Vaccine breakthroughs fuel growing investor appetite for industrial metals

Discovery, deals and outages dominated events on the Australian market this week but the big news which continues to affect everything was off-market: the Covid-19 pandemic and vaccines which increasingly look like next year’s “get out of jail card”.
20th November 2020
Tim Treadgold

Discovery, deals and outages dominated events on the Australian market this week but the big news which continues to affect everything was off-market: the Covid-19 pandemic and vaccines which increasingly look like next year’s “get out of jail card”.

Chalice and its text-book re-writing palladium discovery near Perth was one of the big movers, rising to an all-time high of $3.84, before easing to close at $3.69, up 50c in the week and good enough to retain membership of the $1 billion market-cap club.

Talga, the locally listed graphite company with its best assets in Sweden, was a winner with a batch of value-added deals. It reached an all-time high at $2.12 before easing to $1.89, up 9c for the week and membership of the half-billion dollar club.

Outages came in two forms. The closure of a big zinc mine in South Africa which lifted the zinc price to an 18-month high while concern about copper exports caused by political turmoil in Peru helped copper edge towards a three-year high.

The other outage was the closure of the Australian stock market on Monday thanks to a malfunctioning computer upgrade which was hardly unexpected given investor experience with changes to the exchange’s website, once one of the best in the world and now one of the worst.

Vaccine news had a double-edged affect on the market, boosting industrial metals as confidence grows in 2021 being the start of a period of strong economic growth while weighing on gold, the biggest winner from pandemic uncertainty earlier in the year.

Interestingly, investor reaction to vaccine news can be tracked in the gold price which was sitting comfortable at $US1940 an ounce in the days before Pfizer became the first of the big-name pharmaceutical companies to announce 90% success with its vaccine.

The Pfizer news unleashed a burst of investor optimism about the economic outlook but also wiped $US73/oz off the gold price which fell to $US1867/oz.

Gold recovered to $US1897/oz by Monday when it was whacked by news of Moderna’s even more successful Covid-19 vaccine, sending it back to $1867/oz.

Another development weighing on gold is the prospect of higher U.S. interest rates, a trend which started about two months ago and which caused Macquarie Bank to this week issue a gold-sector warning: “Rising yields (on U.S. 10-year bonds) pare our gold outlook,” the bank said.

The flipside of using a sliding gold price as a measure of economic recovery is to see what’s happening with the world’s ultimate discretionary purchase and a sure-fire sign of rising confidence in the outlook, diamonds.

According to De Beers, the diamond house with the deepest knowledge of the gem trade, sales of diamonds rose by 12% in the latest selling cycle which closed on November 16 – a pointer to jewellers getting ready for strong pre-Christmas trade after a dreadful first 10 months of 2020.

Another way of measuring the sea-change rolling through financial markets as more investors see 2021 as a recovery year is to note the 9.5% rise in the ASX all ordinaries index since the start of November and the 11% fall in the gold index.

The gold sector correction appears to be driving a burst of merger and acquisition (M&A) activity and consolidation to achieve economies of scale if/when the gold price falls further.

The starting point for what’s happening in gold was the cost-saving tie up of Northern Star and Saracen, with the biggest gold deal this week the $US1.9 merger of Canada’s Endeavour Gold and Teranga Gold.

When complete, Endeavour + Teranga will be the biggest London-list gold producer, albeit one headed by an Egyptian telecommunications billionaire with its best assets in West Africa.

Another deal said to be on the boil is the keenly awaited battle for control of SolGold, an Australian-based stock with its best assets in Ecuador and listing in London.

BHP and Newcrest are already jockeying for top spot on the SolGold share register but the game picked up pace this week when a Chinese company, Jiangxi Copper, took a small position via a share placement, lifting SoldGold’s share price rise by 15% from 33 pence to 38p.

Locally, the corporate action among gold stocks was led by the proposed share-swap merger of Dacian Gold and NTM Gold as a way of achieving tenement consolidation near Dacian’s Mt Morgan project and NTM’s Redcliffe project in WA.

Both companies have emerged winners. DTM up 3.2c to 12c, and Dacian up 2c to 36c.

Other news and market moving events this week included:

  • Iron ore stocks edged higher as the benchmark price for high-grade ore held on to a price of $US125 a tonne, even as shipments from Brazil continued to rise. UBS reckons the price will dip to $US100/t by Christmas. Meanwhile, Fortescue Metals added 33c to $16.93 and Canadian focussed CIA put on 39c to $4.33.
  • Australian Strategic Metals was the pick of the tech-metal sector, rising by 32c to $3.89 after reporting more progress with its rare earth production technology being developed in Korea. Lynas, the leading rare earth stock, added 12c to $3.40 but did touch a seven-year high of $3.48 on Wednesday.
  • De Grey shrugged off concerns about an easing gold price to add 4c to $1.18 with Bell Potter lifting its investment tip from hold to buy with a price target of $1.58. Most leading gold producers lost ground, including Newcrest, down $1.68 to $28.29 and Saracen, down 37c to $5.26.
  • MetalsTech was a gold exploration success story, adding 4c to 20c after reporting visible gold in drill core from its Sturec project in Slovakia.
  • Skarb Exploration, a Canadian company with its foot on gold exploration tenements close to the prolific Fosterville mine in Victoria, was bowled over in the stampede for its shares receiving applications for $11.4 million, almost double the target of $6 million, and
  • Antipa Minerals crept 0.4c higher to 4.9c after reporting less-than thrilling assays from the latest drilling at its Calibre copper/gold project in WA’s Paterson Province with the thick intercept of 319.8 metres grading 0.96g/t of gold and 0.05% copper from a depth of 95m.

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