Uranium has a day in the sun but most good news hit by too-late-to-sell, too-early-to-buy syndrome

Outages, shortages and mine closures are emerging as an important price-moving factor in the resources sector, with uranium making a surprise return to the winner’s circle this week...
3rd April 2020
Tim Treadgold

Outages, shortages and mine closures are emerging as an important price-moving factor in the resources sector, with uranium making a surprise return to the winner’s circle this week thanks to a major mine in Canada being mothballed for at least a month.

While not in the same league as last year’s outage events in the Brazilian iron ore industry, which put a rocket under the iron ore price, the Covid-19-caused loss of uranium supply from Cameco’s Cigar Lake mine gave the nuclear fuel a 15% price boost.

The latest short-term uranium price of $US27.40 a pound is still not high enough for most local uranium hopefuls to generate profits, if they were in production, but it did put a spark in most share prices – with a number of significant winners, at least on a percentage basis.

Yellow Cake, a London-listed company with close Australian connections, saw its share price rise by 20% during the week to £1.80 as investors moved into stocks with pure exposure to one of the few commodities moving higher during another flat week.

Among the handful of local uranium survivors, the best move came from Lotus Resources, which added 1.2c (44%%) to 3.9c after the company rushed out an exploration update on the Kayelekera mine in the southern African country of Malawi which it acquired from Paladin Resources three weeks ago.

Paladin, a one-time uranium leader and a stock which traded as high as $8 way back in 2007, managed a rise of half-a-cent this week to 5.5c.

Other uranium moves included Vimy, up 0.8c to 2.9c, Bannerman, up half-a-cent to 2.5c, and Deep Yellow, up 6.5c to 23.5c, partly as a result of releasing infill drilling results from Tumus 3 prospect in Namibia.,

Other than the return of uranium, sentiment and investor activity continued to be dominated by the effects of the lockdowns of major economies caused by the fight against Covid-19.

Iron ore, which has been enjoying surprising strength courtesy of the lingering effects of the Brazilian outages and the earlier-than-expected restart of industrial production in China, clung to a still-impressive price of $US83.50 a tonne.

The strength of iron ore was enough for Fortescue Metals to creep up by 17c to $10.05. Mt Gibson rose by 5c to 64c and Mineral Resources shot $1.35 (10%) higher to $15.14 after being named as a possible takeover target of cashed-up Wesfarmers.

The latest shipping data shows that Australia’s leading iron ore stocks were exceptionally busy in March, lifting exports by 36% to 76 million tonnes, though a lot of the material moved was “catch-up” shipments after the February port closures caused by cyclone Damien.

Iron ore also received a fresh warning shot from Brazil’s mining champion, Vale. It’s chief financial officer, Luciano Pires, told analysts on Tuesday that while China was slowly recovering, steel mills in the rest of the world were slowing.

Citi, an investment bank, followed up that warning with a revised iron ore price forecast which it reckons will slip to $US70/t in the next few weeks.

The same warning about China recovering and the rest of the world declining could be found in the latest purchasing managers indices which showed Chinese production expanding for the first time in months while Japan and South Korea produced their worst measures since the 2008 global financial crisis.

As one investment analysts in London summed up the challenge for investors: “It’s too late to sell, and too early to buy”.

Among the individual commodities, gold continued to perform reasonably well, but did get a shock mid-week when the Russian central bank said it had stopped buying gold from the local mining industry, but gave no reason for the decision.

Russian buying, which has effectively kept that country’s gold out of the international market, will be quickly absorbed by investors but older investors will remember that central bank activity can have a major effect on gold, killing the price with heavy selling in the early 1990s and then restoring it a decade later when the banks agreed to stop selling and start buying.

Over the course of the week, gold moved from $US1640 an ounce down to $US1570/oz as investors digested the Russian news and then back to $US1584/oz.

The Australian gold price, buffeted initially by a rise in the currency to US60c, settled around $A2600/oz

Leading gold stocks performed well in a see-saw market. Saracen added 31c to $3.77. Evolution put on 39c to $4.17, and Northern Star rose by 23c to $10.46.

Battery-metal stocks, after several down months, showed signs of recovery as investors pick through the market in search of future growth stories with electric cars still generating interest despite the global slowdown.

Pilbara Minerals had one of its best weeks this year, rising 4c (25%) to 20c and while there’s still a long way back to the price of 77c at this time last year, the latest upward move is notable.

Other lithium stocks also firmed modestly. Galaxy added 4c to 82c and Orocobre, which has been hit by a Covid-19 shutdown at its primary asset in Argentina, put on 5c to $2.06.

Discovery and development news continued to flow encouragingly with a number of impressive results which would have received more generous investor treatment at any other time, including:

  • Legend Mining rose by 3c (30%) to 13c after reporting what it described as the best drill result from the Fraser Range district in WA since the discovery of the Nova nickel and copper mine. No assays were released, they’re three weeks away, but Legend said significant mineralisation had been observed in three zones covering 25 metres.

 

  • Aurelia Metals reported what it said were “exceptionally high-grade base metal and gold” assays from drilling at its Federation project near the Hera mine in NSW. Best hit was 15.4m grading 47.4% combined zinc and lead, plus 10.7 grams a tonne of gold. On the market, Aurelia added 5c to 29c.

 

  • Kingston Resources reported excellent assays from drilling at the Ewatinona deposit in its broader Misima project, including 16m at 2.16g/t from a depth of 37m. On the market, the stock added 4c (40%) to 14c.

 

  • Red 5 successfully completed a $125 million capital raising priced at 18c a share to help fund its King of the Hills gold project. On the market, the stock added 1.5c to 19.5c.

 

  • Matsa Resources said it had made a significant gold discovery below a small salt lake near Lake Carey in WA. The stock added 1c to 9.6c after reporting a best assay of 12.3g/t over 3.4m from a depth of 64m.

 

  • Musgrave Minerals added 1.5c to 10c after reporting highly-encouraging assays from drilling at its Break of Day project in WA, including 42m at 6.8g/t from a depth of 70m.

 

  • Anglo Australian Resources rose by 1c to 10c after reporting that it had re-started drilling at its promising Mandilla project south of Kalgoorlie in WA, and

 

Black Cat Syndicate said the resource at its Bulong gold project near Kalgoorlie had expanded by 21% to 294,000 ounces, news which lifted the stock by 4c to 32c.

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