What’s behind the rally?

At the start of September, Chalice reported it had defined two new multi-kilometre scale gold targets at its Barrabarra project, 80km east of Geraldton.

Drilling will begin this quarter with Barrabarra’s geological setting said to be comparable with other greenstone belts in WA’s South West and Youanmi terranes of the Yilgarn, which host other major deposits including Boddington, Australia’s largest gold mine.

In mid-September, Chalice reported a major milestone for its flagship Gonneville platinum group element-nickel-copper-cobalt project, north of Perth.

Chalice’s Gonneville deposit, discovered in March 2020, has a resource of 17 million ounces of palladium, platinum and gold, 960,000 tonnes of nickel, 540,000t of copper and 96,000t of cobalt.

The Western Australian government approved it as a strategic project, which will see the Department of Jobs, Tourism, Science and Innovation provide a high level of project facilitation, including for regulatory approvals and infrastructure requirements.

“This is positive news and formal recognition of Gonneville’s exposure to critical and strategic minerals,” Bell Potter Securities analyst David Coates said.

“We view this as a positive, de-risking step for the Gonneville project, as well as a factor that will improve the appeal of Gonneville to potential development partner, Mitsubishi Corporation.”

Chalice has a memorandum of understanding with Mitsubishi and the pair are aiming to formalise a potential binding project partnership agreement following the delivery of the pre-feasibility study in mid-2025.

Coates forecasts an approvals timeframe of 2-3 years from the lodgement of submissions in the March 2024 quarter.

That would keep Chalice on track to make a final investment decision in late 2026. 

“In the current permitting environment in Australia, we view this as a strong endorsement of the Gonneville project,” Coates said.

Coates has a A$5.15 price target for Chalice, which represents upside of 243% from current trading levels.

Signs of life for palladium

The third, and perhaps most significant, driving force behind Chalice’s share price bump is the palladium market.

Palladium supply is dominated by Russia and South Africa.

As highlighted by Barry FitzGerald about a month ago, Russia’s threat of sanctions on metals boosted the price of both palladium and nickel.

And the palladium price has held its own ever since, last trading at US$1038 an ounce.

It reached a record high of US$3442/oz in March 2022 before slumping to as low as US$832/oz in early August.

Precious metals consultancy Metals Focus noted late last month that the long-term outlook for the palladium market was for a surplus.

“Just two years ago, given the market dynamics visible at the time, we forecast a market surplus by now, but instead, we expect deficits this year and next,” it said.

“While these changing dynamics provide some support for palladium prices, the combination of short-term factors recently provided a further boost.”

One of those short-term factors is falling mine supply with recent production cuts by the likes of Sibanye-Stillwater reducing 2024 palladium mine supply by nearly 500,000oz compared to the 2010-2019 average.

The second factor is short-covering futures.

“Palladium net managed money shorts reached a record 1.6Moz at the beginning of August. By mid-September, this had dropped by nearly 1Moz to 665,000oz net short,” Metals Focus said.

Metals Focus added that technical indicators turned favourable towards palladium in early September when it broke above the psychologically significant US$1000/oz level for the first time since July.

“It also surpassed and held its 200-day moving average for the first time since October 2022, when it traded around $2000/oz,” it said.

“These breakthroughs provided short-term momentum and are likely to serve as key support levels during any price declines.”

Another factor is the US Federal Reserve’s recent 50 basis point interest rate cut.

Metals Focus said lower rates reduced the opportunity cost for holding non-yielding assets, like palladium, which was expected to support the price.

“In the longer term, reduced financing costs should stimulate economic growth and lower costs for consumers, particularly for big-ticket items bought on finance, such as cars, which should lift auto-catalyst demand,” it said.

Metals Focus expects palladium to average of US$1010/oz in 2025, up slightly on this year.

“While this is not groundbreaking, it breaks the trend of steadily declining palladium prices over the last two and a half years.”