Strong economic figures take shine off gold but highlight upside for industrial metals

17th April 2019
Tim Treadgold

Gold down, iron ore up - perhaps with a lot further to go. In a nutshell, they were the highlights of an Easter holidays-shortened week on the Australian stock market.

The gold fall, which might easily be called a lowlight, could turn out to be a precursor to higher prices in a range of industrial metals because the reason behind the $US30 an ounce drop to around $US1278/oz was stronger than expected Chinese and US economic data.

Iron ore, the star since the start of 2019, will be among the winners if the China v US trade war proves to be less damaging than feared – not that the steel-making material needs another boost after production outages in Brazil and Australia.

The impact of the iron ore shortage can easily be seen in the share prices of producers which rose strongly even as March-quarter production fell.

Rio Tinto, for example, reported on Tuesday that iron ore output in the three months to March 31 was 21% less than the December quarter and 14% less than the March quarter last year.

On the stock market, Rio’s share price moved back above $100 for the first time in a decade thanks to the iron ore price hovering just below the $US100 per tonne mark, and even though Rio slipped to around $96.70 yesterday, it is still $20, or 25%, up on the price at the start of 2019.

BHP and Fortescue have enjoyed similar share price surges courtesy of the iron ore price, which some investment banks believe could soon clear the $US100/t mark, and perhaps hit $US120/t if Chinese stockpiles drop too low and steel mills are forced to into emergency buying – a possibility floated mid-week by Credit Suisse.

If there is a rush to secure iron ore supplies, the entire sector will be re-rated, including Mt Gibson, a stock staging a comeback to rival that of champion golfer Tiger Woods.

Close to being down and out after a flood closed its Koolan Island mine four years ago, Mt Gibson earlier this month rejoined the $1 billion market-cap club when its shares moved back above $1.

On Monday, Mt Gibson traded up to a six-year high of $1.22 and even after yesterday’s sell-off it remains around $1.08, up 65c, or 165%, on this time last year.

Quarterly reporting season rolls on for the next two weeks with stocks to watch including Sandfire, Fortescue and South32 (later today), Syrah, Western Areas and OceanaGold soon after Easter, followed by Northern Star and Alacer.

Two emerging producers, Strandline in titanium minerals and Orion in zinc and copper, delivered encouraging reports during the week. Strandline with an updated definitive feasibility study into the Coburn project on the WA coast and Orion in the form of a capital raising priced at a premium, which is highly unusual for stock still in project evaluation mode at its Prieska project in South Africa.

On the market, Strandline added 2c (20%) to 12c and Orion eased back from the 4c price at which the fresh capital was raised to trade half-a-cent lower at 3.5c.

Other newsworthy events in a week when investors showed early signs of packing up for the Easter break, included:

  • Walkabout Resources added 7c to 27c after announcing that it had signed a sales agreement for graphite to be produced at its Lindi Jumbo project in Tanzania. At one stage the stock was trading at 34c.
  • Gold Road slipped 5c lower to 90c despite reporting that work on its half-owned Gruyere project is on budget with 800,000 tonnes of ore mined and stockpiled. The first gold pour is expected in the next few months.
  • Metals X lost 3c to 26c but remains a firm favorite of analysts at Macquarie Bank who gave the copper and tin producer a tick after a solid March quarter production report. Improvements at the troubled Nifty copper mine in WA are expected to see the stock move higher over the rest of the year with 60c the Macquarie price target.
  • Red River was another small base metal miner to have a reasonable quarter with zinc concentrate output at its Thalanga mine in north Queensland up 16% to 8952 tonnes, lead concentrate up 25% and copper concentrate up 134%. On the market the stock crept up by 1c to 19c, though analysts at the Baillieu, a stockbroking firm, are tipping a price target for the stock of 37c.
  • Orocobre reported a 10% increase in lithium production in the March quarter to 3075 tonnes from its Olaroz project in Argentina, good enough to lift the stock by 3c to $3.62. Other lithium producers did less well. Galaxy fell 12c to $1.86 and Pilbara Minerals eased back by 2c to 68c.
  • Canyon Resources added 2c to 22c after reporting exceptionally high-grade bauxite assays from drilling at its Beatrice Plateau project in the African country of Cameroon. Best hits included 15 metres at 54.9% aluminium oxide, and 14m at 56.47%.
  • Evolution Mining was another producer to be hit by the gold-price decline which combined with weaker-than-expected production in March quarter to knock the stock down by 40c to $3.34.
  • Saracen also suffered a sell-off despite a strong March quarter with gold production of 89,200 ounces at an all-in cost of A$1035/oz, with hard-to-please investors rubbing 31c off the stock, which declined to $2.56.
  • De Grey Mining announced what looked like an impressive drill result of 136m at 2 grams of gold a tonne at its Toweranna project in WA, only to drop by 2.4c to 9.6c.
  • Bardoc went against the outgoing gold tide with a modest rise of 0.1c to 4.3c after reporting exceptional results from drilling at its South Castlereagh project with a bonanza zone of 1m assaying 70.5g/t, and other assays that included 15m at 4.57g/t and 23m at 2.27g/t, and;
  • Nickel Mines, the Australian company carving out a slice of the Indonesia nickel business, said it was increasing its stake in the Ranger nickel project, only to slip 1c lower to 43c.

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