Billionaire buyers drive lithium explorers higher as gold falls

Billionaires played another round of lithium asset acquisition as the Australian stock market rebounded this week but next week it will all eyes on the Melbourne Cup and the odds-on favourite, Rising Rates.

By Tim Treadgold.

Global Market 3

Wildcat Resources, which has its foot on a promising lithium discovery in WA’s Pilbara region, was the latest explorer to be raided, with Chris Ellison’s Mineral Resources snapping up a 20% stake and reported to also be a buyer of shares in the neighboring Azure Minerals.

The biggest of Australia’s billionaires, Gina Rinehart, has already claimed a 20% stake in Azure and given a history of working amicably with Ellison in the past, it is possible that a grand lithium development plan is being hatched behind closed doors.

Wildcat, after a strong performance last week when it doubled to 86c, eased back to 83c this week while Azure became the focus of attention, steaming up to $3.75 (before easing to $3.68), heaping doubt on whether a $3.52 takeover bid from Chile’s SQM can succeed given the attention of Ellison and Rinehart.

The key man in unravelling a tangle of competing interests is another billionaire, prospector Mark Creasy, who has a big stake in Azure plus a 40% interest in the prize everyone is chasing, the world-class Andover lithium deposit, which has returned drill intersections more than 200 metres thick.

What’s happening is essentially a re-run of the battle for control of Liontown Resources, which is in the process of developing its Kathleen Valley mine north of Kalgoorlie with Rinehart as the major shareholder having elbowed U.S.-based Albemarle out of the way.

The building of a world-class lithium business by Rinehart and Ellison (jointly or individually) is one of the most significant events in Australian business today with the timing particularly interesting.

Their lithium interests are growing as the price of the battery metal falls thanks to slowing Chinese demand, which this week saw IGO, a co-owner of the Greensbushes mine in the south of WA, warning that it might have to stockpile unsold material.

Lithium stocks this week were a perfect example of why it can sometimes be better to travel than to arrive, with most explorers rising as the producers fell.

IGO led the way down after its sales warning, dropping by $1.33 to $9.48 while in New York, the world’s biggest lithium producer, Albemarle Corporation, echoed IGO’s price and demand warning.

Albemarle said September quarter earnings dropped to US$302.5 million compared with US$897.2 in the corresponding period last year. The company’s shares were down 10% this week to US$123.

Pilbara Minerals, another leading lithium producer had a poor week, shedding 26c to $3.65 while Allkem lost 82c to $9.29.

The flipside was occupied by the explorers such as Wildcat and Azure and by newcomers, such as, TG Metals which rocketed up by 34c (384%) to 44c after reporting excellent results from drilling from the first hole at its Burmeister project in the south of WA.

TG’s assays included nine metres at 1.35% lithium from a depth of 30m with a high-grade zone of 1m at 2.22% lithium and another 9m at 1.62% from 87m, including 1m at 2.28%.

Other lithium news and market moves included:

  • First Lithium adding 13c to 39c after reporting lithium-rich pegmatites from drilling at its Blakala project in the west African country of Mali. Best hit was an eye-catching 112.8m thick. Assays are expected in the next six-to-eight week.
  • James Bay Minerals rising by 4c to 31c after reporting the presence of spodumene crystals in outcropping rock during the first field trip to its Warhawk project in Quebec.
  • Patriot Lithium gaining 2.5c to 21c after announcing that it had secured a large tenement position in the “electric avenue” district of north-west Ontario, and
  • Calidus adding 1.5c to 19c after reporting the completion of the first round of soil sampling at its Tabba Tabba South exploration project in WA’s Pilbara.

Overall, the Australian market had a positive week after a poor start, down 1% in early trade before bouncing back to close yesterday with a gain of 1% as measured by the all-ordinaries index.

Lithium news, thanks to the activity of Rinehart and Ellison, did much to offset the early weakness with a significant boost coming yesterday (Thursday) after the U.S. central bank said it was holding interest rates at their current level, but might review them later, depending on the next inflation reading.

Australian investors will know their interest rate fate on Tuesday when the Reserve Bank meets to consider a rate rise after the unwelcome recent rise in inflation.

Wilsons, an investment, warned midweek that rates were likely to not only rise again but stay high until inflation is tamed. “A slow descent (of inflation) raises rate risks,” it said.

The same point was made by the International Monetary Fund which said in a statement issued in Washington that “more needs to be done to contain Australia’s high and persistent inflation”.

Apart from the gains made by lithium stocks there were a number of other stars this week, including WA1 Resources which stormed its way up to an all-time high yesterday of $9.53 before easing to $9.15 for a week’s gain of $2.25 thanks to more encouraging drill results from its niobium discovery in central Australia. Argonaut Capital sees a target price of $10.

Tietto Minerals was the pick of the gold sector with a rise of 17c to 57c thanks to a takeover bid pitched at 58c from Chinese miner Zhaojin.

Most other gold stocks were flat or slipped marginally as the gold price retreated from a high on Tuesday of US$2005 an ounce to US$1985/oz while a stronger Australian dollar saw the local gold price fall faster to close at A$3086/oz.

Northern Star lost 18c to $11.67. Bellevue was 0.5c weaker at $1.41, and Evolution was flat at $3.53.

Steep falls were another feature of the market this week, led by Canadian-listed First Quantum which has a big copper mine in Panamá as well as control of the Ravensthorpe nickel mine in WA.

First Quantum plunged by 48% to C$14.78 after the government of Panama said it would hold a referendum on the future of the company’s Cobre Panama mine which could be closed and a ban imposed on all metal mining in the country, similar to bans in Costa Rica and El Salvador.

Base Resources was another big loser, shedding 6c (35%) to 11c after a releasing a poor exploration report and warning about the effects of low titanium mineral prices on its Kwale mine in Kenya.

Other news and market moves of interest this week included:

  • Encounter Resources, up 8c to 34c after reporting that it had identified a new niobium and rare earth carbonatite on its West Arunta project in WA.
  • Many Peaks Gold adding 6c to 32c after identifying a large rare earths target at its Odyssey project in Canada with soil chemistry readings up to 6.3% rare earths, including 1.34% neodymium and praseodymium.
  • Nickel Industries, up 5c to 81c thanks to its exposure to the Indonesian nickel sector which is emerging as winner from U.S. Government critical metals incentives. Citi reckons the stock is heading up to 95c. Bell Potter doubles that with a target of $1.80. Most Australian nickel stocks were down.
  • Sandfire Resources was 4c weaker at $6.01 but Wilsons reckons its heading up to $8.45 because it is an “under-appreciated” copper producer.
  • Whitehaven Coal slipped 54c lower to $7.28 after a bruising encounter with London hedge fund Bell Rock which reported the sale of half its stake in Whitehaven, and
  • Burgundy Diamond Mines reported increased revenue from its recently acquired Ekati mine in Canada but saw its shares loss another 2.5c to14c. Bell Potter reckons a recovery is on the way, tipping a price target of 50c.

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