Market wakes up tired after Christmas rally but hints of recovery start to emerge

One step forward, one step back, that’s how the stock market has felt since the start of the year with no better example than a comparison of two lithium stocks, Kali the winner, and Core, the loser. One up. One down.

By Tim Treadgold.

Coffee  Stocks

Kali and Core have a common commodity interest, but one is in production and has been battered by high costs and low prices, while the other is travelling on an exploration-fuelled adrenalin rush and a feeding frenzy sparked by rich supporters.

With backers such as Mineral Resources boss Chris Ellison and mega-rich Tim Roberts, Kali was assured of a strong performance after listing on Monday with first sales of its 25c shares booked at 39c, a starting point for a rush up to last sales at 77c – with limited exploration results to support the share price.

Core’s 84% crash over the past 12-months from $1.23 to 20c is all about the problem of being in production when the lithium price collapsed.

As a metaphor for ’24 it doesn’t get better than that because the year ahead is going to be one of trying to pick winners against a background of uncertainty as wars rumble on, China struggles to grow, Europe shrinks and election campaigning threatens to destabilise the U.S.

Since the market reopened earlier this month, the overall performance has been weak with buyers sidelined (or still at the beach).

The all ordinaries index, which clawed back 0.5% yesterday (Thursday) is still down 1.3% since trading started on January 2. The mining index is down 5% and the gold index has dropped by 5.5%.

While international events are weighing on sentiment, Australia has problems if its own, including one of the highest inflation rates in the developed world and an increasingly messy attempt to be a world leader in renewable energy, whatever the cost to local industry.

Alcoa pulling the plug on its Kwinana alumina refinery was an indicator of what’s happening because while the project is old, it has been hamstrung by a WA Government refusal to allow access to high-grade bauxite in the name of environmental protection.

In Victoria something similar, and potentially more significant, is happening, with an offshore wind farm designed to reduce carbon emissions and protect the environment, blown off course by a government ban – ironically in the name of protecting the environment.

Battery metals, a red-hot market sector last year, have cooled dramatically as the challenge of over-supply of key commodities such as lithium and nickel bumps headfirst into slower-than-forecast sales of electric vehicles (EVs).

The collapse of nickel miner Panoramic was caused by nickel’s 40% price fall over the past 12-months and for warnings that other nickel projects are at risk, including the Wyloo business of iron ore billionaire, Andrew Forrest.

But it’s in lithium where the most pain is being felt thanks to the metal’s 80% price fall since this time year last year with Core the latest collapse, putting other lithium projects on watch as losses mount.

For investors, Core is a boom-time company which could never survive a sharp commodity price fall, the same as Panoramic, and what appear to be troubles at the Abra lead and zinc mine of Galena Mining.

Only four commodities on a 17-member list compiled by leading investment bank Morgan Stanley are seen as having an encouraging outlook – uranium, manganese, platinum and copper.

Lithium has the worst outlook according to the bank with nickel, lead and cobalt making up the bottom four.

“The lithium price outlook remains challenging,” Morgan Stanley said, “with supply ramping up faster than expected, leaving the market searching for cost support.”

Lithium’s potential problems do not end there with salt seen in China as a substitute and one of the world’s biggest technology companies, Microsoft, reporting the possible discovery of a lithium substitute using super computers and artificial intelligence.

Share price moves by leading lithium stocks have been predictably down since the start of the year, with modest recent signs of a recovery.

Pilbara Minerals, for example, is down 20c (5.7%) since January 2, but up 5.5c yesterday. Wildcat is down 6.8c at 62c but up 1c yesterday. Galan went against the trend, down 6c at 62c, with 4c of the fall coming yesterday even as Macquarie Bank refreshed a buy tip and target share price of $1.20.

Gold has drifted lower even as promised interest rate cuts move close. The metal, which doubles as a currency, has lost US$14 an ounce since early January to US$2029/oz.

Morgan Stanley told clients this week that gold was “fairly priced for now but could move higher as rate cuts approach”.

Local gold price moves included:

  • Emerald, up 24c to $3.20 after delivering strong December quarter production and plans for a second mine in Cambodia.
  • West African added 5c to 96c after reporting a 4% increase in December quarter production at 58,047oz.
  • Most other gold stocks slipped. Genesis was down 4c at $1.59. Gold Road lost 21c at $1.73. Bellevue dropped 15c to $1.51, and Westgold slipped 10c to $1.93 despite a Macquarie buy tip and price target of $2.50.

Gold’s “technology” rival Bitcoin rose by 2% to US$46,528 after news that the U.S. Government will permit the creation of exchange-traded funds backed by the cryptocurrency which has gained 147% over the past 12-months.

Uranium stocks rallied again this week as the price crept towards the magic mark of US$100 per pound, adding another US$1.65/lb this week to sell for US$92.50/lb, up 86% on the US$49.80/lb at this time last year.

Most U-stocks have moved up with the price. Boss has added 84c since the start of the year to trade at $4.86. it was selling for $2.28 at this time last year. Paladin has risen by 17c to $1.17 since early January and Gladiator has added 1c to 2.9c.

CZR Resources was the pick of the iron ore stocks with a rise of 12c to 31c after announcing the sale of its Robe Mesa project to a Chinese company for $102 million - more than double the company’s stock market value of $47 million before the deal was announced.

Other news and market moved of interest this week included:

  • Neometals added 1.5c to 27c after reporting the sale of battery recycling technology to Mercedes-Benz.
  • Nickel Industries slipped 5c lower to 65c as the slumping nickel price took its toll of a stock which traded as high as $1.17 last year. Citi, an investment bank, cut its outlook for the stock but maintained a buy tip with a refreshed price target of $1.28, down from an earlier value of $1.43.
  • Cygnus lost 1.5c to 12c despite reporting further encouraging rare earth assays from its Bencubbin project in the WA wheatbelt.
  • Rumble Resources added 0.5c to 8.7c after reporting the completion of a diamond drill program designed to collect material for metallurgical testing of its promising Earaheedy zinc project in WA.
  • Reward Minerals lost 1c to 6c after announcing an agreement to buy the Beyondie potash project from Kalium Lakes, and
  • Sheffield Resources was steady at 59c after reporting the maiden shipment of zircon from its Thunderbird project in WA.

Upcoming Events

17th February 2022
Investor Webinar: Gateway Mining
Gateway Mining (ASX: GML) Managing Director Mark Cossom will discuss recennt highlights from the Company's Gedgee Gold Project in Western Australia and its exploration strategy for 2022.