Return of the deal shows a recovery could be on its way to a mining stock near you

14th September 2018
Tim Treadgold

Given a choice between fear and greed, cautious investors always opt for fear because they never know if there’s bad news on the way. But unless some of the brightest bean-counters in the business are very wrong, it looks increasingly like the market has been over-sold.

Deal flow, including surprise takeover bids at the bottom end of the mining sector, diversification moves by well-established gold miners and speculation that the trade war between China and US might be headed towards a resolution support the over-sold theory.

No-one has blown a whistle to declare that the trade-war driven sell-off which started earlier this year is over, but some of the valuation gaps in the market verge on the spectacular.

OZ Minerals is a good example of what’s happening, falling 20% from its high for the year of $10.70 as recently as June 7 to latest sales at $8.60, thanks largely to a similar fall in the price of copper, its primary product.

But, for clients of Macquarie Bank there’s a problem because the bank said in a research report released on Monday that OZ is a buy with a 12-month share price target of $12.20, a potential rise of 41.8% for a high-quality stock -- if the bank is right.

What Macquarie likes about OZ is its rock-solid profitability from copper and the potential addition of nickel to its inventory as exploration with Cassini Resources in the remote West Musgrave region of central Australia continues to throw up tantalising assays, including a whiff of cobalt and associated platinum group metals.

If it was just Macquarie being super-optimistic, the value-gap between the market and analysts might not be so interesting. But there’s also the case of Pantoro, a Kimberley gold producer which has dropped by 47% from 38c to 20c, partly thanks to a recent capital raising. It is 65% short of the 33c target price suggested by Bell Potter on Wednesday.

A third example of the disconnect can be found in the small but promising gold explorer, Explaurum which had been limping along at around 8c for much of the past 12-months until receiving a share-swap takeover bid valued at 11.7c from Ramelius, a well-established miner on the lookout for its next project.

Hartleys, a Perth stockbroker and close follower of Explaurum, reckons 15c is a fairer price – which is close to double the long-run price of 8c.

Even as its Explaurum bid was being digested, Ramelius re-inforced its desire to grow by acquisition with a $13 million offer for the Marda gold project owned by the failed Black Oak Minerals, with the ore at Marda within trucking distance of the Edna May processing plant, which might also be the case with material from Explaurum’s Tampia Hill project.

Other deals highlight the point that the market is moving into a deal-doing phase. Five other examples demonstrating that point are:

  • St Barbara, a pure goldminer, boosted its exposure to base metals by contributing $1.8 million to a $12.3 million fund raising by copper and zinc hopeful Peel Mining, an investment which lifts St Barbara’s stake in Peel to 17.9%.
  • Northern Star, another pure goldminer, upping its exposure to base metals by providing a $2 million loan to Venturex so it can finalise a definitive feasibility study into the Sulphur Springs copper project. Northern Star is already the biggest shareholder in Venturex.
  • Ausquest added to the projects under its unique exploration-focussed joint venture with mining giant, South32, which effectively sees Ausquest act as an early stage project generator.
  • Metallica, a Queensland focussed bauxite project developer merging with Melior, a Canadian-based company with an emerging mineral sands miner also in Queensland, and
  • Hancock Prospecting added a conditional 0.25c to the price its prepared to pay for Atlas Iron in a move designed to finalise an offer for all of Atlas but which appears to have stalled. The new price is 4.45c.

The flow of deals and the position-taking among small-to-medium companies adds to the view that commodity markets have become disconnected from the corporate and financial market where activity is picking up to take advantage of a correction which might be coming to an end.

Apart from a pick-up in deal flow, there was a generally stronger tone to the mining market this week, though most moves, up or down, were modest:

  • Panoramic added 2c to 48c after reporting the sale of the Lanfranchi nickel mine in WA to US-based Black Mountain Metals for $15.1 million with the cash injection helping Panoramic focus on the re-development of the Savannah nickel mine, also in WA.
  • Kairos Minerals reported the recovery of 256 gold nuggets from its Croydon project in the Pilbara region of WA with the nuggets displaying a flattened shape which is part of the theory that a Witwatersrand-type gold province could be located in the north-west of WA. On the market, Kairos added 0.5c to 3.5c.
  • Millennium Minerals added 2c to 22c after reporting that it had achieved a 100,000 ounce per year run rate at its Nullagine gold project ahead of schedule, as well as announcing outstanding high-grade drilling results from the Golden Eagle prospect with a best hit of 4 metres at 15.34 grams of gold a tonne from a depth of 23m, with a 1m section assaying 54.9g/t.
  • Altura rose by 1c to 24c after announcing that it had secured an additional $US15 million in debt funding to finalise the ramp-up of lithium production at its Pilgangoora project in WA.
  • Pioneer Resources said mining had started at its Sinclair project near Kalgoorlie in WA which will produce cesium, a metal with a variety of high-tech uses. Pioneer’s share price remained at 2c.
  • Kalium Lakes, which is close to finalising a bankable feasibility study into its Beyondie potash project, added 1c to 46c, but remains well short of the 65c price target set by Macquarie Bank.
  • Bass Metals added 0.6c to 2.6c after reporting high-grade lithium assays from work at its Millie’s Reward project on the island of Madagascar with a best intersection of 3.72% lithium over 31m, and
  • Oklo Resources put on 1c to 28c following the report of the discovery of a 6km-long gold corridor at its Kourofing project in western Mali.

 

Image: The West Australian

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