US interest rate trim sees base metal nerves spread to gold stocks

1st August 2019
Tim Treadgold

The gold price took a knock yesterday when the US central bank delivered half the interest rate cut investors wanted, with the sliding share prices that followed a warning shot for investors making the trek to next week’s Diggers and Dealers conference in Kalgoorlie.

Between now and the start of the three-day, heavily gold-focussed event, will be time for the 2500 delegates to think about last week’s reminder from Evolution Mining boss, Jake Klein, that high gold prices can be a time when some people “lose their heads”.

Klein made it clear that he was not interested in acquiring additional assets until convinced that this year’s gold-price recovery was part of a long-term improvement.

Other gold-company managers are not as cautious because within days of Klein’s comments a series of gold mergers were unveiled, including Silver Lake acquiring Egan Street Resources and Resolute Resources buying Toro Gold.

Unsurprisingly, given the gold-price correction, the share prices of the bidding companies in both cases dropped. Silver Lake lost 27c to $1.21, and Resolute dropped by 10c to $1.68 – while one of the targets, Egan Street, added 2c to 33c. Toro, the other target, is unlisted.

Watching on, almost certainly with a wry smile, was Klein, who enjoyed a 6c rise in Evolution’s share price over the course of this week to $4.83, despite a 20c fall immediately after the interest rate decision was announced.

Other gold stocks had a mixed week with solid production and resource-expansion news being discounted and exploration news rewarded.

Several leading gold stocks reported strong production results and resource upgrades only to be sold off. Northern Star lost $1.04 on its way to $12.08 despite a 30% increase in reserves and resources. Saracen slipped 4c lower to $4.04 after a 32% increase in reserves, enough to underpin a 400,000 ounce a year operation for at least seven years.

It was a different story among the gold explorers, where investors welcomed encouraging results from Ora Banda Mining and Bardoc Gold and a big maiden reserve for the King of the Hills project of Red 5.

Ora Banda added 7c to 21c after reporting a 23-metre gold intersection at 9.1 grams a tonne from drilling at its Davyhurst project in WA.

 

Bardoc initially enjoyed a 1c rise to a 12-month high of 8.6c after the latest drilling at its namesake Bardoc gold project, with a best hit of 5.7m at 22.8g/t, but slipped back late yesterday to 8c.

Red 5 added 3c to 25c after reporting a reserve of 1.45 million ounces at King of the Hills and the potential for a 10-year mine producing 140,000oz at an average cost of $A1167/oz.

While gold was buffeted by interest-rate moves in the US, the rest of the mining market was showing signs of concern about a continued decline in overall economic growth with China continuing to slow.

On a global basis, manufacturing has quietly slipped into a downturn with the combined purchasing manager’s index of major economies dropping below 50, the point which separates expansion from contraction.

Worry about a co-ordinated downturn was compounded yesterday by the release of the latest Investor Confidence Index by US-based State Street Global Markets which revealed a 2.4-point decline in the overall international reading and similar confidence declines in major markets such as the US, Europe and Asia.

Iron ore and base metal stocks which depend on industrial production to drive demand showed signs of wilting. Fortescue, the leading pure-play iron ore producer, eased 16c to $8.14. OZ Minerals, the leading pure-play copper stock, also lost 6c on its way to $10.18.

Other news events and market moves, up or down, included:

  • Kirkland Lake, the Canadian miner which has revitalised Victoria’s Fosterville gold mine, ran out of puff on the stock market despite reporting a strong June quarter profit of $US104.2 million, a 69% improvement on the June quarter last year, but not enough to save the stock from a $2.20 share-price fall to $62.79.
  • Independence Group reported strong production results from its Nova nickel mine and its share of the Tropicana gold mine, only to be marked down on the market by 11c to $5.29.
  • Dacian Gold’s recovery from a severe setback earlier this year hit a speed bump when the stock fell 14c to 86c despite reporting an expected eight-years of strong cash flow from its Mt Morgans mine.
  • Lynas Corporation led a weaker rare earth sector with a 16c fall to $2.53, weighed down by the widespread economic slowdown. Emerging rare earth players, Arafura and Northern Mining, both slipped marginally.
  • Alacer Gold was a rare good news story among the gold producers, adding 40c to $5.78, but also touched a 12-month high of $5.85 on Wednesday. UBS reckons Alacer is heading for $6.50.
  • Liontown went into a trading halt at 14c as it seeks fresh funds to accelerate work on its promising lithium discoveries, but only after reporting more strong drill results from its Buldania project including 25m at 1.1% lithium, and 15m at 1.3%.
  • Antipa Minerals added 0.2c to 1.7c after reporting the start of a drilling program by Rio Tinto on its Citadel project in the red-hot Paterson Range district of WA.
  • Rox Resources traded up to a 12-month high of 2.5c before easing to 2.2c after reporting the start of drilling at the company’s Youanmi gold project.

 

  • Fenix Resources added 1c to 9.4c after reporting encouraging assays from its Iron Ridge iron ore project in WA’s Mid-West region with a best drill hit of 66.2% iron over 54.5m from a depth of 106m, and
  • Mineral Resources moved sharply higher during the week as the sale of a half-share in its Wodgina lithium project moved closer. At a closing price yesterday of $16.49, the stock is up $1.10, but could go a lot higher according to Bell Potter which reckons $21.11 is the target price.

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