Rising energy costs and interest rates hang over investors

28th October 2021
Tim Treadgold

Energy (ancient and modern) dominated news flow this week in the lead up to next week’s climate change gabfest in Glasgow, and while important from a long-range perspective, it was another whiff of rising interest rates which affected short-term trading.

Canada is the latest country to signal an end to its monetary stimulus (bond buying) and bringing forward its plan to increase interest rates, a process initiated two weeks ago by New Zealand and likely to be copied next year by Australia, according to ANZ Bank.

The combination of rising energy costs as the world struggles to end its fossil fuel addiction and the prospect of more expensive money knocked the wind out of basic raw materials such as the metals used in construction and transport.

Copper, always a useful barometer for changes in the finance weather, dropped back to $US4.44 a pound yesterday, taking its decline over the past week to US34 cents (7%).

Nickel, another favourite of Australian investors, moved back below the $US9/lb mark to $US8.91/lb, off U61c (6.4%) in a week.

Oil joined the sell-off party, shedding the best part of $US3 a barrel over the past two days to be back at $US83/bbl.

Gold, always a safe haven at times of change, had a solid week, taking a peek above $US1800 an ounce, before settling around $US1797/oz, while the Australian gold price struggled to move back above $A2400/oz, weighed down by the local currency rising back towards US75c.

Investors would be wise to expect similar choppy trading conditions for the rest of the year as fundamental changes are made to monetary and energy policies.

Lithium produced the biggest news events of the week, led by Pilbara Minerals finalising plans for a downstream chemicals facility in Korea with Posco, one of that country’s biggest companies, plus another record-breaking online auction of spodumene concentrate with a cargo of 10,000 tonnes fetching $US2350/t.

That double-dose of good news helped Pilbara add 3c over the week to $2.14, a price which was down 10c on the mid-week high of $2.25.

Mineral Resources and its U.S. partner, Albemarle Corporation, followed Pilbara’s development news by announcing a timetable for the re-start of operations at the mothballed Wodgina project in WA, though first concentrate is not expected to be produced until the third quarter of next year.

What should have been a good news week for Mineral Resources turned sour when the company reported a poor iron ore sales result as buyers slashed the price of its low-grade iron ore, knocking the company’s share price down by $1.40 to $38.11.

Other lithium-exposed stocks had a mixed week in the lead up to the Glasgow conference where renewable energy and battery metals are expected to be stars of the show. Liontown added 23c to $1.87 while Orocobre slipped 15c to $8.94.

Vulcan Energy, a lithium star of the past 12-months, was in the news for the wrong reason after a U.S.-based short-seller circulated a strongly critical research note, forcing Vulcan into a trading halt while a detailed reply is prepared. The stock last traded at $14.99.

J.P. Morgan, an investment bank, reported the most interesting lithium-related news this week in a research note which said that almost 25% of vehicles sold in China, the U.S. and Europe in September were EVs.

Copper news this week was led by New Century Resources taking on the daunting challenge of revitalising the historic Mt Lyell mine in Tasmania, a job likely to prove more challenging than its zinc tailings project at Century mine in Queensland. Investors were unimpressed with the Mt Lyell deal, snipping 0.3c off New Century’s price, which retreated to 16c.

Sandfire fared a little better in a falling copper market by trading at a steady $5.53 after reporting solid September quarter production numbers which prompted RBC Capital Markets to refresh its buy tip and target share price of $7.50.

Nickel, as mentioned earlier, pulled back below $US9/lb, taking most nickel stocks with it. Mincor slipped 2c lower to $1.35 after delaying the start of ore deliveries to BHP’s concentrator. Centaurus shed 3c to $1.09 even though it announced an expanded footprint near its Jaguar project in Brazil, and Poseidon was 1.4c weaker at 9.6c after reporting high-grade assays from the latest drilling at its Black Swan project in WA.

Morgan Stanley, an investment bank, said it was a cautious about the short-term outlook for nickel as Chinese stainless steel production declines and supply disruption fades, but saw a rebound next year with “upside emerging to our first half forecast of $US8.63/lb”. The bank’s bull case, if Indonesia increase export taxes, is for nickel to hit $US12.20/lb.

The Morgan Stanley “barometer” of future commodity-price performance has nickel as its sixth-best performer after lithium at No.1, followed by uranium, platinum, aluminium and palladium. Bottom of the pile are iron ore and hard coking (metallurgical coal).

Thermal, or electricity-producing coal, is half-way down the list of commodities, largely because of Chinese demand, a point picked up by another bank, Jefferies, which described the thermal coal market as “the calm before the storm” with demand expected to surge as the northern winter bites.

Iron ore price discounting which buffeted Mineral Resources caused fewer problems for Fortescue Metals, which reported strong September quarter production and a higher-than-expected average realised price of $US118 a tonne for its ore, a result which stabilised the stock’s share price at $14.08.

Most gold producers held their ground this week as the price edged high. Northern Star added 7c to $9.43. Evolution rose by 4c to $3.69. Silver Lake put on 11c to $1.69 while St Barbara slipped 4c lower to $1.47 after revealing plans for a new mine close to its Leonora mine in WA.

Other news and market-moving events this week included:

  • Thinly traded Latrobe Magnesium, which plans to produce the ultra-light metal in Victoria, shot up by 2.3c (70%) to 5.6c thanks to a global shortage of magnesium which is an essential in the production of aluminium.
  • Chalice Mining added 6c to $6.82 as interest grows in resource modelling for its Gonneville nickel, copper, and palladium project.
  • Strandline Resources was steady at 20c after reporting solid progress on construction work at its Coburn mineral sands project in WA. Shaw and Partners said the project was on time and on budget, reiterating a buy tip and 71c price target.
  • Alicanto added 1.5c to 16c after releasing previously unpublished Swedish Government assays covering its Sala zinc and silver project which featured bonanza grades of up to 87 metres grading 5.3% zinc, plus 40 grams per tome of silver.
  • Emmerson Resources reported visual native copper in core taken from the latest drilling at its Hermitage project near Tennant Creek in the Northern Territory. On the market, Emmerson rose by 1.5c to 8.3c.
  • West African Resources lost 9.5c to $1.27 after announcing a capital raising to help pay for the acquisition of the Kiaka gold project in Burkina Faso as part of a plan to become a 400,000 ounce-a-year gold producer.
  • Westgold Resources increased its takeover bid for Gascoyne Resources with the target adding 7c to 47c while Westgold put on 3.5c to $1.94, and
  • Gold Road said it had added two years to the planned life of the open pit mine at its Gruyere project in WA, news that added 6c to Gold Road’s share price, which reached $1.37.

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