Tide turns as white-hot gold and iron ore miners are hit by sell recommendations

Rare earths and potash returned to the winner’s circle this week as the first whiff of a correction wafted across the gold and iron ore sectors
25th July 2019
Prospector's Diary

Rare earths and potash returned to the winner’s circle this week as the first whiff of a correction wafted across the gold and iron ore sectors, while two industry leaders, BHP and Rio Tinto, paid a heavy price for annoying their supporters.

On a “follow-the-money” basis, it was hard to overlook the flow of funds into two emerging rare earth companies, Arafura and Northern Minerals, which attracted $30 million and $23.2 million respectively to advance their projects.

Both stocks incurred small price falls because their fund-raising required the issue of extra shares, but the corrections were modest and the fresh funds will take Arafura and Northern Minerals closer to commercial production at a time of strong rare earth demand.

A third emerging rare earth player, Greenland Minerals, was also in the news with a 3c share price rise to 15c, though that closing price yesterday was after hitting a 12-month high of 16c on Wednesday.

Rare earth leader, Lynas Corporation, faded slightly with a 6c decline to $2.73 as the emerging stocks caught the eye of investors, a trend that could also be seen in other sectors of the market, especially gold, where producers were sold and explorers bought.

Among the potash players, it was another fund raising which caught the eye with Kalium Lakes raking in $72 million to advance its Beyondie sulphate of potash project (SOP) in WA to within sight of a construction start and the title of Australia’s first SOP producer. On the market, the extra shares on issues weighed on the company’s price, which moved 1c lower to 68c.

Other emerging potash stocks joined in the return of interest. Agrimin, which is making brisk progress with its Lake Mackay project, added 4c to 68c and Salt Lake Potash rose by 3c to 77c after announcing commercial-scale trials at its SOP project on Lake Way as well as a deal to expand its tenement footprint.

Gold stocks had a curiously mixed week, which came directly from the old adage about it being better to travel than to arrive, with big producers being sold down despite a relatively strong gold price and excellent June-quarter production news, which was not enough to prevent investors taking some of the profits off the table.

Evolution, for example, boosted gold production, cut costs and forecast a strong 2020 financial year, only to see its share price lose 13c to $4.82 and for a number of big investment banks to downgrade the stock to sell, simply because it has flown too high, too quickly.

Credit Suisse reckons Evolution will slide back to $2.60. Macquarie is more optimistic with a price tip of $4.20.

St Barbara suffered a similar fate, with the added problem of higher-than-expected costs in the June quarter, which played a role in its share price slipping 2c to $3.52, but with Macquarie seeing $3 as the target and Credit Suisse $2.76 – and with both saying sell.

Regis Resources was hit hardest in this re-appraisal of the gold story. Its share price fell by 73c to $5.65 despite meeting 2019 financial year guidance with the point that worried brokers being a forecast of higher costs to come. Citi said sell Regis because it’s heading for a price of $4.85.

Saracen did better but still lost 6c to $4.13 after beating costs and meeting financial year guidance, though that closing price was down on the 12-month high of $4.28 reached on Monday, and Northern Star eased back by 18c to $13.16 after hitting a 12-month price high on Tuesday of $14.06.

In contrast to the gold miners being buffeted by production news and investment downgrades, there was a different reaction to discovery news, with Focus Minerals making an overdue return to the winner’s circle with a rise of 18c to 44c after reporting excellent drill results from its Beasley Creek project in WA, with a best hit of 12.86 metres assaying 8.78 grams of gold a tonne.

At the top end of the Australian mining sector there was evidence of investor disquiet over recent developments at Rio Tinto and BHP, with both companies being sold off, Rio Tinto because of significant problems at its copper flagship project in Mongolia and BHP because of concern about management moves to spend more on environmental clean-up programs.

BHP fell by $1.30 to $40.49 and Rio Tinto fell by $6.73 to $95.94 with investment banks seeing lower prices ahead. Credit Suisse reckons Rio Tinto could fall to $92.

Fortescue Metals, arguably the biggest winner from the high iron ore price, also ran out of puff despite a strong production report, shedding 42c over the week to $8.26, a price which is down $1.30 on the 12-month high reached three weeks ago.

Other news which moved stocks, up or down, included:

  • Lithium stocks climbing out of the cellar as iron ore and gold slipped, with Orocobre leading the way with a 26c rise to $2.90, followed by Liontown, up 3c to 16c, Pilbara Minerals, up 2c to 48c, and Altura, up 1c to 11c.
  • Copper stocks had a mixed week. OZ Minerals posted steady June quarter production results to see its share price rise by 15c to $10.17. Sandfire had a strong quarter and lower costs but slipped 6c lower to $6.71 even as Morgan Stanley reinforced its buy tip on Sandfire and a price target of $8.45.
  • Adriatic Metals also paid a price for arriving after a successful period of travel with a 10c share price loss to $1.06 after reporting a maiden mineral resource for its Rupice polymetallic project in Bosnia.
  • Nickel stocks were mixed despite growing interest in the metal and a promising increase in its price over the past two months. Mincor slipped 5c to 45.5c while Panoramic added 4c to 38c and Western Areas was steady at $2.40.
  • S2R said it had intersected more nickel while drilling at its Polar Bear prospect in WA, with a best hit of 17.83m at 0.75% nickel, including 0.75m at 2.41% nickel. On the market, the stock initially moved up by 2c to 14c before settling at 12c, steady for the week.
  • Swick Mining Services demonstrated that it’s sometimes the service providers who do best out of mining with an announcement that the order book for its drilling rigs and mineral analysis operations had grown to $353 million, news which boosted Swick by 5c to 27c, and
  • Galena Mining said a feasibility study into its Abra lead project in WA had produced an outstanding financial result which could see a mine deliver lead and silver at a lead-equivalent cash cost of US41 cents, comfortably below the latest lead price of 93c – though on the market Galena lost 1.5c to 36.5c.

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