Strong corporate results and exploration successes bump against global economic and security fears
Australian investors crept out of their foxholes yesterday after a confidence-sapping week under a barrage of heavy fire that included news of soaring inflation, slowing growth, rising interest rates and higher taxes
28th April 2022
Not to forget the potential for a change of government next month.
Nuggets of good news from explorers could be found if you dug deeply. Coda Minerals added 3.5c rise to 65c after reporting more high-grade mineralisation at its Emmie project in South Australia and BMG added an impressive 2.4c (66%) to 6c thanks to a thick and rich gold intersection at its Abercromby project near Wiluna in WA.
Upward moves were, however, the exception as most sectors of the market traded lower when looked at over the week, weighed down by bad news which cast a pall over the latest set of remarkable measures of just how well Australia is performing on the global economic stage.
According to an analysis of data published by the International Monetary Fund, Australia is knocking on the door of membership to an exclusive club of the world’s 10 richest countries.
Bernard Salt, a demographer and regular contributor to The Australian newspaper, found that on a per head basis Australia is already in the top 10, ranked third behind Switzerland and the U.S. and while that sort of information might not effect investment decisions, it is a reason to invest locally because this is where the fast growth can be found.
International economic and security conditions were the biggest drag on financial markets this week and will probably remain the major negative factor for the rest of the year, especially if the Ukraine war drags on and if China’s Covid outbreak is not reined in.
Overall, the Australian market as measured by the all-ordinaries index was down 4.8% in the middle of the week before yesterday’s bounce reduced the fall to 3.3%, back to where it was in November. The metals and mining index, which covers the major mining stocks, was down 6.2% thanks to hefty falls over the week by leaders such as BHP, Rio Tinto and South32.
Even the energy index, which covers the sector benefiting most from the Ukraine war, ran out of puff this week as fear of a global recession overpowered hope for higher oil and gas earnings.
Woodside Petroleum, Australia’s top gas stock, was the star of the sector with a rise of 60c (2%) yesterday after Russia cut gas deliveries to Poland and Bulgaria and threatened to do the same to the rest of Europe in a bold blackmail attempt. But even with Thursday’s price increase, Woodside was still down $2.10 (6.3%) for the week at $31.24.
As an investment thematic, energy remains the sector which will prove hardest to beat over the rest of 2022 thanks to the effects of the Ukraine war, a lack of investment in new oil and gas projects and slow growth in renewable energy installations.
Uranium is also a beneficiary of energy transition but even the nuclear fuel was hit by investors heading for the exits this week with the most widely traded form of uranium (yellowcake) falling by $US7 a pound to $US53/lb, taking local U-stocks with it, including Paladin down 15c to 78c, Deep Yellow, down 16c to 95c and Boss Energy, down 48c to $2.53.
A feature of the week was the continuation of reporting season with a flood of quarterlies hitting the market, led by the last of the big iron ore miners, Fortescue Metals, which impressed with strong shipments of 46.5 million tonnes (up 10% on the previous quarter) while holding cash costs to a very competitive $US15.78 per wet tonne, a 3% increase, good enough to lift the share price yesterday by $1.35 to $21.46.
Some analysts remain unimpressed with Fortescue’s performance, partly out of concern for its huge investment in hydrogen as a future energy source, but also because of fresh cost blow-outs and completion delays at the Iron Bridge magnetite project. RBC Capital Markets retained a sell tip on the stock and a price target of $16.
Sandfire was another stock which pleased investors with its latest quarterly which revealed strong copper production with the first contribution from the recently acquired MATSA project in Spain. On the market, Sandfire added 62c (11.8%) yesterday to $5.83, wiping out losses from early in the week. RBC enthused in its first assessment of the quarterly, tipping a target price for the stock of $8.50.
A common theme in the recent company reports is the debilitating effect of rising costs on most operations, a problem which is likely to dog all Australian businesses until higher interest rates squeeze the excess cash out of the system – a process which will bring its own problems.
Gold stocks did not escape the sell-off as the price of their metal lost $US50 an ounce to trade around $US1882/oz, back to where it was two months ago.
Newsmakers and interesting movers in the gold sector, included:
- BMG, as mentioned earlier, was up 2.4c to 6c after hitting 31 metres at 6.18 grams of gold per tonne from a depth of 116m at its Abercromby project near Wiluna in WA.
- Ausgold failed to hang on to an early rise yesterday after reporting encouraging intersections at its Duggan prospect near the south-west WA town of Katanning with a best assay 7m at 4.05g/t. The stock closed at 6.8c, down 0.5c
- Northern Star was hit by a wall of selling after a poorly received quarterly report which featured ongoing cost problems at its Pogo mine in Alaska. The stock dropped $1.75 (15%) over the week to close at $9.70.
- Evolution was another gold leader sold down after a weak March quarter result with Covid staff shortages and heavy rain a factor in a flat production report. On the market, the stock lost 46c (10%) to $4, and
- Perseus reported record production of 130,523oz of gold for the March quarter, only to slip 10c lower to $1.91.
Lithium stocks had a mixed week with the star attraction being newly listed Lithium Plus which is backed by China’s big battery maker CATL.
The 25c share issued by Lithium Plus first traded on Tuesday at 68c before rising to a peak of $1.03 and then slipping marginally to 99c, delivering a profit for stags of close to 300%.
Other lithium news and moves included:
- Pilbara Minerals hitting production guidance as well as booking a record price of $US5650/t for a shipment of 5.5% spodumene concentrate from Port Hedland. On the market, Pilbara clawed back 7.5c yesterday after an earlier sell off to close down 19c at $2.68 for the week.
- Green Technology Metals raised $55 million in the U.S. for work on its Thacker Pass project in Nevada. The stock slipped 3c lower over the week to $1.15, and
- Sayona Mining reported the discovery of a new lithium-bearing pegmatite at its Moblan project in Canada, but still slipped 3.5c lower on the market to 34c.
Coda, as mentioned earlier, was the pick of the copper stocks with its 3.5c rise to 65c after expanding the bornite (high grade copper) zone at its Emmie project.
Stavely Minerals was another copper stock moving up against a downward trend with a 2c rise over the week to 42c after reporting high grade intersection at its Cayley Lode project in Victoria with a best hit of 10.4m at 4.34% copper plus 3.17g/t gold and 11g/t of silver from a depth of 421.1m.
Other copper news and moves included: Aeon Metals, down 1.8c to 5c after putting on hold a study into its Walford Creek project in Queensland and Sunstone, down 0.8c to 6.7c despite reporting more strong assays from drilling at its Alba project in Ecuador.
Most share prices were down this weak as financial markets struggled with waves of bad news but three stocks to swim against the tide were:
- Mt Gibson Iron, up 2.2c to 67c after reporting an upbeat March quarter report with increased output and higher ore grades expected as the year progresses.
- Eastern Metals, up 3c to 23c after reporting the intersection of encouraging zinc grades from drilling at the Browns Reef project in NSW with a best hit of 13m at 5.4% zinc, plus 2.3% lead and 0.14% copper from a depth of 453m, and
- Bathurst Resources, up 0.5c to $1.18 after reporting solid March quarter coal production. Bell Potter is tipping a future price of $1.63.
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