Forrest’s overdue awakening to the folly of driving Fortescue ever-deeper into green fuels such as technically-difficult hydrogen before a market exists should restore confidence in the company and its iron ore earnings power.
Macquarie Bank was quick out of the blocks yesterday with an updated research note on Fortescue which stuck with a sell recommendation but boosted the target price for the stock from a lowly $12.50 to $14.50 even as it traded around $22.
The bank’s theory boils down to an argument that less money will be wasted in future on Forrest’s green dreams.
Trump’s near-death experience elevated his chance of being re-elected as U.S. President to 66% according to Citi, an investment bank, ringing warning bells that the world could be heading into four more years of turmoil, including a renewed trade war with China.
New York-listed technology stocks suffered a sharp sell-off after Trump warned that he might not defend Taiwan in the event of a Chinese invasion. Nvidia plunged 6.6% in a perfect demonstration of Trump mayhem.
As if the Trump and Forrest factors were not enough for investors to digest, there was disturbing news about China’s creaking economy followed by annual production reports from the big two of Australian mining, BHP and Rio Tinto.
Amusingly, the man who best described a week like we’ve just had was Vladimir Lenin, the founder of the Soviet Union, who once said: “There are decades when nothing happens, and there are weeks when decades happen”.
This week was one of those times and it has set the scene for the next few years with Trump triumphant, China wary of a trade war with the U.S. and Australia at risk of being sideswiped as it stumbles down the green energy path which Forrest has just abandoned.
Gold, which was also the highlight of last week’s edition of Prospector’s Diary, traded up to US$2480 an ounce on Tuesday, propelled by safe haven buying after the attack on Trump and by fresh comments from U.S. central banks that interest rate cuts are on the way.
The combination of Trump and rates, plus hints that Joe Biden might not contest the U.S. Presidential election, saw bankers and brokers dusting off their gold-tinted crystal balls with US$3000/oz by next year a common forecast, followed by US$3500/oz in 2026.
Shaw and partners joined the US$3000/oz club this week with Ramelius. Genesis and Southern Cross its favoured gold equities
Locally, the stock market continued a rally which started with the new financial year, rising by 1% over the week, taking the gain since June 30 to 4%, though much of that increase can be attributed to an investor rush into bank stocks despite warnings that leading banks are overcooked.
Evans and Partners, a well-connected boutique broking firm, sounded a warning about Commonwealth, the biggest of the banks which last week displaced BHP as Australia’s most valuable company but which E&P reckons is poised for a 40% share-price crash from $133 to $80.
BHP, in turn, fell by 2% after lodging a lacklustre annual production report which added to a view that the company has few growth options and might need to make a bold bid like its failed move on Anglo American – something which is also expected from Rio Tinto which is said to be eying a raid on Canada’s Teck Resources.
With so much uncertainty swirling in global markets, it’s little wonder that gold is the go-to commodity (currency), especially as the U.S. interest rate cycle starts to turn down.
Star performer in the gold sector this week was microcap newcomer Labyrinth Resources which excited the day traders with its 200% share price rise from 5c to 15c after announcing plans to buy the Vivien gold project near the WA nickel mining centre of Agnew.
As always with microcaps, that fabulous percentage rise needs to be measured against the company’s market value of $9 million.
Most other gold stocks rose, as would be expected with a strong gold price, and the promise of more to come with moves and news that included:
- Evolution, up 28c to $4.12 after releasing a ho-hum quarterly production report followed by an exceptional drill result from its Ernest Henry mine in Queensland which included 51.7 metres at 4.12 grams of gold a tonne, plus 1.65% copper from a depth of 93.5m.
- Northern Star Resources, which is scheduled to file its annual production report next week, hooked a ride on the gold price, rising by 73c to $14.41.
- De Grey crept up by 3c to $1.22 with UBS sticking with a buy tip and price target of $1.80, and
- Gold Road and Regis topped this week’s merger chatter which helped Gold Road rise by 3c to $1.82, while Regis put on 4c to $1.96.
Iron ore was the newsmaker for the mega miners with both BHP and Rio Tinto reporting strong production though banks and brokers voiced fresh concern about flat Chinese demand and the clearer picture emerging of a start-up at the big Simandou mine in Guinea.
All iron ore miners lost ground even as the price stuck to US$109 a tonne thanks to the China/Simandou factor with explorers edging higher, including Legacy (up 0.1c to 1.6c) and Hawthorn (up 1.4c to 7.4c) because they’re involved with one of Gine Rinehart’s projects.
Battery metals continued to struggle with only one lithium producer making headway, though what helped Arcadium put on 17c $5.46 was persistent speculation that Rio Tinto is sniffing around as it tries to carve out a bigger slice of the sector.
Adding to interest in Rio Tinto’s lithium plans were reports that Germany is keen to see progress at the Jadar project in Serbia to feed its big car industry.
But even as moves were being made at the top end of town small lithium stock continued to bleed. Liontown lost 3c to 96c. Pilbara was down 8c to $2.95 and Independence shed 14c to $5.87.
Morgan Stanley didn’t help matters with a mid-week report headlined “Lithium under pressure” which included a warning that limited supply cuts meant stockpile were growing with more to come as the first of the Direct Lithium Extraction (DLE) plants comes on line at Eramet’s Centenario project in Argentina.
Copper echoed the tough conditions in lithium, losing US20c over the week to US$4.38 a pound, with the fall dragging all stocks down, including Sandfire with slipped 6c lower to $8.55 and 29Metals which was 4c weaker at 39c.
Noronex was an exception to the copper slide, rising by 0.4c to 1.6c after announcing an exploration joint venture with South32 in Namibia, while New World Resources lost 0.4c to 2.8c despite earning buy tips from CG Capital Markets (12c target price) and Wilsons Advisory (6c target) after the release of a positive pre-feasibility study into its Antler project.
Capital raising success was reported by a number of smaller companies, including G11 pulling in $4.35 million, Tesoro ($9.7 million), and Silver Mines ($30.2 million) despite a report from S&P Capital that exploration activity is slowing in Australia.
Other market moves in a week dominated by major news events included:
- Genesis Minerals rose by 13c to $2.12 after reporting solid gold production of 34,617 ounces in the June at an all-in sustaining cost of A$2698/oz (US$1780/oz).
- Resouro Strategic Metals added 7c to 52c after reporting a maiden resource estimate for its Tiros titanium and rare earth project in Brazil.
- Andean Silver (formerly Mitre Mining) slipped 7c lower to 92c despite reporting a large area of high grade mineralisation outside the resource at its Cerro Bayo project in Chile.
- Rare earth leaders Lynas (down 13c to $6.26) and Hasting (down 7c to 35c) were caught by a steep fall in rare earth prices which has also pushed China’s major producers of the material into heavy financial losses which caught be a precursor to much-needed production cuts.
