Rolling bottoms a welcome sight for investors’ sore eyes

A “rolling bottom” might sound like a medical condition but it’s actually one of the more encouraging signs of normality returning to financial markets
8th May 2020
Tim Treadgold

A “rolling bottom” might sound like a medical condition but it’s actually one of the more encouraging signs of normality returning to financial markets.

First observers to spot the feature, also known as a “rounding bottom” on graphs which track the world’s economy, were analysts at the investment bank, Morgan Stanley.

In a report on the health of global manufacturing, the end-market for Australia’s natural resource exports, the bank asked earlier this week: “Did April mark the bottom for manufacturing purchasing managers indices?”

The answer to that question was yes. Despite the global manufacturing index falling to 39.3 in April future (a PMI reading below 50 signals economic contraction) future readings are expected to be higher.

“We believe the global economy is moving through a rolling bottom, with China having bottomed in February and the U.S. and Europe likely to have followed in April,” Morgan Stanley said.

Another clue pointing to financial markets having bottomed can be found in the two major indices which track the Australian stock market: the all ordinaries and metals and mining.

Over the past month they have inched higher, but have essentially been flat since bottoming in late March. The all ordinaries index is up by slightly less than 0.5% over the past four weeks. The metals and mining index is up a modest 2.8%.

Whether those moves are signs of Australia’s own version of a rolling bottom will take time to determine, though the trend appears to point to the start of a U-shaped recovery.

The depth of the downturn, caused largely by Covid-19 lockdowns, continues to reverberate through most countries but if the analysis of forward-looking banks is correct then it is possible that the economic shock might not be as bad as 2008 when the global PMI fell to a reading of 36.

Interestingly, Morgan Stanley was not alone in using PMI readings to assess the outlook for financial markets. UBS, another investment bank, said the latest PMI measures confirmed that China was consolidating above a reading of 50 (signalling expansion) even as the rest of the world contracted.

On the market this week, it was gold stocks which once again delivered best results with an impressive list of companies hitting 12-month share price highs thanks to the gold price sitting above $US1700 an ounce until yesterday, when it eased back slightly.

Among the better performers were:

  • E2 Metals, which almost doubled with a rise from 9c to 15.5c after reporting encouraging assays from drilling at its Mia prospect in Argentina, including 8 metres at 7.46 grams of gold a tonne, plus 216g/t of silver. The discovery zone is just 15km from Anglo American’s world-class Cerro Vanguardia gold and silver mine.
  • Catalyst Metals added 23c to $3.06 after releasing fresh assay results from drilling at its Four Eagles gold project in Victoria with two intervals of more than 100g/t, and one at a record 275g/t.
  • Antipa Minerals rose to a 12-month high of 2.3c, up 0.5c over the week, thanks to interest growing in its joint venture with Rio Tinto at the Citadel project in WA’s Paterson Range.
  • Cygnus attracted an overdue following after its partner, Gold Road Resources, reported encouraging, but low-grade, gold assays from drilling near Lake Grace in the south of WA. Best intersection was 8m at 1.06g/t, good enough for Cygnus to add 1.5c to 5.2c.
  • DevEx Resources gained 0.5c to 9.1c after reporting strong rock-chip samples over a four-kilometre strike at the Basin Creek copper and gold project in NSW.
  • St Barbara said it would proceed with the sulphide phase of its Simberi gold project in Papua New Guinea, a move which helped lift the stock by 10c to $2.52 and with Citi, an investment bank, tipping a future price of $3.
  • Perseus Mining added 9c to 99c after the delivery of an upbeat presentation at a virtual resources conference at which the company’s managing director, Jeff Quartermaine, hinted at the start of dividend payments once the company’s flagship Yaoure project in Ivory Coast started production later this year, and
  • Bardoc Gold rose by 1.2c to 7.8c after reporting significant assays from drilling at the Mayday North satellite project in WA, with a best hit of 25.7m at 2.2g/t from a depth of 79.7m.

Corporate activity, including fund raising and mergers, also attracted investor attention, led by a takeover bid for Alt Resources from privately-owned Aurenne Group. Acceptance of the all-cash offer of 5.05c a share, more than double Alt’s price of 2c at the start of the week, has been recommended by the Alt board.

St George Mining saw its shares ease back by 1.1c to 8.9c after announcing a $5.2 million capital raising to fund work at its Mt Alexander nickel project in WA, whereas Tempus Resources added 2c to 20c after saying it had raised $4 million to fund its gold projects in Canada.

Uranium stocks continued to attract attention as the price of the nuclear fuel firmed, led by Deep Yellow which added another 2c to 27c, more than double the stock’s price of 12c in mid-March – but looked at another way, just back to where it was at the end of last year.

Most other uranium stocks firmed slightly over the week. Paladin rose by 1c to 12c. Vimy added half-a-cent to 5.2c, and Marenica Energy was up 1c to 6.7c after reporting high-grade uranium and gold assays from drilling at the Minerva prospect in the Northern Territory with a best hit of 11m at 4218 parts per million uranium from a depth of 129.5m.

Manhattan Corporation, another stock best known a few years ago as a uranium explorer, hit a 12-month share-price high of 1.2c on Wednesday before settling at a steady 0.9c – but largely thanks to plans to start drilling for gold in NSW.

Chalice Gold remained squarely in the sights of investors with another 14c added during the week, taking the palladium explorer to $1.24 as highly encouraging assay results continue to roll in, along with a report of exciting visual results from deep drilling at the Julimar project in WA.

Iron ore producers firmed amid reports of strong steel demand in China, led by Fortescue Metals which added 70c to $11.42, effectively shaking off the bad press which followed comments by its chairman, Andrew Forrest, defending China’s role in the Covid-19 pandemic.

Adriatic Metals rose by 12c to $1.27 after extending its discovery of massive sulphide mineralisation at the Rupice polymetallic project in Bosnia with the latest assays including 8.9m at 2.4g/t of gold, 398g/t of silver and 1.79% zinc from a depth of 368.5m, and

Rare earth stocks returned to the headlines during the week:

  • Lynas Corporation announced that it was restarting its Malaysian processing plant, news that helped lift the stock by 13c to $1.79, and
  • Impact Minerals reported extensive rare earth mineralisation from drilling at its Red Hill project in NSW, helping the stock to double from 0.8c to 1.6c.

 

 

 

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