalice as “two great discoveries for the price of one”, tipping a future price of $1.30.
  • Ausgold had overdue success at its Katanning gold project in WA’s wheat belt with assays up to 13.67 grams of a gold a tonne over 5 metre from a depth of 120m at the Jinkas South Lode. The stock rose by half-a-cent to 4.4c.
  • Focus Minerals put on 4c to 27c after reporting an 81% increase in gold resource in its Greenfields open pit near Coolgardie in WA, and
  • Mineral Commodities reported encouraging assays from the latest drilling at its Tormin mineral sands project in South Africa, ahead of a resource statement scheduled for the current quarter. On the market, the stock added 4c to 26c.

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