Lithium, coal stocks march on in face of interest rate fears

Sharp share-price rises by lithium stocks were rare highlights in a down week dominated by investor concern about how high interest rates might have to rise before central banks are confident that they have tamed inflation.

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Pilbara Minerals led the way hitting an all-time high of $4.22, up 63c, taking its gain over the past four weeks to $1.24 (41%).

Other lithium stocks were not far behind with moves that included:

  • Global Lithium up 35c (20%) to its own all-time high of $2.09, perhaps on the way to a $2.50 price target seen by Macquarie Bank which likes the look of the company’s Manna project near Kalgoorlie in WA.
  • Allkem, up $1.20 to its all-time high of $14.61 with Macquarie forecasting a continued rise to $21, and
  • Piedmont adding 7.5c to 92c as it makes progress on a definitive feasibility study into its U.S. lithium project. Canaccord Genuity said in an updated research note that it sees Piedmont rising to $2.05.

Interest in battery and technology metals, such as rare earths, offset a generally gloomy economic outlook dominated by concern about interest rates, the weakening Chinese economy and the damage being inflicted on Europe by the Ukraine war and high energy prices.

Covid restrictions in China and a drought in regions which produce much of the country’s hydro-electricity have reduced estimates of Chinese annual economic growth to 3%, less than half recent growth rates.

A slower China could mean reduced demand for basic raw materials such as iron ore, copper, aluminium, and other metal.

ANZ Bank said in a mid-week research note that China was being hamstrung by strict Covid controls which have reduced workforce availability. Movement of people in China is expected to remain tight until after the 20th Communist Party congress on October 16.

Overall, the Australian stock market slipped modestly lower this week with the all-ordinaires index down just 0.1% thanks to a 1.8% bounce on Thursday. But that late revival can’t hide the fact that the market is down 11.5% since the start of the year.

Coal, a commodity some investors continue to ignore, hovered around its all-time high of US$440 a tonne, sparking the return of Nathan Tinkler, a high-profile coal player from an earlier era.

Described as a billionaire in 2012 thanks to his big shareholding in Whitehaven Coal, Tinkler crashed when the coal price fell from US$138 a tonne to US$50/ by 2016.

His planned return is through an attempt to win a bidding duel for the NSW miner Australian Pacific Coal (APC) which is also the target of an earlier bid from M Resources which is offering 36c a share.

Tinkler, who is reported to be heading a syndicate called Pacific Premium Coal, has gone for a killer punch with a conditional offer of $1 a share for APC.

The effect on APC has been electric with its share price up 33c (95%) this week to 68c, a huge discount on Tinkler’s $1 offer and a sign that that market is struggling to believe that he will be able to complete the deal.

A dislike of coal is understandable given its poor environmental record, but with global demand booming it is equally likely the price of the world’s most commonly used fossil fuel will stay higher for longer than some investors imagine.

Jefferies, a U.S-based investment bank reinforced its optimistic view of coal during the week with a report which said simple that “coal is king.”

“Coal continues to be our preferred commodity in the short term as an energy squeeze seems likely in the (northern) winter with risk to consensus forecasts still on the upside,” Jefferies said.

Locally, coal stocks continued to move higher. Whitehaven, Tinkler’s old firm, hit an all-time high of $8.83 before easing to $8.55 for a gain over the week of 63c.

New Hope was the other big coal mover with a gain of 48c to $5.52 whereas Stanmore ran out of steam, losing 15c to $2.25.

Iron ore stocks weakened, with one notable exception. Mineral Resources, which also has a big lithium division, added 12c to $60.20, comfortably outperforming arch WA rival Fortescue Metals, which lost $1.25 to $16.15, its lowest since late last year.

China’s weakening economy, especially poor demand for steel, is the core problem for the iron ore miners who are trying to deal with a price for high grade ore which has dropped below US$100 a tonne and continues to look weak.

Macquarie is concerned that the outlook for iron ore is not encouraging thanks to few signs of Chinese steel mills restocking as they normally do at this time of year, ahead of the winter slowdown.

The bank reckons FMG will drift down to a price of $14.50 whereas Mineral Resources will ride the lithium rocket to a price of $100.

Rare earths, a key part of the technology metals sector, had a mixed week dominated by news that Hastings Technology Metals has stitched up the funding requirements for its Yangibana mine as well as planning a strategic investment in a Canadian rare earth processor.

Fortescue Metals assumed the role of banker to Hastings with a $150 million loan in the form of a convertible note carrying a hefty 12.1% interest rate made up of the bank bill rate (3.1%) plus 9%.

The FMG deal was followed by Hastings launching a $110 million fund raising exercise priced at $4.40 a share, comfortably below Thursday’s price of $4.57 – which was down 75c over the week, a reflection of the new debt and extra shares.

Lynas, the rare earth leader, lost 17c during the week to $8.45. Other rare earth moves included Australian Rare Earths, down 4c to 34c, and ABX Group adding 4c to 17c after reporting increased evidence of rare earths at its Deep Leads project in Tasmania.

Other news and market moves this week included:

  • De Grey Mining adding 4.5c to 96c after releasing an upbeat preliminary feasibility study into its Mallina gold project in WA which is based on producing 540,000 ounces of gold a year over an initial 10 years at an average all-in sustaining cost of $1220/oz.
  • Alkane Resources rose by 3.5c to 76c after reporting an enriched copper zone at its Kaiser prospect in NSW, including 134 metres at 0.85% copper from a depth of 211m.
  • Gascoyne Resources reported a 15.6% increase in group gold resources to 1.37 million ounces with ore grade up 29%, helping lift the stock by 2.5c to 37c.
  • Burgundy Diamond Mines rose by 2.5c to 20c after reporting the recovery of the first diamonds at its redevelopment of the Ellendale project in the north of WA.
  • Austral Resources added 1.5c to 33c after reporting excellent copper grades from drilling at its Lady Colleen project in Queensland with a best hit of 7.1% copper over 5m, a zone inside a broader section of 18m assaying 4.21% copper.
  • Torque Metals reported encouraging gold assays from drilling at its Paris project near Kalgoorlie in WA with a best hit of 27m at 10.7g/t.
  • Chalice Mining slipped 27c lower to $4.04 despite reporting encouraging results from a seismic survey at its Hartog palladium and nickel project in WA. Macquarie was not deterred maintaining a buy tip and forecast of a future price for Chalice of $7.50.

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