Bond prices, which always move ahead of official rate settings, confirmed the downward trend with the U.S. 10-year dropping to 3.98% and the Australian 10-year falling to 4.12%.
It was only two months ago that U.S. 10-year bonds reached 5% and the Australia rate was 4.9%.
The falls are deeply significant because they form the base for valuing all assets, including property, as well as being the principal tool in fighting inflation, which is tipped to retreat back to around 2% in the U.S., with Australia following.
Key U.S. stock market indices, the S&P 500 and the Dow Jones 30, are close to record highs as traders rush to buy a seat at the table ahead of the New Year, which is shaping as a continuation of the recovery mentioned several times in this column.
Merger and acquisition (M&A) activity is also expected to pick at the top and bottom of financial markets. Woodside’s offer to buy Santos is a top end deal which has as much to do with energy sector changes as a hunt for growth which has not come from exploration.
Speculation that the world’s third-biggest mining company, Anglo American, might soon cop a takeover bid after reporting lacklustre production results could be the spark to ignite mining sector M&A action.
The change flowing from rate cuts will not be one-way traffic but there are several themes starting to emerge as the interest rate tsunami flows across every sector, triggering waves of repricing.
Gold, mentioned earlier, will be a major beneficiary as rates fall. Citi, an investment bank, refreshed its commodity forecasts this week with US$2150/oz its target for the middle of next year – but it also warned investors not to expect a commodity-sector boom as the global economy settles into a new and slower rhythm.
Local gold stocks, sold off early in the week as the price of the metal faded marginally, enjoyed a solid recovery yesterday, led by Evolution, which had dipped to $3.52 before bouncing back to $3.72, and Northern Star, which rose by 60c to $13.05.
Other gold moves included:
- Spartan Resources bouncing back from a midweek low of 44c to 48c after reporting additional high-grade results from drilling at its Dalgaranga project in WA with a best hit of 18.38 metres assaying 6.1 grams of gold per tonne from a depth of 453m.
- Regis Resources rising by 18c to $2.07 after reporting the closure of its hedge book, which is expected to enhance investor appeal. Bell Potter reckons Regis is heading up to $2.37, a 6c increase on an earlier price tip of $2.31.
- Alkane Resources recovered from a midweek low of 62c to trade up to 68c after reporting an increase in the resource at its Boda gold and copper discovery in NSW which now stands at 10.9 million ounces of gold equivalent, and
- Genesis, which fell by 6.5c to $1.76 after announcing a deal to acquire additional assets its backyard of WA’s Leonora goldfield from Kin Mining, which rose by 0.6c to 6.6c.
Citi’s optimistic outlook for gold did spread to other commodities. The bank warned that its view was distorted by the lingering effects of this year’s record upward surge in interest rates which would delay and deaden economic growth.
China could save the day if its government successfully stimulates the local economy but Citi believes that “interest rates hikes have not delivered their biggest hit to growth yet”.
For the resources sector that means ongoing price pressure such as that which has flattened demand for lithium and other battery metals which flew too high and will now spend much of next year finding a level which recognises the challenge of excess supply.
Nickel, once a star of the Australian resources sector, has become its sick man as a flood of low-cost Indonesian material crushes the price, which has crashed by 42% over the past 12-months, helping tip Panoramic Resources into insolvency and forcing IGO to start winding down its Cosmos project.
For IGO, which bet its future on battery metals, the Cosmos crisis is the latest in a series of setbacks which started with the premature death of its chief executive, Peter Bradford, and rolled into the lithium crash, which has seen a heavy 45% share price fall from $15.14 to $8.25 over the last six months – even with a handy 73c rise yesterday.
Lithium showed signs of stabilising around US$13,500 a tonne in its carbonate form, helping Azure stem heavy falls which had seen the company behind the Andover discovery in WA’s Pilbara plunge from $4.37 last month to $3.54 early this week – before clawing back 9c to trade at $3.63.
Infinity Mining was a rare lithium winner this week as interest grows in its Woody prospect in the heart of Pilbara lithium territory, adding 4c to 16c after reporting an extension of the mineralised strike to 5.7 kilometres.
Most other lithium moves were down, including:
- Leeuwin Metals, down 2c to 17c despite reporting surface samples grading up to 4.31% lithium at its Cross Lake project in Canada.
- Winsome Resources, down 19c to 96c despite reporting what it called as “globally significant” maiden resource of 59 million tonnes of material grading 1.12% lithium at its Adina project in Canada, and
- TG Metals down 29c to 41c despite reporting encouraging lithium assays from drilling at its Lake Johnston project in WA with a best hit of 19m at 1.52% lithium.
Iron ore stocks rode higher with the price of their underlying mineral which slipped US$2 a tonne lower to what is still an inflated price of US$136.50.
Rio Tinto, despite its bulk, was the star performer with a rise of $3.09 to a $130.24, just short of a 12-month high reached early on Thursday of $132.17.
Fortescue wasn’t far behind Rio with a rise of $1.70 to $27.22, also just short of its 12-month high of $27.34.
Arrow Minerals, which has struggled to gain traction with its Simandou North project, got a wriggle on this week with the appointment to the board of seasoned iron ore project developer David Flanagan and plans to raise fresh capital to push ahead with the project in the west African country of Guinea. The stock slipped back by 0.01c to 0.02c.
Uranium stocks were mixed even as the price edged higher, reaching a fresh 16-year high of US$82.30 a pound, up US85c in the week.
Local leader Boss Energy firmed slightly with a rise of 12c to $3.95 while Paladin slipped 1c lower to 95c and London-listed Yellow Cake, a buy-and-hold fund, rose by 2% to £6.04 after its chief executive, Andre Liebenberg, warned about China’s drive to corner the global uranium market.
Rare earths, which are also under Chinese pressure, weakened slightly. Lynas slipped 10c lower to $6.33, while Arafura lost 3.5c to 16c after announcing a $30 million capital raising priced at 16c to help fund work at its Nolans project in the Northern Territory.
Askari Metals was an exception in in the rare earth sector, adding 2.5c to 20c after reporting encouraging sampling and geophysical test results at its Barrow Creek project in the Northern Territory.
Other news and market moves of interest included:
- Sierra Rutile continued to struggle with its mineral sands project in Sierra Leone reporting soft demand, falling production and rising costs which contributed to a 1.5c share price fall to 8.9c.
- Firefly Metals (formerly Auteco) slipped 3c lower to 50c despite reporting encouraging copper grades at its Pickle Crow gold project in Canada. Shaw and Partners is forecasting a future share price of $1.20.
- Burley Minerals added 0.5c to 17c after reporting high grades of caesium-rich pollucite at its Chubb prospect in Canada. Caesium has a range of uses in chemicals, include ng oil drilling fluid.
- WA Resource reported a batch of fresh niobium-rich assays from drilling at its West Arunta project in central WA which did not stop the stock falling by 50c to $8.15, and
- Investigator Resources slipped 0.5c lower to 4c after announcing a $5 million capital raising to advance work on its Paris silver project in South Australia.