Gold’s strength in face of rising rates just one of many curious themes in resources land

15th June 2018
Tim Treadgold

Iron ore deals, rising coal prices, higher gold company share prices and the promise of “peace-in-our-time” on the Korean Peninsula made the past week feel like a trip back to the future.

How much of what happened was flim-flam and how will prove to be sustainable will take time to assess, with multiple moving parts on the international stage dominated by the Korean peace talks and another rise in US interest rates.

And before anyone can make sense of a remarkable period of economic and political activity, there’s the reality of the financial year drawing to a close in two weeks, which means investors will be cleaning up their books ahead of a fresh start on July 1 -- perhaps a case of shares down before shares up if previous years are a guide.

Gold, always a useful yardstick in uncertain times, failed to react to the rate increase or talks between the leaders of North Korea and the US, opening and closing at $US1299 an ounce – a non-movement which is almost as significant as a sudden move up or down.

The reason gold is interesting, even when not moving, is that the failure to fall when rates rose (which is what’s supposed to happen) was an event not replicated in the share prices of major gold producers.

Why gold-producers rose in a flat gold market can mean several things, the most important being that investors (a) sniff an outbreak of corporate activity (takeovers) or (b) they fear an outbreak of inflation, or (c) they’re are loading up on gold stocks as part of a yield-hunting exercise because gold profits have probably never been stronger.

Gold miners to hit 12-month share price highs over the past few days include Evolution, up 10c to a fresh high of $3.50. Saracen, up 8c to a new high of $2.21 before easing to $2.20, and St Barbara, which touched its new high of $4.92 late last week before easing to $4.82.

Of the other events mentioned, it’s hard to ignore the wake-up signal being sent by the iron ore asset shuffle which has seen Atlas Iron suddenly become an object of desire, and then not, while the loss-making Koolyanobbing mine in WA was offloaded by US-based Cleveland-Cliffs to local deal-maker, Mineral Resources.

The significance of both the Atlas deal (or non-deal) and the Koolyanobbing sale is that both appear to be more about port access than resources in the ground.

Not mentioned locally is that the biggest winner in all this is Cleveland-Cliffs, which has returned to its roots as a specialist miner operating in the Great Lakes region. Over the past 12-months its shares have rocketed from less than $US2 on the New York Stock Exchange to more than $US8, a direct reaction to the revival underway in the US steel industry and the encouragement it’s getting from the country’s president, Donald Trump.

Action in Australian iron ore appears to be about gearing up for the next wave of production growth and a time when access to infrastructure will be more important than access to orebodies – another back-to-the future example and a time 20 years ago when railways were the key asset.

The Atlas game started with Mineral Resources launching a takeover bid only to be cornered by Fortescue Metals which snapped up a blocking 19.9% stake, followed by Gina Rinehart also acquiring a 19.9% stake, presumably to get access to Atlas’ share of a berth in Port Hedland, followed by a contentious WA Government ruling that the berth in question was reserved for small miners – big exporters would be refused.

Whether something similar is happening at Koolyanobbing and its access to infrastructure in the southern port of Esperance remains to be seen – but it is a possibility given the early mover in both cases is Mineral Resources.

As a final word on iron ore events, hands-up any reader who noticed that an almost forgotten wanna-be iron ore producer, Brockman Mining, joined the 12-month high club with trades up the 3c, before easing to 2.8c. Three months ago Brockman was selling for 1c.

Coal, the commodity that has been in an environmental sin bin for the past decade, is staging a remarkable return with rising prices for both thermal and steel-making material, and with more to come according to the US research firm Jefferies.

In a note titled “Rumours of Coal’s Death are Premature”, Jefferies lifted its price forecasts for seaborne thermal coal this year from $US90 a tonne to $US105/t and for steel-making coal from $US150/t to $US190/t. A decline is expected next year, but not by much, which explains why coal stock like Whitehaven are bumping against their 12-month price highs.

Other newsworthy and market moving events, up as well as down, over the past week included:

  • Adriatic Metals adding 15c (73%) to a 12-month high of 33c, after reporting encouraging assays from drilling at its polymetallic Rupice project in the eastern European country of Bosnia. Best hit was an astonishing 64-metre section assaying 4.6 grams a tonne of gold, 537g/t of silver, 0.9% copper, 7.7% lead, 10.8% zinc and 46% barite.
  • Jindalee Resources rose by 11c (41%) to a new high of 33c after announcing the acquisition of a second lithium project in the U.S.
  • Ausdrill copped blast after announcing a downgrade on some of its drilling contracts, including a slowdown on work at the Wodgina lithium project of Process Minerals, a division of Mineral Resources, and in the Kalgoorlie Superpit goldmine after a rock fall. Investors hit Ausdrill with a 50c (21%) sell-off to $1.86, a price which was up on the low point for the week of $1.71.
  • Cygnus Gold was another heavy loser after reporting less-than-sparkling drill results from its Stanley project in the south-west of WA with the best new assay being 3m at 1g/t from a depth of 111m. More assays are pending but investors walked, knocking the stock down by 7c (41%) to 10c.
  • Danakali, the Middle East potash-project developer announced significant progress on marketing material from its Colluli development in Eritrea, meaning that all of the output from the first module producing of sulphate of potash has been sold. On the market, Danakali added 5c to 69c.
  • Atlas Iron, as mentioned, was bounced around by corporate activity and a warning letter from the WA Government for potential bidders that its port arrangement was intended for small iron ore miners. The net result was that Atlas’ share price initially surged to a 12-month high of 4.6c before falling back to 3.6c – which is still a gain of 0.6c for the week.
  • Aspire Mining added 1c (62%) to 2.6c after announcing progress on plans to develop a metallurgical coal and railway project in China with Chinese partners.
  • Stanmore Coal was steady at 75c after announcing the acquisition of the Wotonga South coking coal project in Queensland. Over the past 12-months Stanmore has more than doubled from a low of 29c.
  • Artemis slipped half-a-cent to 29c after announcing plans to drill an ultra-deep hole in the West Pilbara region of WA to test underlying rock units as apart of a search for the nuggets found at the surface. Artemis said the 3300-metre diamond drill hole will be the deepest mineral exploration hole ever drilled in Australia.
  • Battery Metals suffered a 1.7c fall to 3.3c after the loss of a proposed $US30 million debt and equity package from Resource Capital Fund which said graphite no longer met its investment criteria, and
  • Korab Resources slipped one-tenth of a cent lower to 2.9c for a reason unseen since the last resources boom, a “plainting” claim by a rival for its Mt Elephant/Ashburton Downs copper project. Plainting is a technique which involves an allegation that a company hasn’t complied with its government lease commitments, something that Korab vigorously denies – but the fact that plainting has made a return is an interesting development for explorers to watch.

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