Twiggy’s true believers strap in for the ride. Big banks say jump out now

By Tim Treadgold   Andrew Forrest returned to centre-stage this week with a starring performance that rescued the share price of his Fortescue mining group, but it wasn’t the only big event as annual results poured in and prices moved higher, with a few notable exceptions.


The simple fact that Fortescue shares rose rather than fell can be attributed to the marketing skills of Forrest who bulldozed his way through multiple negative events.

Whether Forrest can keep delivering is a question which divides investors. True believers buy his story (and Fortescue shares) while every big investment bank says sell.

Despite the shock resignation of Fiona Hick, chief executive for just six months, doubts about Chinese steel demand, uncertainty about future possible profits from hydrogen and a revolt in Gabon, where Fortescue is developing a mine, the stock added 70c cents to $21.48.

Mineral Resources, another miner heavily exposed to China’s weakening economy, did even better with a rise of $5.26 (8%) over the week to $70.80 thanks largely to its increasing focus on lithium.

Investors uncertain about which way to play the stock market can take comfort from the fact that they’re not alone, as demonstrated in a test of analyst price tips for Mineral Resources with a wide gap between high and low and an even spread of buy and sell recommendations.

The most positive view of Mineral Resources is that of Morgans, which sees a future share price of $84, followed by Citi at $79. The downside is led by Goldman Sachs, which sees a future price of $53, followed by UBS at $64 – with both saying sell.

One stock does not a market make, but in Mineral Resources there is an argument to support an observation that conditions are perfectly balanced with an even number of buyers and sellers, though no-one knows how markets will behave in the future as conditions in the Chinese economy appear to be worsening and with the U.S. central bank poised to ratchet interest rates higher before Christmas.

Overall, the Australian market gained ground after a slow start to deliver a 2.5% rise over the week as measured by the all-ordinaries index. Mining stocks, despite a late sell-off in sector leader BHP, rose by 2%.

Gold stocks clawed back lost ground with the ASX gold index claiming first prize with a rise of 6.2% led by Northern Star up 55c (5%) to $11.78 and Evolution, up 18c (also 5%) to $3.69 with both riding higher on the gold price, which was up US$30 an ounce to US$1945/oz.

Other significant gold moves included:

  • Gold Road, up 14c to $1.77 after reporting a solid first half profit of $55.7 million with Bell Potter tipping another leg up to $2.05.
  • De Grey, up 3.5c to $1.43 as interest grows in its world-class Mallina gold project in the north of WA with Gold Road well placed to provide financial assistance while also boosting its stake in De Grey.
  • Bellevue, up 12c to $1.66. Perseus up 8.5c to $1.86 after reporting a record $568 million net profit, and Ramelius, up 9c to $1.36 with Macquarie tipping a future price of $1.60.

Chalice, the emerging critical metals producer from its Gonneville palladium and nickel project close to Perth, led the way down with a fall of $1.33 (27%) to $3.58 despite releasing an upbeat scoping study which was criticised for using optimistic commodity prices.

The company said it was confident of being able to raise the more than $1.6 billion required to develop Gonneville and company chairman, Tim Goyder, said the market should “get real” about the long-term value of the project.

Lithium stocks had a mixed week, possibly as concern grows about China, the world’s biggest market for electric vehicles, and concern of a stock build up at battery-making factories.

Sector leader Pilbara Minerals slipped 12c to $4.63 after reporting a strong profit in the face of rising costs. Core Lithium managed a gain to 1c to 41c. Patriot also managed a 1c rise to $1.30.

Two significant lithium events on which a stock market value is yet to be assigned caught the eye of investors during the week.

  • Wesfarmers, a diversified industrial company, moved to within sight of producing saleable products following completion of its half-owned Covalent project. First earnings from spodumene sales are expected in the new year with lithium hydroxide to follow, and
  • Glencore, one of the world’s biggest miners, was reported to have acquired the debt of the failed Alita Resources, owner of the Bald Hill mine in WA for $1.8 billion, effectively squeezing a China-connected bidder for Alita and introducing Glencore to Australian lithium.

Albemarle, the big U.S. lithium producer, continues to circle Liontown even as the target’s share price sits around 25c above its takeover bid pitched earlier this year at around $2.50.

Kent Masters, chief executive of Albemarle, said during a flying visit to the company’s WA operations that he considers his $2.50 bid for Liontown to be “live” even though there have been no talks for past five months. “It’s a standing offer,” Masters said.

Rare earth stocks, another favorite of investors following the critical metals theme, were mixed with Lynas a prime example, up 26c to $7.19 on the market, but down modestly on broker valuations such as Goldman Sachs trimming its Lynas target price from $6.60 to $6.50 while maintaining a hold recommendation.

Citi also shaved a fraction off its Lynas price from $7.60 to $7.35 out of concern that construction costs at the company’s Kalgoorlie processing plant have ballooned by more than 50% to $780 million.

Other rare earths movers included Hastings, up 5c to $1.05. Arafura down 1c to 25c. Northern Mining up 0.3c to 3.1c. Australian Rare Earths down 0.5c to 24c, and Meteoric, up 3c to 22c after reporting more high-grade ionic clay in its Brazilian project.

Copper, which always provides a guide to the strength of the underlying economy, showed signs of recovery with a modest rise over the week of US5c a pound to US$3.77/lb.

Two copper stocks stood out with strong price rises. Sandfire put on 45c to $6.58 and 29Metals added 14c to 88c despite reporting a hefty loss of $27 million caused mainly by flood damage at its Capricorn project in Queensland but did have a win with the project insurers and is in the process of raising $151 million in fresh capital.

Iron ore news was dominated by events at Fortescue which drowned out a developing mess for the company in Gabon where is it developing a mine, confirming a view that Africa is a place where you send money to die.

As well as a coup in Gabon, companies with assets in Mali have been warned that the military junta in that country is planning to lift its stake in projects up to 35%.

Both Gabon and Mali should be interesting topics at next week’s Africa Down Under conference in Perth.

Other news and market moves of interest this week included:

  • IGO, which has been roundly criticised for its high-priced takeover of Western Areas, had a good week after reporting a strong profit for the June 30 year and an increased dividend which helped the stock rise by $1.15 to $13.94.
  • DevEx added 1.5 to 35c thanks in part to the chairman of the uranium explorer, Tim Goyder, buying an extra 1.94 million shares in the company which is hoping to redevelop the rich Nabarlek project in the Northern Territory.
  • Dreadnought Resources said it had encountered encouraging nickel/copper mineralisation from drilling at its Bookathanna project in WA, news which helped lift the stock by 1.1c to 5.6c
  • Paladin Energy added 1.5c to 84c after reporting that it was edging closer to re-opening the Langer Heinrich uranium mine in Namibia. Macquarie has a $1.10 price target on the stock, Shaw and Partners has $1.15.
  • Ardea lost 0.5c to 75c after announcing a $16 million capital raising with new shares price at 70c, and
  • WA Resources added 2c to $5.25 after reporting a fresh round of encouraging niobium assays from drilling at its West Arunta project in central Australia.

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