Lithium stocks shine but China worries and rising oil prices take a toll elsewhere

Lithium dominated investor interest this week but it wasn’t one-way traffic and it wasn’t the only game in town.

By Tim Treadgold


Global Markets 2

Local focal point was the annual Diggers and Dealers conference in Kalgoorlie, WA’s mining capital, while on the world stage the deteriorating health of the Chinese economy and a new energy scare made headlines.

Pilbara Minerals won top gong at Diggers but was pipped on the stock market by emerging rival Azure Minerals which delivered the best price rise of the three-day conference, up 67c (33%) to $2.72 and admission to the ASX $1 billion club.

Azure eased back by 7c yesterday after Diggers delegates started heading home to trade around $2.65 with that price meaning Azure has risen by 1100% since the start of the year.

A check of share price moves during Diggers rated Pilbara second best with a rise of 47c (9.8%) to $5.29, an impressive increase for a company now valued at $15.8 billion, good enough to claim a spot in the ASX top 30 with Macquarie tipping a future price of $7.50, which would value Pilbara at $22.5 billion, good enough to knock on the door of the top 20.

To put Pilbara’s rise into perspective it needs to be seen against the fading value of the leading local gold stock, Northern Star, which lost 31c this week to $10.92 for a market value of $12.6 billion, which puts it 10 places below Pilbara in the ASX pecking order.

Azure, which is in hot pursuit of Pilbara, could also be going a lot higher with Bell Potter publishing a mid-week buy tip and price forecast of $5.15 which, if achieved, would lift Azure through the $2 billion mark, possibly enough to enter the top 150.

But as mentioned it wasn’t all one-way traffic with some one-time lithium favourites weakening as investors lost patience. Core Lithium was a big loser, dropping by 8.2% (12.4%) to 58c during the conference before a modest recovery yesterday to trade around 61c, down 31c (34%) over the past month.

Overall, Diggers was a remarkably balanced affair with rises and falls neatly matching with examples such as a 9% fall by emerging rare earth explorer Dreadnought offset by an 8% rise by emerging uranium producer Boss, which has also claimed a spot in the $1 billion club.

Corporate activity, a feature of the Kalgoorlie conference in the past, was limited this year with the proposed friendly merger of African-focused Orecorp with Canadian-based Silvercorp the only confirmed deal.

Another Canadian, B2Gold, was busy kicking the tyres of potential targets without anything to show for its efforts, yet.

The optimism evident among delegates at the conference was in contrast to the clouds of pessimism evident at the top end of Australia’s all-important resources sector where China’s waning economic health has weighed on confidence and currency values.

The Australian dollar slipped another US1c to US65.56 to now be US5c lower than the start of the year. During midweek trading the local currency briefly dipped below US65c, largely in response to U.S. interest rates rising faster than those in Australia.

Deflation, an economic phenomena which can be more damaging than inflation, is showing signs of developing in China with consumer prices falling along with factory prices, which dropped for the tenth consecutive month.

Those falls in Chinese prices are starting to be reflected in some commodities, including iron ore, which fell by US$10 a tonne to US$105/t, seemingly on track to drop back through the US$100/t mark.

UBS said that while investors in China remained hopeful of another round of government economic stimulus the outlook for iron ore was worrying as limits on steel production could hit ore demand.

Copper too is struggling, losing US13c a pound this week to US$3.76lb as concern grows about China and its worsening relationship with the U.S.

Weighing on everything are signs of a developing energy crisis in Europe as oil production cutbacks by Saudi Arabia and Russia push the price of Brent crude up to US$87.50 a barrel while a gas scare has been sparked by threats of a slowdown in Australian LNG exports as unions threaten a walk-out at two big WA projects.

Not much Australian gas goes to Europe but the global market is tight and the potential loss of big projects resulted in a 40 per cent increase in the European gas contract.

The combination of Diggers optimism and broader market uncertainty led to a flat week on the Australian market with the all-ordinaries up a tiny 0.5%, while the mining index slipped 1.2%.

Lithium, as mentioned earlier, was the star of the week though the prize for best performance by a lithium stock this week goes to a company not presenting at Diggers.

Iris Metals delivered an eye-catching 71c (50%) rise to $2.11 after reporting highly encouraging assays from drilling at its Beecher project in the U.S. State of South Dakota.

The target zone was mined 100 years ago for mica and feldspar so assays up to 1.21% lithium over 60m in the main pegmatite were not a surprise.

Other lithium news and market moves included:

  • Global Lithium slipping 13c to $1.58 even as Macquarie refreshed a buy tip and price target of $3. That recommendation was one of 15 lithium buy recommendations from the bank in its latest sector review.
  • Evans and Partners, after years on the sidelines, joined the lithium party with a “lithium initiation” report which said the sector was on the cusp of a decade of growth. Better late than never.
  • Green Technology lost 7c to 55c despite reporting fresh assays of up to 1.6% lithium over 17.4m at its Root Bay project in Canada, and
  • Liontown ended the week steady at $2.75 after a Diggers surge to $2.84 on Monday.

True North Copper was the pick of the copper stocks with a rise of 5c (22%) to 27c after reporting thick, high-grade copper in the first hole at its Vero Prospect, part of the Mt Oxide project in Queensland.

The intersection of 66.5 metres at 4.95% copper from a depth of 234m included an 8.55m section assaying 6.03% copper, plus 51.6 grams of silver per tonne.

Other copper news included:

  • Carnaby Resources adding 4.5c to $1.12 after the latest drilling at its Mt Hope project in Queensland intersected 72m at 4% copper and 0.4g/t of golf.
  • American West rising by 8c (31%) to 34c after reporting two additional copper zones at its Storm project in Canada. Assays are pending, and
  • Aeris Resources pausing its steep fall since the start of the year when it was trading at 56c to put on 1c this week at 24c with Bell Potter forced to make a spectacular adjustment to its price target from 91c to 29c.

Gold stocks were burdened by the US$24 an ounce fall in the gold price to US$1918 an ounce though companies which featured prominently at the Diggers conference performed reasonably well.

Bellevue, which hosted a pre-conference site visit for brokers and investors, added 10c over the week to $1.59 with Macquarie sticking to a price target of $1.80 even as UBS said the stock would slide back to $1.53.

De Grey got a positive reaction to the latest drilling at its Eagle and Diucon targets in its Hemi project, rising by 2.5c to $1.36. Evolution added 8c to $3.76 after a well-received presentation from chief executive Jake Klein. Genesis slipped 6.5c to $1.36.

Other news and share price moves of interest this week included:

  • Encounter Resources adding 3c to 47c after reporting an expansion of the niobium and rare earth structure at its Aileron project in WA.
  • Lynas Rare Earths adding 43c to $7.07 after its chief executive Amanda Lacaze said it was considering buying one of the ionic clay rare earth projects which have been identified in Australia.
  • Australian Rare Earths added 1.5c to 28c after releasing fresh assays from its Koppamurra ionic clay project in South Australia and perhaps because it could be on the Lynas takeover list.
  • Peak Rare Earths rose by 1c to 49c after cementing a deal with China’s Shenghe Resources over the development of the Ngualla project in Tanzania, and
  • Fortescue Metals moved 3.5c higher to $21.43 despite the weaker iron ore price and media coverage of a potential hefty legal bill over a disputed land claim covering one of its mines in WA.

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