Surge of discovery and development news highlights growing strength of resources sector

Most metal prices, including gold, crept higher during the week but the big news in the Australian resources sector could be found in a strong flow of discovery and development news
18th September 2020
Tim Treadgold

Most metal prices, including gold, crept higher during the week but the big news in the Australian resources sector could be found in a strong flow of discovery and development news, supported up by a flood of fresh capital.

If there was a weakness it was in iron ore where a chorus of investment banks are forecasting one last solid quarter before a long downhill slide which will take the steel-making material back from this week’s peak of $US130 a tonne to below $US90/t.

Gold, the metal closest to the wallets of many Australian investors, continued to knock on the door of $US2000 an ounce, adding $US10/oz over the week to close around $US1945/oz, but did get as high as $US1971/oz on Wednesday.

Copper, widely seen as the next hot commodity, pushed higher under the combined pressure of rising demand and crimped supply. At $US3.04 a pound copper is already trading at a two-year high with forecasts of a move up to $US4/lb starting to appear in bank research reports.

Important as those commodity price moves are,m it was discovery and development news which caught the eye of seasoned market observers because it’s in that sector that the surge of capital into resources can be seen at work, as well as providing a guide to future earnings growth.

Significant announcements this week about new projects and fresh investment plans included:

  • Mincor confirming that it will re-start nickel production at Kambalda in WA following a final investment decision based on a five-year operation producing 71,000 tonnes of nickel and 5000t of copper at a life-of-mine nickel cost of $US2.35/lb, comfortably below the latest nickel price of $US6.85/lb. On the market, Mincor was steady at 92c, but that price is more than double the March low of 41c.
  • Red 5 said a final feasibility study had cleared the way for a substantial development at its King of the Hills project based on a 2.4-million-ounce reserve and 16-year mine life producing gold at an all-in cost of $A1415/oz. The stock added 2c to 36c but Canaccord Genuity reckons its heading for 50c.
  • Salt Lake Potash reported that construction of its Lake Way project near Wiluna in WA had reached the 60% mark. The stock added 3c to 52c during the week.
  • De Grey Mining led the fund-raising blitz with a $100 million placement to help fund the company’s exciting Hemi gold project near Port Hedland in WA. The new shares are being issued at $1.20, 20c below last De Grey sales at $1.40.
  • Calidus reported that construction had started at its Warrawoona gold project in the Pilbara region of WA.
  • Strandline awarded a major equipment supply contract for its Coburn mineral sands project, and
  • Independence Group signalled a retreat from gold even as production started in the underground Boston Shaker mine at its part-owned Tropicana mine in WA. Independence is preparing to focus on new-economy metals such as nickel and lithium. The stock added 20c to $4.70. UBS reckons its heading for $5.70.

Iron ore, as mentioned, has become the commodity most closely watched for a correction even though predictions about an end to the iron ore boom have been wrong for the past 12-months thanks to the double-barrelled boost of a Brazilian supply shortage and strong Chinese demand.

The latest warnings that the iron ore party might be winding up came from Morgan Stanley, UBS, Goldman Sachs and Citi, big-name banks which reckon it’s time to rotate exposure away from iron ore into other metals, especially copper while a smaller bank, Canaccord Genuity, reckons lithium is close to a bottom.

Fortescue Metals, the leading pure-play iron ore stock, has been doing a good impersonation of a canary in a coal mine, signalling problems ahead through an 16% share price fall over the past two weeks without anyone seeming to notice as the stock sank back to $16.16.

Whether the Fortescue price correction is simply profit-taking after a spectacular 100% rise over the past 12-months is irrelevant in assessing what lies ahead and that looks like the end of the iron ore boom and a shift to other commodities which are moving higher as iron ore fades.

Gold, according to Macquarie Bank, experienced a “groundhog week” as investors digested the latest views of the U.S. central bank about interest rate settings which the bank expects to stay low for at least the next three years, or until inflation averages 2%.

A long-term, low-rate, environment adds to the appeal of equity investments which is one reason for the stampede into capital raisings and the ease with which companies such as De Grey can pull in $100 million.

Examples of other capital moves this week include:

  • BCI Minerals raising $48 million through a one-for-two share issue with the funds earmarked for the company’s Mardie potash project in WA.
  • Blackstone raising $17.8 million to help fund its Ta Khoa nickel project in Vietnam.
  • Saturn Minerals raising $13.7 million for its Apollo Hill gold project in WA.
  • Los Cerros raising $10 million to fund exploration at its Quinchia gold project in Colombia.
  • Pilbara Minerals achieving financial close on a new, low cost, $US110 million debt facility to replace an existing bond associated with its Pilgangoora lithium project in WA.
  • Stellar resources raising $2 million to fund gold exploration in north-east Tasmania.
  • Sipa Resources raising $2.3 million to fund exploration projects.
  • Trigg Mining announcing a $2.3 million capital raising, and
  • Reports of a growing pipeline of new floats moving through the fund raising and approvals process, led by Medallion Metals and Miramar Resources.

News from the field complemented the flow of capital with one of the best signs of Australian mining entering a new growth period being a pick-up in exploration spending in WA, the premier mining State.

WA Mines Minister, Bill Johnston, said yesterday (Thursday) that exploration activity had reached a five-year high with program of work applications up 63% on the long-term monthly average.

This week’s exploration news of significance included:

  • Firefly Resources reporting more encouraging assays from drilling at its Yalgoo gold project in WA with a best hit of 48 metres at 1.71 grams a tonne from a depth of 33m. The stock added 1c yesterday to 17c but ended the week down 4c.
  • Hastings Technology Metals said the first nine holes in its 2020 drilling program at the Yangibana rare earth project had all hit economic mineralisation with a best result of 4m at 1.31% total rare earth oxides from a depth of 4m. The stock closed steady at 12c.
  • Bardoc Gold launched a 40,000m drilling program to boost the resource inventory at its namesake project near Kalgoorlie in WA. The stock added 0.1c to 8.4c.
  • Kairos added 0.2c to 6.3c after reporting the discovery of a large gold target 20km from De Grey’s Hemi project in WA’s Pilbara, and
  • Titan Minerals rose by 2c to 14c as interest grows in its Ecuadorean gold exploration assets. Canaccord Genuity reckons the stock is heading for 25c.

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