Gold stocks in favour on the Gold Coast as “Quitaly” jolts global markets

1st June 2018
Tim Treadgold

Fear of “Quitaly” – a potential Italian version of Brexit with an even more serious effect on the long-term survival of the European Union – sent a jolt through global financial markets this week, with gold emerging as one of the main beneficiaries of the increased volatility.

Whether Italy joins Britain in voting to quit the EU will not be known for some time, but the ongoing uncertainty should encourage investors to seek safe havens for their funds – which invariably means a flight to the US dollar and gold.

In Australia, the boost to gold could be measured in two ways. The first was in the gold price itself, which climbed back over the $US1300 an ounce mark, although sharp movements in the currency market saw the Australian gold price rise, and then fall.

From a peak price of A$1740/oz early on Wednesday morning, when the US dollar price was $US1302/oz, the Australian price fell away sharply to $1717/oz even while the US dollar price held firm – an example of the currency pressures flowing out of Europe and the US, and a measure of growing anxiety in global markets.

The second measure of investors regaining their interest in gold could be tested on the floor of this week’s record-breaking Resources Rising Stars forum on the appropriately-named Gold Coast of south-eastern Queensland.

Of the 33 companies presenting, those which enjoyed the most positive share price reactions over the two-days of the event were gold stocks, led by Kairos Minerals (KAI), Dacian Gold (DCN) and Northern Star Resources (NST).

Away from the conference Northern Star was a newsmaker in a different, but perhaps more significant way, earning a nomination in a research report by Citi, an investment bank, as one of the Australian miners likely to be a buyer in an expected upsurge in mining sector takeover activity.

Other stocks on the Citi “buyers” list include St Barbara Mines, South 32, Independence Group and Sandfire Resources, with the bank saying that they all had “the most conducive combination of capacity, clean merger and acquisition records, and challenges in maintaining or growing production”.

The flipside of the buyers list from Citi was the target list, led by Whitehaven Coal, OZ Minerals, Resolute Mining, Perseus and Galaxy Resources – all takeover targets because they have the best combination of asset longevity and growth, plus the appeal of strong profit margins and solid underlying value.

In a separate note to clients, Citi also painted a picture of continued strength in the nickel sector thanks to a significant shift in the structure of the nickel market – which has traditionally been dominated by demand from makers of stainless steel but is quickly falling under the influence of battery makers.

The measures used to demonstrate nickel’s bright new future included a breakdown in the price relationship between stainless steel and nickel. Since last October, the share prices of major steel makers have fallen by 15%, whereas the nickel price is up by 40%.

Over the next 15 years Citi expects the battery sector to lift its consumption of nickel from 3% of the global market today to a market-moving 40%, a growth rate which will fundamentally alter the nickel business.

Other news events which shifted share prices, up and down, during the week, included:

  • Galaxy Resources confirming its status as a Citi takeover target through a deal which boosts its balance sheet by $US280 million through the sale of a package of lithium-rich tenements in Argentina to the Korean steel company, Posco. On the market, Galaxy added 46c to $3.55, a rise which will further squeeze short-sellers who have been betting on the stock falling.
  • Resolute Mining added 7c to $1.21 after announcing the acquisition of a 15% stake in Canadian-based Orca Gold, an early-mover in the gold industry of the north African country of Sudan.
  • Sunstone Metals, one of the most closely watched companies at this week’s Resources Rising Stars conference, rose by six-tenths of a cent to 3.6c after reporting strong results from trenching at the Limon copper-gold target within its broader Bramaderos project in Ecuador.
  • Explaurum suffered a fall of 2c to 10c despite releasing an optimistic feasibility study into its Tampia gold project in WA. The potential mine has an all-in sustaining cost of $A896 an ounce for its first two years, and a life-of-mine cost estimate of $A998, but what might have triggered the fall is the need to find $119 million to develop the mine.
  • Ausdrill, the big drilling services contractor, slipped 8c lower to $2.52 after a report of trouble at a worksite in the African country of Mali, but on the flipside, there was a buy tip on the stock from Canaccord Genuity, which reckons Ausdrill is heading for $3.20.
  • Kin Mining started to regain some of its recently lost ground after reporting an underwritten $11.3 million capital raising that will pay off an outstanding debt and re-start exploration at its troubled Leonora Gold Project in WA. On the market, Kin added 1c to 13c.
  • Mineral Commodities gained 1c to 29c after announcing the results of a pre-feasibility study into its Munglinup graphite project in WA. The key numbers from the study included a net present value of $139 million and annual average pre-tax earnings of $42.4 million.
  • Nzuri Copper slipped 4c lower to 26c after announcing a $6 million capital rising to advance its Kalongwe copper and cobalt project in the Democratic Republic of Congo.
  • Gascoyne Resources initially slipped 2c lower to 54c after reporting the first gold pour from the Dalgaranga project, but later recovered to trade at a steady 56c.
  • Impact Minerals added two-tenths of a cent to 1.2c after shifting its conglomerate-hosted gold hunt from the Pilbara region of WA to Clermont region of central Queensland. Impact has an option to acquire a 95% stake in gold exploration tenements which form the Blackridge Gold Project.
  • Musgrave Minerals added seven-tenths of a cent to 6.7c after Westgold Resources said it would pay $3.36 million for a 15% stake to allow Musgrave to accelerate exploration at its gold project near the WA town of Cue, and
  • Aeon Metals was another stock to slip on Wednesday before recovering on Thursday with a 2c fall being reversed for the stock to trade at a steady 40c after reporting first assays from its Walford copper and cobalt project in Queensland. Best result was 14 metres at 1.33% copper, plus 0.19% cobalt and 35 grams of silver per tonne from a depth of 186m.

 

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