Bullish broker reports re-charge lithium stocks but base metals fall on trade war fears

6th July 2018
Tim Treadgold

Lithium stocks, after suffering a few months of uncertainty about the potential for over-supply of the battery metal, got a double boost this week when two of the world’s leading investment banks, Goldman Sachs and Credit Suisse, said it was time to buy, not sell.

Key points in the separate reports were that developing new lithium projects would prove harder than most investors believe, and that the long-term price outlook remains robust despite the potential for a short-term correction.

While impossible to prove that the banks influenced share trading, it is worth noting that the three Australian stocks on the Credit Suisse buy list, Pilbara Minerals, Orocobre and Galaxy Resources, moved higher in what was a generally down week for metals.

Pilbara added 5c to 91c, on its way to the Credit Suisse price target of $1.15. Orocobre gained 6c to $5.27 with $5.70 the bank’s target, and Galaxy moved up by 2c to $3, within sight of the Credit Suisse target of $3.15.

“While we see opportunity for each company to deliver above market returns, we rate Pilbara as our preferred pick offering superior upside valuation and the lowest technical complexity and operating risk,” Credit Suisse said.

Goldman Sachs took a broader view with its New York office singling out US-based Albemarle Corporation and FMC Corp as its lithium picks, with both expected to rise by 30%, over the next 12-months.

Investor concerns about an over-supply of lithium had been “overdone” Goldman Sachs said, because of the complexity in developing new sources of the metal, especially from the brine lakes of South America, meaning that a four-fold increase in lithium demand by the year 2025 would see a tightening of the market.

“Coupled with ongoing rising demand expectations as vehicle makers look to electrify their fleets, we expect lithium markets to remain sufficiently tight to handsomely reward incumbent producers,” Goldman Sachs said.

Not all lithium stocks did well during the week. Kidman suffered a 20c sell-off to $1.67, Altura slipped 2c lower to 31c and Lithium Australia lost 1c to 9.3c, declines which appear to demonstrate a key point in the Credit Suisse analysis – that not all proposed lithium projects will make the transition into production.

Other banks weighed into the lithium supply/demand debate during the week with the clear preference being for stocks which are in production, or close to it, with a favourite of Macquarie Bank and Canaccord being Orocobre.

Macquarie reckons Orocobre is heading for a price of $6.60, up another $1.33 on this week’s price, while Canaccord is tipping an even higher price of $7.45 thanks to rising output offsetting a softer lithium price.

Other metals had a mixed week. Copper, zinc and nickel suffered price falls as doubts grew about the impact of the expanding trade war on China. Gold, after a weak start, ended strongly, adding $US20 an ounce to move back to about $US1250/oz.

At the small end of the market, where exploration and discovery news generally over-rides economic and political events, there were a number of market moving events, including:

  • Resolute Mining added 13c to $1.41 after a week of seemingly never-ending good news that included a reduction in costs at flagship Syama goldmine in Mali to $US746 an ounce, an extended mine life, excellent drill results (including 5 meres at 493 grams a tonne) and a buy tip from Citi, an investment bank, which put a 12-month price target on the stock of $1.60.
  • Perseus, which also operates in West Africa like Resolute, pleased its supporters with record production of 83,881oz of gold in the June quarter, good enough to lift the stock by 4c to 48c.
  • Woomera Mining, a newcomer to most investors, enjoyed a 3c rise to 12c after reporting a strong lithium and beryllium anomaly at its Lake Dundas project in WA. The area was originally pegged for its lithium brine potential but the latest results point to the potential for a hard-rock source of lithium.
  • Saturn Metals added 4c to 20c after reporting visible gold in the first diamond drill hole at its Apollo Hill project near Leonora in WA. Assays are due soon.
  • Anson Resources said further evaporation tests had increased lithium concentration in its Cane Creek project in the US State of Utah, news that lifted the stock by 4c to 10c.
  • Agrimin added 2c to 94c despite boosting its capital base with a successful $10 million capital raising to help fund its Lake Mackay sulphate of potash project in WA.
  • Independence Group struck a new exploration deal with Australia’s master prospector, Mark Creasy, over tenements close to its Nova nickel mine in WA, though the stock shed a hefty 34c during the week to $4.84, perhaps as a result of the weaker nickel price.
  • Australian Vanadium firmed by 0.1c to 4.1c after updating the vanadium resource at its Gabanintha project in WA. The new resource estimate stands at 175.5 million tonnes at 0.77% vanadium, with useful grades of cobalt, nickel and copper.
  • MacPhersons added 0.9c to 7.9c after reporting encouraging drill results from its Boorara gold project near Kalgoorlie in WA with a best near-surface hit of 14m at 4.16g/t, and
  • Explaurum recovered a little more of the value lost since May with a rise this week of 0.5c to 8.6c after reporting encouraging drill results from its Mace prospect near the proposed Tampia mine in WA. Best intersection at Mace was 11m at 13.9g/t from just 7m. Argonaut Securities put out a fresh buy note on the stock tipping a future price of 21c.

 

 

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