Spectacular results from the small end of town give investors some much-needed cheer

High-quality discovery news, successful capital raisings and confident buy tips have been rare commodities over the past month, but the past few days have seen signs of normality returning to a badly-bruised resources sector.
27th March 2020
Tim Treadgold

High-quality discovery news, successful capital raisings and confident buy tips have been rare commodities over the past month, but the past few days have seen signs of normality returning to a badly-bruised resources sector.

It wasn’t all good news, it never is, with leading gold producer, Northern Star, suffering a “coronavirus-related” setback which rubbed the gloss off its share price.

But, on the positive side of the ledger Chalice Gold led the way up with a doubling of its share price after reporting exciting nickel, copper and palladium assays from drilling at its Julimar prospect on the outskirts of Perth.

Poseidon, a genuine blast from the past, followed yesterday with a similar market-moving event thanks to the intersection of strongly mineralised material within its Black Swan nickel project on the outskirts of Kalgoorlie in WA’s Eastern Goldfields region.

Assays are pending on Poseidon’s discovery, but Chalice thrilled its followers with 19 metres at 2.6% nickel, 1% copper and 8.4 grams of palladium per tonne from 48m down its first hole at Julimar, enough to lift the stock from 16c to 49c, down slightly on a 12-month high of 54c reached early yesterday.

More work is required to gain a better understanding of what Chalice has discovered but the company will attract increased attention because Julimar could be the key to unlocking what might be a new mineral province on the edge of the Darling Range just 70km from Perth.

Canadian-based Sprott Equity Research used one word to describe Julimar: “remarkable”. Red Cloud, another research firm, said it viewed the discovery as “extremely positive”.

On the flipside, Northern Star reminded investors that life in the real world is tough with the job of moving workers and supplies to remote locations becoming increasingly difficult, leading to a deferred dividend, dropped production guidance and a sharp share-price correction which rubbed $2 off the stock as it slipped back to $11.57.

Interestingly, it wasn’t just field reports which put a spark back in the market, with investors opening their wallets to support several fund-raising approaches.

Bellevue Gold, thanks to the excellent underlying economics of its namesake gold project in WA, received firm commitments for a $26.5 million raising, following on from Anglo Australian getting $5.5 million to fast-track its Mandilla gold project, and Strandline Resources securing $6.5 million for its Coburn titanium minerals project.

A burst of positive news in the gold sector was to be expected after the $US100 an ounce increase in the price over the past week which lifted gold back over the $US1600/oz mark, and took the Australian gold price to more than $A2700/oz.

Gold was not alone in moving higher with industrial metals such as copper and nickel showing signs of shaking off persistent sellers. Copper added US10c to move back to $US2.15/lb and nickel also added US10c to $US5.10/lb.

Multiple factors continue to drive commodity markets with uncertainty about when the fight against the coronavirus will end with optimists pointing to three developing situations; China’s slow-but-steady return to business after its severe lockdown, Sweden’s experiment with what might be called “lockdown light”, and pressure from U.S. President, Donald Trump, to end America’s lockdown at Easter.

How those situations play out will be a key to what comes next but there is a growing trend among investment banks to advise clients that the sell-off has gone too far and buying opportunities are emerging, starting at the top end of the market, as these examples demonstrate:

  • Goldman Sachs telling clients that both BHP and Rio Tinto are trading at commodity prices last seen in the 2008 global financial crisis which, in today’s dollars, would need iron ore to fall to $US70 a tonne (it’s currently $US84.50/t), copper to sell for $US2/lb and metallurgical coal for $US130/t (it’s $US170/t). The bank has both of the big miners as buy tips.

 

  • Morgan Stanley published three “research tactical ideas” on Wednesday, telling clients that it believed the stocks mentioned “would rise in absolute terms” over the next 60 days. BHP, now at $30.98 is expected to reach $36.15. OZ minerals, now at $7.37 is expected to reach $10, and Iluka Resources, now at $7.41 is expected to reach $10.05.

Separating what happens in Australia from international events is impossible at a time of global confusion over assets values and a flood of monetary and fiscal stimulus and while that might all seem to be bad news there are flashes of encouraging developments, such as:

  • South Africa closing its mining industry for three weeks which will remove surplus minerals and metal from the global market and clear the way for Australian producers to plug the gap, assuming output can be maintained.

 

  • Peru also forcing the closure of its mining industry which could have a significant effect on copper supplies.

 

  • Chile’s mining champion, and world’s biggest copper producer, Codelco, warning that it could be forced to limit copper output in the coronavirus clampdown,

 

  • The Democratic Republic of Congo, a major producer of copper, cobalt and a number of other minerals, moving to restrict its mining industry in the coronavirus fight – just as its last Ebola virus patient is discharged.

 

Of those international events it is the mothballing of South Africa which could give Australian miners their biggest boost, especially those producing iron ore and manganese.

 

Last year, South Africa accounted for 50% of the world’s manganese and 4% of globally-traded iron ore. Other minerals and metals likely to be affected are rhodium (80% comes from South Africa). Platinum (70%). Chrome (60%), and Palladium (35%).

Gold, the metal seen as the biggest winner from the coronavirus crisis, is earning more supporters as a “currency of last resort” with $US1800/oz seen as the next target by big banks such as Goldman Sachs, along with a fresh burst of takeover activity which started in Canada earlier this week with Endeavour Mining agreeing to a $US690 million merger with Semafo.

In what’s been yet another difficult week for investors it has been encouraging to see a steady flow of positive news and share price increase, most modest, but some outstanding, such as Chalice’s doubling. Other moves and news events of note included:

  • Tietto Minerals almost doubling with a rise from 12c to 22c after reporting strong gold assays from its Abujar project in West Africa with a best hit of 10m at 12.09g/t from a depth of 286m with a high-grade core assaying 29.65g/t over 4m.

 

  • Red 5 rising by 6c (33%) to 24c after announcing a resource update and more high-grade assays from its King of the Hills gold project in WA. The emerging development now has a proven resource 4.1 million ounces.

 

  • Mincor delivering a similar performance to Red 5, adding 10c (25%) to 50c after reporting a 132% increase in nickel reserves to 65,400 tonnes which follows fresh high-grade drill hits at the Cassini project.

 

  • Pilbara Minerals said it had signed an additional offtake deal for the delivery of lithium from its Pilgangoora project, a deal which lifted the stock by 2c to 16c.

 

  • New Hope Corporation continued to defy critics of the coal mining industry, adding 28c to $1.30 after reporting a 33% increase in coal production and a better-than-expected profit of $213 million for the six months to January 31, and

 

  • Hot Chili adding half-a-cent to 1.5c after announcing a processing deal with the Chilean Government’s national mineral agency for material mined from Hot Chili’s Productora copper and gold project.

 

 

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