Rock stocks rocked on talk of return to near-normal interest rates and Chinese threats to unleash metal stockpiles

Exploration and discovery news will become more important than ever for investors in Australian resources after this week’s intervention by China in commodity markets followed by another warning from the U.S. that higher interest rates are on the way.
18th June 2021
Tim Treadgold

The Chinese plan to sell surplus material from government stockpiles of critical metals such as copper and nickel has had a dampening effect on prices, while the U.S. central bank’s interest rate signal mean that gold faces a tough time.

Both of those events at the top of the investment food chain had been widely expected as markets rattled by the Covid-19 pandemic start to normalise, radiating out ripples of uncertainty.

Gold, the commodity/currency closely followed by Australian resource sector investors, took a hammering with a $US50 an ounce fall immediately after the latest meeting of U.S. Federal Reserve and the release of a report which indicated the start of rate rises next year, 12-months ahead of earlier expectations.

Since recovering a recent price peak of $US1902 an ounce, gold has been trending down, losing $60/oz this week to around $US1820/oz thanks to the prospect of higher interest rates and a stronger U.S. dollar.

Gold miners, as expected, lost ground as investors factored in the impact of next year’s start of an interest rate rising cycle which will negate the possible boost to gold from an increase in inflation.

Sector leader Newcrest lost 67c over the course of the week to $26.88. Evolution fell by 18c to $4.78 and Northern Star was off 62c to $10.41.

Smaller gold stocks were less effected, demonstrating why investors interested in gold might have more fun following explorers in the next phase of the market than established producers in what is an example of it being better to travel than to arrive.

Genesis Minerals added 0.5c to 7.4c on the strength of encouraging assays from its Puzzle North discovery in WA, with a best hit in the latest round of drilling a 40-metre intersection at 2.52 grams of gold a tonne from just 44m.

Bellevue Gold, which is developing its namesake project in WA, lost 3.5c yesterday but a strong performance early in the week saw it add 1.5c to 81c over the last five trading days.

Lefroy Exploration, which has attracted attention with its promising Burns gold strike south of Kalgoorlie, was steady at $1.15. Antipa Minerals was also steady at 4.4c after reporting that exploration drilling was underway on all four of its Paterson Province projects in WA, while Mithril Resources, crept 0.1c higher to 1.7c after reporting high-grade gold assays from drilling at its El Cometa project in Mexico.

Other commodities were more effected by the Chinese decision to start selling industrial metals from State-controlled stockpiles as a means to helping manufacturers hurt by high commodity prices.

Copper, the key industrial metal, dropped by US30 cents a pound this week to $US4.29/lb, taking the fall since early last month to US60c/lb. Nickel and zinc both fell while aluminium, which is being squeezed higher by power shortages in China, added $US35 a tonne to $US2472/t.

Local copper stocks were bruised by the fall in the price of the metal. OZ Minerals was down $2.17 to $23.01. Aeris lost 0.7c to 21c and Sandfire lost 47c to $6.80 but found a friend in Macquarie Bank which noted the shifting focus from the DeGrussa mine in WA to the Motheo project in Botswana, a move which means the bank has kept Sandfire as a buy with a price target of $8.90.

Potash returned to the headlines yesterday after BHP released an updated and optimistic report on the fertiliser sector which has been widely interpreted as a sign that it’s about to give its $6 billion Jansen project in Canada a final go-ahead.

Smaller potash players were largely unmoved by the news of a big new producer entering their market, Kalium Lakes and Salt Lake Potash were steady at 26c and 39c respectively while Danakali was sold down by 3.5c to 45c. Agrimin went the other way adding 5c to 52c after announcing that wind power near its Lake Mackay project in central WA would enable it to deliver low carbon potash.

Iron ore continued to defy the pessimists by moving back up to $US220 a tonne, not that it did much for local miners of the material, perhaps a sign that most investors expect a substantial fall at some point in the next six-to-12 months.

Fortescue Metals was steady over the week at $22.40. Champion Iron lost 23c to $6.25. Fenix slipped 1c to 31c while Mt Gibson was the exception with a 4c rise to 88c.

Battery metals were buffeted by the weaker tone to the market which was aided by pre-June 30 selling. Pilbara Minerals slipped 4.5c lower to $1.33, though Macquarie stuck with its price target of $1.50. Orocobre lost a hefty 98c to $5.74 and Independence Group was off 26c to $7.09 but could go lower with Morgan Stanley listing it as a sell with a target of $6.35.

Fund raising by the resources sector shows no sign of slowing with 30 mining stocks named on the Australian stock exchange notice board as being on their way to a listing over the next month, though whether that’s a good sign or an indication of a crowded market is an arguable point.

Deals of most interest this week included a $56 million raising by well-connected OreCorp to fund completion of a definitive feasibility study into its Nyanzaga gold project in Tanzania, a Chinese-led bid for Myanmar Metals and a decision by Galena Mining to proceed with the development of its Abra silver/lead/zinc project in WA.

Other news events and market moves of interest included:

  • E79, a Canadian-listed gold explorer operating in Australia rocketed $C1.09 (294%) to $C1.46 after reporting a spectacular drill result of more than two kilograms of gold a tonne (2430 grams a tonne) from drilling at its Happy Valley project in Victoria.
  • Iluka Resources added 30c to $8 on news of rising prices for its zircon and rutile. Other mineral sands stocks edged up, including Base which rose by 1c to 33c.
  • Firefinch added 7.5c to 48c after announcing a plan to jointly develop its Goulamina lithium project in Mali with China’s Ganfeng Lithium.
  • New Hope Corporation led the coal sector higher with a rise of 8c to $1.88 as the price of both thermal and metallurgical coal continued to gain ground. Goldman Sachs reiterated its buy tip on New Hope.
  • Cobalt Blue slipped 2.3c lower to 32c after raising $15 million in fresh capital via a share issued priced at 30c.
  • Firebird Metals eased back by 3c to 62c despite announcing encouraging fieldwork at its Ragged Hills manganese project in WA’s Pilbara region with a selection of high-grade rock chip samples assaying up to 62% manganese.
  • Element25 was 14c weaker over the course of the week to $2.14 even as it trucked out its first load of material from its Butcherbird manganese project for shipping from Port Hedland, and
  • Hastings Technology Minerals slipped 1c lower to 16c despite reporting encouraging metallurgical test work on material extracted from its Yangibana rare earth project.

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