BHP shares up 11.5% over just five trading days to $50, a rise which boosted the stock-market value of the world’s biggest mining company by $25 billion, tells you everything you need to know about the effect of the Ukraine commodity boom on resource stocks.
In what could be the high point in the global “everything boom” that started with battery metals and flowed across into all forms of energy, old and new, there is now a rush to buy food as China ensures that its 1.1 billion people do not go hungry, a certain way of triggering civil unrest, a government nightmare.
Wheat, the best measure of food prices, rose by 30% this week to more than $US11 a bushel, an all-time high.
According to a Bloomberg News report. Chinese officials have ordered companies to “scour markets worldwide” for key commodities including oil, gas, iron ore, wheat, barley and corn to avoid war-caused shortages.
But in that wheat price lies a warning for investors late to the party, with Bell Potter, a stockbroking firm, maintaining a sell recommendation on Graincorp, one of Australia’s biggest wheat traders, which has enjoyed a 21% share price rally over the past month to an all-time high of $9.11, but is said by Bell Potter to heading for a future price of $6.70.
In what could be a telling piece of advice, the broker said that the “tailwinds driving Graincorp will dissipate,” a warning applicable to all commodities especially if the Ukraine war triggers a recession in Europe and a depression in Russia, with China invited to pick up the pieces.
The Ukraine/Russia trade, which could have months to run, reflects concern about the immediate effect on commodities produced in those two countries with oil following coal to a 10-year of $US115 a barrel while nickel also reached a 10-year high of $US25,500 a tonne.
Australian oil and nickel stocks followed commodities higher. Woodside Petroleum rose by 15% over the past week to $31.42 and Santos added 14% to $7.97.
Carnarvon Petroleum was a winner at the small end of the market, adding 6c to 28c, partly due to encouraging results from the Pavo No.1 exploration well off the WA coast. Canaccord Genuity has lifted its share price target for Carnarvon from 43c to 49c.
Mincor was the pick of the local nickel producers, up 13% this week to $2.20, taking the stock’s rise over the past six months to 52%.
Thermal coal, thanks to a scramble to replace Russian material, is now selling for three times its pre-Christmas price. Even Chinese buyers appear to have dropped their objections to Australian coal. Needs must!
Coal, however, could be another example of the commodity market and the stock market disconnecting as a feeding frenzy develops in essential raw materials which is driving prices up at a much faster pace than share prices.
Whitehaven Coal, a major beneficiary of this week’s 70% rise in the coal price to the $US435/t mentioned earlier, could manage “only” a 20% share price rise to $3.87, which took the stock back to where it was two years ago – when thermal coal was selling for $US90/t.
Chinese controlled Yancoal added $1.45 (44%) to $4.73 after its chief executive, David Moult, said his customers were desperate to buy alternatives to Russian coal.
War always does strange things to commodities, and this war is only a week old so it’s likely that other commodities will boom before the inevitable bust as high prices spark the next chapter in the process – demand destruction.
Before getting to a collapse in demand there is another big event scheduled for mid-March, a widely expected rise of 0.25% in U.S. interest rates, an event which will test the price of gold, the world’s safe haven commodity/currency.
The migration of funds into gold helped the metal rise by $US45 an ounce over the past week to $US1930/oz but that rise back to a level last seen 12-months ago did little to help local gold stocks where there were as many falls as rises, perhaps because of the imminent start of a rate rising cycle.
Long-time favourite Northern Star was an example of gold investors being rate-shy with the stock losing 29c over the week to $9.92 even as the gold price rose. Evolution was another popular gold producer to be sold off, shedding 11c to $4.14.
Gold stocks to gain ground included Bellevue, up 3.5c to 97c. Rex, up 1.5c to 22c after the company reported more encouraging assays from its Hog Ranch project in the U.S., and Oklo, up 2.5c to 11 after reporting high grade assays of up to 87.5 grams of gold a tonne over 1m at its Dandoko project in Mali. Calidus added 5c to 80c as it gets closer to a maiden gold pour at its Warrawoona mine in WA.
Nickel stocks were the pick of the battery metals family this week thanks to the sharply higher price for the metal, which is one of Russia’s most important commodity exports, but it’s in nickel that another example of the disconnection between commodities and equities can be seen.
While the price of the metal rose to $US25,500 a tonne, most local nickel stocks reacted modestly. Panoramic was up 3c at 29c while Blackstone could only manage a rise of 1.5c to 48c despite reporting big plans for its Ta Khoa project in Vietnam.
A measure of the war-caused decoupling between the nickel price and share prices can be seen in Bell Potter’s $1.95 price tip for Mincor, which is 25c below the market, or better still, Macquarie Bank’s $1.70 price target for the stock, which is 50c below the market.
S2 Resources attracted interest in a report of disseminated nickel/copper sulphides encountered while drilling in its remote West Musgraves project in WA but only managed a share price rise of 0.5c to 18c even as Euroz Hartley tipped a price target of 35c.
Copper, the world’s bellwether commodity, rose by US20 cents a pound to $US4.68/lb, a small increase given the intensity of fighting in Ukraine and ongoing demand from industry for the bellwether metal.
Pick of the local copper-exposed stocks was Hot Chili, which rose by 35c to $1.61 after announcing a sales deal for copper from its Costa Fuega project in Chile with big commodity trader Glencore.
Other copper moves included Coda, up 9.5c to 75c after reporting fresh assays from its Emmie Bluff Deeps project in South Australia. AIC Mines was up 4c to 68c thanks to interest in its redevelopment of the Eloise copper mine in Queensland, and IGO, added $1.15 to $12.35 after rejecting an opportunity to by the CSA copper mine in NSW from Glencore.
Other news events and stock market moves included:
- Core Lithium, up 22c (30%) to 97c after announcing an offtake deal with electric car maker Tesla for the supply of lithium from Core’s Finniss project in the Northern Territory.
- Allkem was another lithium winner with a rise of $1.06 to $10.09 after announcing higher prices for material produced at its Olaroz project in Argentina. J.P. Morgan reckons Allkem is heading for $12.50, Macquarie says $13.
- Champion Iron led iron ore miners higher with a rise of 71c to $6.95 after the price of the steel-making material added $US10 a tonne to $US144.50/t.
- Sovereign Metals said it had signed an offtake deal for rutile produced at its emerging Kasiya project in Malawi, helping lift the stock by 4.5c to 46c
- Adriatic Metals added 18c to $2.32 after releasing a construction update for its Vares polymetallic project in Bosnia.
- Australian Strategic Materials signed an agreement with Korea’s Hyundai Engineering for work on its Dubbo zirconia and rare earths project in NSW. On the market, ASM added $1.26 to $8.92.
- Lynas Rare Earths added $1.72 to $10.99 after reporting that deep drilling at its Mt Weld project in WA had confirmed continuous mineralisation to a depth of 1020m albeit at a grade less than that being mined closer to the surface.
- Chalice Mining said the latest drill results from the company’s flagship Julimar palladium and nickel project in WA confirmed the potential for underground mining. On the market, Chalice added 39c to $7.70.
- Cobalt Blue put on 11c to 58c after being awarded major project status by the Australian Government for its proposed cobalt mine near Broken Hill in NSW, and
- Boss Resources led a resurgent uranium sector with a rise of 65c to $2.70 as nuclear power stormed back into contention as a replacement for Russian oil and coal.
