Surging prices for copper and nickel underpin a bumper week for mining stocks

8th June 2018
Tim Treadgold

Copper and nickel staged a two-horse race on the Australian stock market this week with copper winning by a nose, but with most companies exposed to the metals enjoying strong support, led by Sandfire Resources in copper and Independence in nickel.

A sharp and largely unexpected surge in the price of both copper and nickel left other popular commodities, including battery-metal darlings lithium and cobalt, in the dust – though much of the interest in copper and nickel is because of their use in batteries.

Copper added 5% over the week to trade around $US3.26 a pound, which is just short of a five-year high. Nickel reached $US7.11/lb, a four-year high, before easing to around $US7.05/lb.

Sandfire, which has been the subject of probing by investment analysts over the life expectancy of its flagship Doolgunna mine, stood out as a winner on both the copper price and growing interest in the nearby Morck’s Well discovery with its partner Auris Minerals.

On the market, Sandfire added 90c (10.3%) over the week to $9.66. Auris, oddly, went the other way, slipping 1c to 8c – a split which emphasised the point that price moves were more closely related to the underlying copper price and the effect on companies actually in production and less on explorers. Another copper mining favourite, OZ Minerals, put on 82c (8%) to $10.62.

The battery theme was most evident among nickel stocks with Independence adding 54c (11%) to $5.32. Panoramic, which is re-opening its Savannah mine in WA’s Kimberley region rose by 8c to 63c, and Western Areas added another 34c to $3.69, crushing what life was left in speculators who had been short-selling the stock.

Rounding off the best week for nickel in several years was a report that mining entrepreneur and former politician, Clive Palmer, wants to re-start the mothballed Yabulu nickel refinery in Queensland, if he can free himself of several legal disputes.

The question which will keep investors on their toes for the next few months is whether what’s happening in nickel is genuine demand or outright speculation about the effect on the metal of battery production for electric cars.

Morgan Stanley, an investment bank, is concerned that the nickel market has got ahead of itself with the risk skewed towards a price correction once the market fundamentals are examined more closely.

Gold stocks, despite the price of the underlying metal barely moving, were in demand, though once again it was the companies which are actually in production and with reliable cash flow that did best.

St Barbara hit a 12-month high of $4.92 on Wednesday before easing to $4.88 for a gain of 11c in a week when the gold price was steady at $US1297 an ounce (or $A1694/oz locally).

Evolution, Medusa and Saracen echoed St Barbara’s performance, all setting 12-month share price highs. Evolution reached $3.44 before closing up 16c at $3.40. Medusa added 7c to reach its new high of 64c at the close and Saracen touched $2.19 before closing at $2.18 for a gain over the week of 2c.

What appears to be attracting investors to the gold stocks, even as the price of the metal stagnates, is the prospect of generous rewards in the form of higher dividends, another pointer to mining stocks becoming yield plays.

Macquarie Bank warned that gold could be in for a bumpy ride over the next few weeks as central banks in Europe and the US consider interest rate settings with any rate increase depressing the gold price, while political events in Korea and Europe are likely to pull gold higher.

The bank’s top picks among the gold producers are St Barbara, Regis and Saracen, with the top picks among explorers and developers being Dacian, Gold Road and West African.

Other news-making and price-changing events (up or down) during the week included:

  • St George Mining riding the nickel recovery with a 4c (35%) price rise to 16c after reporting encouraging assays from its Stricklands project near Leonora in WA. Best hit was 3.36% nickel over 9.75m from a depth of just 43.8m. As well as nickel in the core, there were useful grades of copper (1.76%), cobalt (0.16%) and platinum group metals (2.26 grams a tonne).
  • Gold Mile Resources was another nickel winner, albeit in a premature way, rising by 6c to 56c after reporting that drilling would start next week on its Anomaly One project which is part of the Quicksilver nickel project in the south-west of WA.
  • Todd River Resources also reacted positively to exploration news, rising by 3c (45%) to 11c after reporting the encounter of a thick zone of massive sulphide mineralisation from drilling at its Mount Hardy project in the Northern Territory. Assays are yet to be received but portable X-ray fluorescence (XRF) testing at site yielded encouraging readings.
  • Red River Resources wasn’t to be left out of what was a strong week for exploration news, adding 3c to 31c after reporting fresh high-grade zinc assays from drilling at its Waterloo prospect which is part of the wider Thalanga project in north Queensland. Best hit was a 7.8m section grading 36.5% zinc equivalent, comprising a mix of copper (3.9%) lead (17.5%), zinc (1%), along with readings of silver and gold.
  • Lefroy Exploration has moved closer to a fresh round of drilling at its Lucky Strike gold project on Lake Lefroy in WA after securing a $100,000 grant from the WA Government. On the market, Lefroy added 2c to 20c, but the stock did trade as high as 22c.
  • Vimy Resources attracted investor interest after presentations highlighting its multiple uranium projects in WA and the Northern Territory, adding 2c to 12c -- perhaps aided by reports of growing international interest in uranium as a recovery situation.
  • Aeon Metals reported first assays from the western flank of its Walford Creek base metals project in Queensland, including 22m at 5.7% lead, plus 1.2% zinc and 0.08% cobalt, a promising result which was dismissed by investors who marked the stock down by 4c to 34c.
  • Kibaran Resources reported progress in clearing a logjam of mine and exploration approvals in Tanzania which should help it move forward with its Epanko graphite project. On the market, Kibaran was steady at 15c.
  • Tawana Resources, one of the lithium stars of the past 12-months, reported a doubling of reserves at the Bald Hill project which is the key attraction in a proposed merger with another lithium player, Alliance. Lithium, however, was drowned by nickel this week, which meant Tawana lost 2c to 42c, and
  • Atlas Iron slipped one-tenth of cent lower to 2.9c despite Fortescue Metals snapping up a 19.9% stake which appears to be designed to thwart a takeover bid for Atlas by Mineral Resources. Fortescue is already out-of-pocket having paid 4c for its Atlas stake, not that a small loss worried investors who boosted Fortescue by 5c to $4.74.

Image via The Economic Times

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