Stocks bounce off lows amid signs storm may be passing

The battery metals crisis is dominating financial-media headlines for good reason, but the correction which has swept through lithium and nickel stocks has masked encouraging signs elsewhere.

By Tim Treadgold. 

Bad Weather

A glance at the all-ordinaries index, up 2.5% this week, tells a different story to the sell-off in battery stocks, which flew too high last year and have crashed to earth this year, with the fall probably being as exaggerated as the rise.

The broad-based metals index which covers all forms of mining shook off a poor start this week to be level with where it was five days ago thanks to continued strength in iron ore and copper – arguably the most important of the battery metals.

Gold, always a useful yardstick, best tells the story of how panic selling of high-quality stocks has concealed on-going buying of the metal itself. While the ASX gold index is down 9% since the start of the year the gold price has barely moved at US$2027 an ounce.

At risk of being overly optimistic about the outlook, it is significant to see that bargain hunters have entered the market, snapping up quality stocks oversold in the dash for the exits by panicked speculators – or as this column noted last week, “value can be seen emerging as the sell-off has deepened”.

Iluka Resources is an example of a mining stock which is bouncing back. The mineral sands and rare earth company fell to a 12-month low two weeks ago of $6.24 but was back to $7.27 yesterday, a rise of 17% from the low point and a gain of 10% this week.

Lynas Rare Earths is another quality stock dumped by traders, crashing to a 12-month low of $5.73 on Tuesday before crawling back up to $5.96 perhaps on its way to the $9.20 tipped by UBS, a leading investment bank, which headed its Tuesday report on Lynas “The price is (not) right”.

Nervous investors might see this optimistic view of the market as being overly rosy, and that might be the case, but the background picture of a global economy in post-Covid recovery mode remains intact – albeit with interest rate cuts delayed by six-to-nine months.

When the cuts do start flowing, the appeal of the stock market (and gold) will brighten.

Other stocks which appear to have been oversold include emerging lithium stars Delta Lithium and emerging gold star, De Grey.

Delta fell this week to a 12-month low of 26c but edged back to 28c yesterday, possibly on its way up to the 75c future price tip from Bell Potter – a price forecast which is 10c down on the 85c prediction from the broker just before Christmas.

De Grey, which is in the funding and design phase of its world-class Hemi gold project, dropped last week to $1.16 before a modest bounce this week to $1.20, heading towards the UBS price target of $1.50, or possibly up to Macquarie Bank’s target of $1.80.

Perseus was the pick of the gold sector this week, adding 18c to $1.88 after releasing a strong December quarter production report while its takeover target Orecorp lost 4.5c to 57c.

Northern Star is another gold example of what oversold means, dropping to $12.07 on Tuesday then up yesterday to $12.74 for a one-week gain of 4.5% with RBC Capital Markets giving the stock a buy tip and a price target of $15.

What’s happening on the Australian market cannot be divorced from international events and that’s where the rose-colored glasses are working well with the U.S. market bumping against an all-time high and China doing its best to talk up its limp stock market.

Watching the control freaks in Beijing try to order share prices higher could be interesting because what’s happening sounds awfully like a “Canute moment”, the famous demonstration by a British king 1000 years ago that even he could not control the tide.

The big news in the Australian battery metals sector is all about a similar government-led rescue attempt which has about the same chance as China’s Canute re-run simply because governments rarely succeed in dictating terms to a widely-traded market.

Crisis talks about nickel and lithium will be held but not much can be expected, though it would be polite for the WA and Australian Governments to apologise for over-cooking the battery goose with ludicrous forecasts of battery metal mining leading to a local battery manufacturing industry.

Rarely has a famous warning from Ronald Reagan been more true because it was the former U.S. President who said that the most “frightening words in the English language are I’m from the government and I’m here to help you”.

Federal Resources Minister Madelaine King reckons she’s here to help, promising to “discuss challenges” facing the battery metals sector where closures are comfortably outnumbering openings. Even iron ore billionaire, Andrew Forrest, has started putting the shutters up at some of his projects.

Nickel stocks battled this week but had a rough ride. Centaurus lost 13c to trade at 29c. Lunnon shed 18c to sell for 27c. Nico Resources, was down 4c to 25c, and Ardea was off 5c at 39c.

CG Capital markets warned early in the week that nickel, which has fall by 40% over the past 12-months, would remain under price pressure well into next year.

Chalice, which is a nickel and precious metals stock, managed to swim against the outgoing tide with a rise of 3c to $1.09 thanks in part to a cost-cutting campaign and a fat bank balance.

Lithium stocks, which have been battered by the 80% fall in the price of their metal, held up remarkably well this week, perhaps a sign that the storm really could be passing. Pilbara Minerals added 2c to $3.46 after it released a strong December quarter production report.

IGO, which has a foot in the nickel and lithium camps did even better, adding 16c to $7.43 with Bell Potter penciling in a future price of $8.50 – well down on the broker’s past price tip of $11.30 but up, nevertheless.

Liontown, the poster stock of last year, lost another 24c this week to 96c, but was up 3c yesterday as speculation grew about corporate action, perhaps a mopping up offer from iron ore billionaire Gina Rinehart who paid $3 a share for her top spot on the share register, and how has to figure out what to do with an investment burning a (small) hole in her big balance sheet.

Wildcat was a less successful lithium player, shedding 7c to 42c after announcing a whopping 100,000 metre drilling program at its Tabba Tabba project in WA, Galan lost 3c to 53c and Global fell by 4c to 56c.

Uranium stocks had a mixed week with most slipping a few cents lower even after a price forecast of US$150 a pound from analysts at Shaw and Partners.

Boss, which raced to a 12-month high of $5.67 earlier this month, let out a little steam this week with a 6c slide to $5.43. Power Minerals lost 2c to 17c and Toro was 0.2c weaker at 5.1c after a $12.3 million placement.

Koba Resources was a uranium exception, adding 3.5c to 14c after announcing the acquisition of the Yarramba project in South Australia.

Other news and market moves of interest included:

  • Copper-exposed stocks had a mixed week as the price of the metal crept up by US10 cents a pound to US$3.80/lb. Sandfire added 34c to $6.85 while 29Metals lost 4c to 51c.
  • Burgundy Diamond Mines slipped 1c lower to 18c despite reporting solid production and revenue numbers for the December quarter.
  • Magnetic Resources added 3c to 92c after releasing a down dip extension to its Lady Julie gold project at Laverton in WA.
  • Alkane slipped 2c lower to 56c after a slightly weaker gold production report for the December quarter. Bell Potter maintained a $1 price tip, and
  • Hamelin Gold inched up by 0.2c to 8c after being added to BHP’s exploration acceleration program.

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