News - Prospector's Diary

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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Any doubts investors might have had about the power of environment, social and governance (ESG) issues to dictate corporate decision making were blown away this week when BHP caved into activist pressure to quit the oil and gas business.

The deal, which will see Woodside Petroleum acquire BHP Petroleum, has not been well received on financial markets, with both companies sold down and some big BHP shareholders indicating they will oppose the transaction when put to a vote next year. But whether BHP and Woodside achieve their desired marriage of convenience is not the big issue for investors. The more important point is that ESG considerations have now been elevated to a company-making (and breaking) level.

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Choppy waters often precede a sea change and that’s certainly the case in financial markets today as investors jockey for position ahead of the inevitable upward shift in U.S. interest rates

Gold’s “flash crash” late last week, which briefly drove the price below $US1700 an ounce, coincided with a seemingly modest uptick in the U.S. 10-year bond yield from 1.2% to 1.3%. But that tiny rise was enough to trigger the dumping of gold worth $US4 billion in a single deal. Someone managing a big investment portfolio appears to have made a judgement call on U.S. interest rates and sold gold in preparation for meaningfully higher rates in the next six-to-12 months.

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