It’s all about energy as oil stocks join battery metals at the party

25th May 2018
Tim Treadgold

Energy, in its liquid and metallic form, is demanding a bigger share of every investment portfolio with rising prices for oil and gas matching the strength of the battery metals sector.

Rather than see one as a winner and the other a loser, the point about what’s happening is that global demand for energy, in its many forms, has never been stronger with supply of both liquids and battery metals being squeezed – which is why prices are high and likely to stay high.

It’s stretching the point to say a perfect storm of strong demand and limited supply has hit energy stocks, but it is interesting to see how the different categories of energy-exposed companies are outperforming traditional base and precious metals.

Deal flow in the energy sector is a measure of what’s happening with Kidman Resources continuing to react positively to its lithium sales agreement with leading electric car maker Tesla.

Over the past few days, Kidman has added 23c to $2.41, with a brief peak at a 12-month high of $2.46, a price which is 400% higher than the stock’s 50c at this time last year.

But, even as demand for lithium and cobalt kept battery-metals stocks humming this week, there was a burst of news at the top and bottom of the oil sector.

At the bottom, Buru Energy added 2c to 38c after announcing the sale of a half-interest in its Ungani oilfield in the north of WA. At its latest price, Buru is double where it was 12-months ago.

At the top end of energy, Santos suffered a sell-off after rejecting a takeover bid with management saying a higher price, or a simpler deal, was required. On the market, Santos share fell by 60c to $5.90.

However, the fact that Santos is a target at all given its lack of growth options is a comment on a gathering shift back into oil stocks as the underlying price of oil heads towards $US90 a barrel.

What’s happening is a sector-wide uplift as the effect of the oil-price recovery forces a re-pricing of all forms of energy, even the least loved source of energy, coal.

Oil might be seen as yesterday’s energy source in a world fascinated by battery metals but it really is oil that sets the pace for all forms of energy; when oil rises everything else follows, including lithium.

The significance of the change in the energy outlook from one of a price-damaging glut to a point where supply and demand are better matched, and might even be moving towards a shortage, can be seen in the oil price and a growing belief that the US shale-oil boom is not filling the gap left by production cutbacks in the Middle East.

Another factor in the oil market is an emerging shortage of certain types of liquid, especially material called middle distillate, which is the building block for diesel and jet fuel.

Morgan Stanley, an investment bank, said the problem with middle distillate is that it can’t be produced from light oils, such as those in natural gas streams or US shale oil, and without a boost in supply of heavier crude oils, a shortage of diesel and jet fuel could develop, underpinning an even higher oil price by the end of the year.

Energy wasn’t the only part of the market generating news in what has been a weaker period of activity dominated by international factors, including a continuation of the upward trend in US interest rates, which is hurting gold, and uncertainty over US foreign policy in regards to North Korea and China.

The gold price, after its sharp mid-month fall from $US1324 an ounce to a low this week of $US1282/oz, appears to have stabilised at around $US1294/oz, an encouraging sign but not enough to save most gold miners from losing ground over the week, with leaders such as Northern Star down 45c to $6.16, and St Barbara, down 11c to $4.59.

Another feature of the market this week was a large number of successful capital raisings that included:

  • Great Boulder, attracting a fresh $2.5 million to drill new targets at its Mt Venn copper, nickel and cobalt project in WA. On the market Great Boulder added 2c to 28c.
  • Sipa raising $1.04 million for drilling at its Paterson North copper and gold project in WA. The stock was down 0.05c at 1.05c.
  • De Grey Mining raising $6 million to accelerate work on its Pilbara Gold project in WA. On the market, De Grey added 2.5c to 17.5c, and
  • Titan Minerals, which raised $11 million to finalise the acquisition of the Mirador copper and gold project in Peru.

The successful capital raisings are an indication of the ongoing high level of investor interest in the resources sector despite recent weakness in some metal prices.

Other news events and share-prices moves of note, up or down, included:

  • Dacian Gold adding 6c to $2.86 in a tough week for gold stocks after reporting strong infill drilling results at its Cameron Well prospect at its Mt Morgans mining centre. Best result was 24 metres at 5.3 grams of gold a tonne from a depth of 62m.
  • Liontown starting to move higher yesterday after reporting more strong drill results from its Kathleen Valley lithium project in WA with a best assay of 16m at 1.6% lithium from a depth of 71m, with richer zones including 2m and 2.4%. On the market, Liontown added half-a-cent to 2.8c
  • West African Resources losing 1.5c to 33.5c on the market but earning a buy tip from Macquarie Bank which sees the stock heading to 50c.
  • Highlands Pacific adding 3c to 11c after announcing a financing deal with the investment fund, Cobalt 27, covering production of cobalt and nickel from its part-owned Ramu project in Papua New Guinea.
  • Mincor adding 2c to 46c on Wednesday after reporting more strong nickel assays from drilling at its Cassini project with a best hit of 6.31% nickel over 11.71m. It closed yesterday at 45c.
  • Gindalbie Metals firming slightly to 2c after reporting that it was pressing ahead with a deal to acquire up to 75% of the Mt Gunson copper and cobalt project in South Australia.

Image via Kiplinger.com

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