Lithium and uranium keep investor spirits up amid latest US rises

A lithium rush led by Albemarle’s $6 billion bid for Liontown and an offer by Mineral Resources to buy the Bald Hill mine saved the Australian market from the worst effects of a mid-week sell-off which hit the U.S. after interest rates resumed their upward march.

By Tim Treadgold.

Global Markets 2

The twin lithium deals, which highlight the importance for investors of critical metals, also revealed a second significant trend which is the drift away from China and the rebuilding of ties with the U.S.

Albemarle’s latest move is an obvious measure of growing U.S. interest in Australian resources while the Bald Hill transaction is a case of a questionable Chinese deal unravelling and a local buyer with U.S. connections picking up the pieces.

A second U.S. connected development is the growing interest in Australian uranium as a nuclear renaissance gets underway with Boss Energy close to restarting the Honeymoon mine in South Australia just as the U.S. looks for fuel to replace Russian material.

When combined with traditional diplomatic and military ties, the return of U.S. interest in Australian resources could be signalling a reduced reliance on China as an investor and customer.

Greater U.S. involvement with Australian resources also complements the rise of India as a market for commodity exports as demand from China peaks and relations with that country become more difficult.

Lithium and uranium activity help counter an overall negative tone to the markets this week with the all-ordinaries index slipping 1.5%, the same as the metals index, with both weighed down by BHP trading ex-dividend. Gold, however, was the weakest sector, with the index down 3.8% as the gold price lost US$20 an ounce to US$1919/oz.

The local gold price clung to A$3000/oz thanks to the latest slide in the value of the Australian dollar, which fell to US63.7 cents, a drop which was as much about the strength of the U.S. currency as Australian weakness.

Investors with an eye on big trends will be watching the currency market closely because it can be an early warning indicator of tougher times ahead, not simply because of lower commodity prices but also because of rising costs flowing from major government decisions, including the higher costs being forced on business by the re-unionisation of the workforce.

In the U.S, the week was dominated by stronger than expected economic data which led to forecasts of a fresh round of interest rate increases. Two-year bond yields topped 5% and the 10-year note hit 4.3%. Swap contracts point to a November rate increase by the U.S. central bank.

High profile Morgan Stanley analyst Michael Wilson repeated his warning that the U.S. stock market is overvalued and there is “too much optimism about the outlook for the U.S. economy”.

Adding to the cautionary tone was an increase in the oil price to US$90 a barrel for the first time this year with oil a key component of costs, feeding into to a view that inflation is not yet under control and high interest rates could last well into next year.

Liontown, the star attraction of the week, briefly cleared the $3 per share offer from Albemarle but settled around $2.98, a sign that the market regards the bid as fully priced even with Bell Potter sticking with a target of $3.35.

Other lithium news and share price moves this week included:

  • Lithium Plus rising by 10c (45%) to 35c after reporting a 127-metre mineralised pegmatite from drilling at the Lei project in the Northern Territory. The company expects to report a high-grade lithium resource by the end of the year.
  • Mineral Resources added 50c to $71.54 after moving to acquire Bald Hill from the failed Alita Minerals which has been in the hands of administrators for two years and remains under investigation for selling lithium to Chinese customers at deflated prices, a tactic known as transfer pricing.
  • Leo Lithium lost 8.5c to 59c after revealing tough talks with the government of Mali which has forced the suspension of plans to ship low-grade ore. Brokers are divided on how to treat Leo. Wilsons likes the stock and has it as a buy with a price target of $1.70. Jarden says hold with a target price of 60c and Macquarie says buy with $1 the target.
  • Vulcan continued to lose ground as it pushes ahead with it Zero Carbon lithium project in Germany with the stock slipping 12c lower this week to $3.20 even as CG Capital Markets refreshed a speculative buy tip and price target of $12.50, and
  • Torque Metals jumped 21c (180%) to 33c after announcing the acquisition of a lithium rich tenement package adjacent to its Paris gold project in WA.

Uranium, helped along by the higher oil price, breached the US$60 a pound mark for the first time since Russia invaded Ukraine.

Boss led the way up among local uranium stocks with a rise of 60c to $4.08, outstripping most stockbroker price tips. Bell Potter, in a mid-August note to clients, said it expected Boss to rise from $3.33 at the time to $3.72. Macquarie, a few days earlier said $3.50 was as good as it could get.

Paladin, which is redeveloping the Langer Heinrich mine in Namibia, added 4c this week to 90c. Lotus gained 4c to 26c and Peninsula clawed back 0.5c to 9.1c while Shaw and Partners sees a future price of 27c.

Iron ore had a better week as the price edged up by US$1 a tonne to US$119/t and Fortescue’s rapid-fire staff turnover faded from the headlines, even though investment banks published negative views on the stock, which slipped 14c lower over the week to $20.24.

UBS, after a sell-side round table conference with Fortescue management, stuck with a sell recommendation at price target of $15.20.

Morgan Stanley revised its opinion of iron ore after taking a fresh look at steel demand in China which is better than expected, meaning production cuts might not be as severe as feared. “We see upside risks to our US$90/t fourth quarter forecast,” the bank said.

Gold stocks, as expected, were sold down as the gold price was hit by speculation of another round of interest rate increases.

Not even reports of heavy Japanese buying as a hedge against inflation could save the day for gold, which in yen terms is trading above ¥10,000 for the first time.

Gold sector leaders all lost ground. Evolution was down 5.5c to $3.57. Northern Star lost 64c to $11.06. Bellevue slipped 17c lower to $1.51 and De Grey fell by 6.5c to $1.33.

Other news and market moves this week included:

  • Aura Energy added 3c to 11c after releasing a positive scoping study into its Haggan critical minerals project in Sweden which is being designed to produce vanadium, nickel, molybdenum, potash and uranium.
  • Buxton Resources rose by 3.5c to 19c after reporting an exceptionally broad (626.88m) intersection of porphyry copper and molybdenum sulphides from drilling at the Copper Wolf project in Arizona with its joint venture partner, IGO.
  • Killi Resources jumped 2.3c (62%) higher to 6c after reporting high grade copper assays of up to 7.2% from surface chip samples at its Baloo prospect in Queensland.
  • Sandfire slipped 24c lower to $6.43 as the copper price eased back to US$3.73/lb and despite a UBS research note which highlighted the scarcity of ASX-listed copper stocks while forecasting a future Sandfire share price of $7.
  • BCI Minerals eased back by 1c to 28c after announcing receipt of a $150 debt package to help fund its Mardie potash and salt project.
  • Chalice Mining lost 23c to $3.08 with UBS upgrading the stock from sell to neutral while also suggesting that the company might focus initially on a smaller development after a poorly received scoping study, and
  • Kingsland rose by 2.5c to 28c after reporting a bonanza intersection of 206m at 10% graphite from the latest drilling at its Leliyn project in the Northern Territory.

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