News - Prospector's Diary

Nickel led the way this week with its price at a seven-year high, followed by fresh moves in a takeover duel pitting BHP against Andrew Forrest, but the more important development was news the house prices in China fallen for the first time in seven years

While not directly affecting Australian investors, yet, falling home values add to China’s problems of soaring energy costs and the potential collapse of a big property developer. Those events will be making Chinese consumers feel poorer and therefore less liable to spend which will have an effect on companies selling material to China, while rising costs in its manufacturing industry will see China start to “export” inflation.

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The global energy crisis dominated headlines this week with fossil fuels defying the rush into renewables, feeding fear of an inflationary spiral which, in turn, sparked a jump in the price of gold.

A move back towards $US1800 an ounce by gold was a measure of the uncertainty in financial markets as government start to unwind post-pandemic economic stimulus spending just as the climate change debate heats up.The net result is a cocktail of confusion, and perfect conditions for gold to shine even if part of the stimulus unwinding is an increase in official U.S. interest rates.

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China’s power crisis boosted prices for all forms of energy this week, though Australia’s full hand of coal, oil, gas, uranium, and renewables helped suppress investor anxiety about the threat of stagflation, an unpleasant mix of value-destroying low growth and high inflation. Adding to the sense of a sea-change in underlying economic fundamentals was a fresh burst of concern about rising interest rates and the withdrawal of easy central bank money which has propped up global asset values.

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Energy transition away from fossil fuels is happening but it’s a lot slower than some people imagine, which is why coal, gas, oil and uranium are today’s hottest investments.

In what’s shaping as a classic case of the story getting ahead of reality, the world is being rocked by an energy crisis that is crimping Chinese growth, forcing Europe to burn more coal and delivering windfall profits for Australian gas and coal companies. Thermal coal, which is supposed to be a fading star, this week morphed into a shooting star, hitting an all-time price high of $US195 a tonne while oil touched a three year high of $US80 a barrel and natural gas in the U.S. traded at $5.50 per million British thermal units, double the price at this time last year.

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Buy when others are selling. It’s one of the oldest pieces of investment advice and its one that Karl Simich and Andrew Forrest put into practice this week with copper and nickel deals.

Buy when others are selling. It’s one of the oldest pieces of investment advice and its one that Karl Simich and Andrew Forrest put into practice this week with copper and nickel deals. Simich, chief executive of Sandfire Resources, took the WA-based company he leads into Spain via the $1.2 billion acquisition of the Matsa mining complex. Forrest, chairman of Fortescue Metals Group, boosted his private stake in a Canadian nickel explorer to 37.3% through the conversion of a loan into shares in what could be the knock-out blow in a fight with BHP for Noront Resources.

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Return of the boom, or a Reddit-fuelled feeding frenzy? That’s the critical question after a week which saw uranium catch fire, along with most other energy commodities, including lithium, oil and gas.

The answer to the question of whether the boom is back or whether the market this week was dominated by speculators outbidding each other for a slice of the resources pie, is probably a bit of both. Uranium, after a decade in the deep freeze which followed the Fukushima nuclear reactor meltdown in Japan, has stormed back into favour as an energy metal destined to play a role in transition away from fossil fuels.

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Nickel starred again this week as Australia’s richest man and Australia’s biggest mining company locked horns in a Canadian takeover battle which has already delivered a 200 per cent gain for some investors in just four months.

The clash, which has pitted iron ore billionaire Andrew Forrest against BHP, has driven the price of Toronto-listed Noront Resources from C24 cents in late May to C75c. But the more important point about the fight for Noront is that it is likely to be replicated in the Australian nickel sector, and if that isn’t a sector-wide buy signal I don’t know what is. The backstory with nickel should be well understood. It’s a metal which has graduated from being primarily used in the production of stainless steel into the technical metal space as a key ingredient in batteries.

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Battery metals, led this week by nickel, continued to outperform the rest of the resources sector while gold took a peek above $US1800 an ounce but faded as U.S. investors turned their focus on interest rate settings ahead of a key central bank meeting

Battery metals, led this week by nickel, have continued to outperform the rest of the resources sector while gold took a peek above $US1800 an ounce but faded as U.S. investors turned their focus on interest rate settings ahead of a key central bank meeting. The gathering of bankers in the Wyoming ski resort of Jackson Hole could be the setting for the Federal Reserve chairman, Jerome Powell, to reveal his plans for winding back monetary support for the U.S. economy.

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