Gold yo-yo on the way back up, fuelled by Trump, trade and takeovers

Gold mining stocks got a “triple-T” boost this week with Trade, Trump and Takeovers lifting its price to a one-month high and what could be the start of a drive back above the $US1500 an ounce mark.
6th December 2019
Tim Treadgold

Gold mining stocks got a “triple-T” boost this week with Trade, Trump and Takeovers lifting its price to a one-month high and what could be the start of a drive back above the $US1500 an ounce mark.

The share prices of miners reacted modestly to the rising price for the yellow metal, which reached $US1483/oz on Wednesday before sliding back to around $US1475/oz – a gain for the week of $US14/oz.

Trade and Trump delivered more of the on/off price pressure which has been a feature of the gold market for the past two years, turning investors into human yo-yos as they are flicked from a risk-on mood to risk-off – and back again.

Takeovers are proving to be a more predictable factor in the gold sector because what started last year with promises that there would not be a feeding frenzy is starting to look exactly that as a scramble develops for gold assets.

The latest big-ticket deal is a move by Canada’s Endeavour Mining on London-based (but Australian-born) Centamin with a share-swap proposal which has been rejected but is likely to eventually win support if the terms are sweetened, because Centamin’s weakness has always been its sole-asset status in the form of the Sukari mine in Egypt.

As with all periods of rapid-fire merger and acquisition activity, the best deals have probably already been done and the best assets already snapped up.

Last year’s giant gold mergers of Barrick/ Randgold, and Newmont/Goldcorp set the scene for deals which have included Northern Star’s purchase of the Pogo mine in Alaska, St Barbara’s acquisition of Atlantic Gold in Canada, Newcrest’s purchase of Red Chris, also in Canada, Saracen’s purchase of a 50% share of Kalgoorlie’s Super Pit, Evolution’s deal to buy Red Lake from Newmont, and smaller local moves such as Silver Lake on Egan Street Resources.

How investors should play the feeding frenzy – and that’s exactly what it is as company managers catch a dose of FOMO (fear of missing out) – is an important question because, as has been seen many times before, M&A can destroy more value than it creates.

Because the next wave of deals will be struck on worsening terms for the buyer, simply because the best assets have been snaffled, it becomes very much a case of sell the bidder and buy the target when a move is made – but even then don’t hang around too long because it is becoming a trader’s market.

For a number of gold companies price moves during the week were significant, partly because of the deal-led stampede and also because of stock-specific news that included:

  • Resolute added 10c to $1.25 after reporting what it described as excellent drill results from the new Mako mine in Senegal with best hits of 14.9 grams a tonne over 6 metres from a depth of 224.7m, and 8.3g/t over 6m from 58.2m.

 

  • Northern Star put on 22c to $9.82 after receiving a positive re-rating from the big investment bank, J.P. Morgan, which praised the growth options ahead of the company as well as lifting its investment advice from neutral to buy with a 12-month price target of $11.50.

 

  • Gold Road celebrated the official opening of its Gruyere mine in WA with a rise of 7c to $1.20, a move aided by encouraging resources estimates from the Gilmour and Renegade orebodies.

 

  • Newmont of the US filed a positive report on what it expects from its half-owned Super Pit mine in Kalgoorlie, a move which sparked a positive comment from Macquarie Bank about the other half-owner, Saracen, which the bank reckons is on track for a future share price of $4.50, comfortably above last sales of $3.07, and

 

  • Apollo Consolidated added 2c to 22c after reporting encouraging drill results from its Lake Rebecca gold project in WA with a best intersection of 40m at 5.06g/t.

While gold was a winner from the Triple-T drivers of Trade, Trump and Takeovers, the same could not be said for most industrial and battery metals which were buffeted by the waves of uncertainty.

Nickel, for example, fell below $US6 a pound, little more than two months after hitting a five-year high of more than $US8/lb, with the price plunge triggering concern about wholesale price rigging, perhaps by Chinese steel mills.

Despite the significant nickel-price retreat, local miners of the metal largely took the retreat in their stride, perhaps reflecting a view that investors didn’t believe the $US8/lb price was sustainable.

Western Areas, one of the pure-play nickel producers, did slip 8c lower to $2.73 but Mincor added 1c to 61c and Independence (perhaps thanks to its gold assets) put on 2c to $5.86.

Unnoticed by local investors – but potentially a significant move – was a lift in the uranium price, which moved back above $US26/lb for the first time since July.

Local uranium stocks did not react to the rise but Yellow Cake, a London-listed pure-play uranium stocks which buys and holds the fuel, has been on an upward march since the middle of last month, adding 11 pence (6%) to £1.90.

Other news events and market moves, mainly modest either way, including this batch of battery metal news:

 

  • Syrah, a graphite miner, added 6c to 42c after a major shareholder, Australian Super, said it was sticking with its 16.5% stake and was prepared to see off short-sellers who have pounded the stock lower over the past two years.

 

  • Orocobre, one of the leading lithium producers, lost another 16c to $2.37 after reporting a reduced average price of $US5400/t for its lithium carbonate.

 

  • Vulcan Energy, a well-connected new player in the lithium space with a brine project in Germany, added 1c to 16.5c after reporting an inferred mineral resource of 13.2 million tonnes of contained lithium carbonate equivalent, and

 

  • Broken Hill Prospecting traded up to 3c before easing to 2.7c for a gain of 0.6c after announcing settlement on terms with Cobalt Blue for the acquisition of the Thackaringa cobalt project near Broken Hill in NSW.

 

In other developments:

  • Titanium mineral stocks barely moved after Rio Tinto said it was curtailing production at its world-class Richards Bay project in South Africa. Base Resources was steady at 23c. Iluka added 3c to $9.54.

 

  • Fraser Range explorers attracted attention with Boadicea Resources added 2c to 26c after winning a WA Mines Department ballot over a disputed claim in the region, and Fraser Range Metals added 0.6c to 2.9c after reporting the start of drilling on a nickel-copper project.

 

  • Fertiliser stocks were fractionally weaker, except Agrimin, which added 2c to 50c after announcing a haulage contract covering its Lake Mackay project in WA.

 

The prize for the most unusual exploration project of the week goes to Strategic Elements, which announced the start of drilling on a meteor crater in WA’s Gibson Desert, a project co-funded by the WA Government, with copper, gold and rare earths the target. On the market, the stock gained 0.5c to 8c.

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