Seen by some critics as a rescue of Arcadium, which made the classic mistake of rapid expansion at a time of falling commodity prices, the takeover is also recognition by a major miner that now is a good time to buy.
The overall market echoes the view that a strong recovery is taking shape, rising this week by another 1.4% as measured by the all-ordinaries index to be within striking distance of a fresh all-time high, to be up 18% since this time last year.
The mining index did not perform as well this week as iron ore slipped US$4 a tonne lower to US$106/t, taking the biggest miners with it.
BHP eased back by 80c to $43.54. Fortescue was down 20c at $19.31. Mineral Resources lost $1.36 to $49.36, and Rio Tinto fell by $4.53 to $118.36 because some investors believe it is paying too much for Arcadium.
Whether Rio Tinto is overpaying given the 90% price premium will be debated for months, but what’s more important is that its chief executive, Jakob Stausholm, sees lithium as a metal with a long-term future and might never be this cheap again.
His view is that there’s no point in worrying too much much about valuations because Rio Tinto is acquiring a basket of assets at or close to the bottom of a market, which is notoriously cyclical.
“I couldn’t care less about what the lithium price is in the next 12months,” Stausholm said earlier this year, “I am more thinking about how will the market and demand be over the next decade, or two.”
Stausholm’s view of lithium as an important future-facing metal can be stretched into other commodities as global growth picks up and is likely to accelerate next year once the U.S. election is settled, China gets its economy moving again, and the Middle East calms down.
All of that plays into a theme of this column last month when a New York-based investment advisory firm, Goehring & Rozencwajg, asked “what’s the cost of being early” in a report which argued that the overall commodity complex was at its lowest point in 125 years.
BHP’s failed attempt earlier this year to acquire arch-rival Anglo American was a guide to how the big mining companies see the trend in demand and prices with Rio Tinto’s move on Arcadium a second pointer to a market moving higher.
Most other lithium stocks enjoyed a modest boost from the Arcadium deal even though the price of the metal remains depressed and could slip further in the short term before delivering what Stausholm is banking on.
Bell Potter this week downgraded its 2025 forecast for the price of 6% spodumene from US$1400 a tonne to US$1050/t, rising to US$1500/t in 2028.
Liontown Resources resumed its recovery after a September sell-down, trading up to 92c this week before easing to 85c, up 11c. Vulcan rose by 36c to $4.48, Patriot gained 3.5c to 47c and Wildcat rose by 7.5c to 34c after reporting high-grade result from drilling at its Tabba Tabba project in WA.
The overall optimism in commodity markets could also be measured by the mood at Metals Week in London, which attracted many of the world’s mining and banking leaders.
Morgan Stanley said the three takeaways from the week of talks organised by the London Metal Exchange were:
- China’s economic stimulus is important, but many investors want to see more details of what’s planned.
- Energy transition remains in focus but at a less certain pace, and
- Overcapacity in smelting remains a challenge while mine supply of raw material remains tight.
Perhaps most importantly was a comment on the atmosphere at Metals Week by Morgan Stanley which said the mood was “cautiously optimistic”.
The bank said that “we also observed many participants coming for the first time (to Metals Week), particularly from the investment community where there is a growing focus on metals”.
The London optimism did not stretch as far as stronger prices for base metals and gold as the Middle East edged closer to a regional war.
Copper, which is always a reliable measure of the market’s mood, slipped US20c a pound lower to US$4.40/lb while gold also lost ground as concerns grow about the lack of Chinese buying over the past three months, rubbing US$35 an ounce off the price which slipped to US2612/oz.
Metals Acquisition was the copper newsmaker this week thanks to a $140 million capital raising which will retire debt and set the company up for an expansion phase, though investors did not like the extra shares being issued at a price of $18, a 13% discount to the market – a view dismissed by Wilsons Advisory which sees the stock rising to $23.50.
Most other copper moves were modest, including:
- Sandfire up 33c to $10.82.
- IGO down 17c to $5.45 after a report that it was looking to buy Rio Tinto’s Winu project in WA.
- White Cliff Minerals, a Canadian-focused explorer backed by John Hancock, a descendent of Australia’s iron ore legend Lang Hancock, slipped 0.2c to 2.4c after announcing a $5 million capital raising.
- Nimy Resources added 0.1c to 6c after reporting high grade copper assays from drilling its Masson project in WA, along with high grade gallium, and
- Patriot Lithium rose by 1c to 4.5c after announcing a plan to buy a copper project in Zambia.
Santana Minerals was the top gold stock this week with a rise of 36c to $2.25 after winning fast track development approval from the New Zealand government for its Bendigo-Ophir project on the country’s South Island. Shaw and Partners sees the stock rising to $2.86.
West African Resources was the worst gold performer after uncertainty over the company’s assets in the West African country of Burkina Faso, losing 23c to $1.42 despite reporting that its assets were in good order.
Other gold news and moves including:
- Polymetals adding 5c to 40c after reporting high grade gold, silver and zinc assays from its Endeavour mine at Cobar in NSW.
- Newmont rising by $1.21 to $78.31 after announcing the sale of another surplus asset, the Akyem mine in Ghana, to China’s Zijin Mining.
- Northern Star adding 11c to $15.85 after an optimistic note from Citi which sees the stock rising to $18.30, and
- Pantoro rising by 1.3c to 13c as it became one of the first miners in the current cycle to lock in a future gold price with a forward sales deal, a sign that some people in the industry believe the gold is near a peak in the current cycle.
Uranium continued to creep higher, adding US40c this week to sell for US$83.25 a pound, helping local favorite Boss Energy rise by 5c to $3.41, an increase aided by news that the part-owned Alta Mesa project in Texas had officially opened.
Most other uranium exposed stocks gained ground as a wild card emerged in the market for the metal, fresh threats from Russia that it might embargo exports of the nuclear fuel.
Other news and market moves on interest this week included:
- Sun Silver added 9c to 83c after reporting a thick silver zone in the latest drilling at its Maverick Springs project in the U.S. and ANZ Bank released an upbeat research note on the outlook for silver which it expects to rise from US$30.50/oz to US$34/oz.
- Paladin Energy rose by 14c to $11.87 after winning court approval to acquire Canadian miner, Fission uranium.
- Firefly Metals slipped 1c lower to $1.03 after raising $65 million in fresh capital but Shaw and Partners still sees the stock rising to $1.40.
- WA Resources shed 64c to $13.92 despite encouraging results from early-stage tests on refining material from its West Arunta niobium discovery in WA, and
- Fortescue Metals remains heavily overpriced according to Macquarie Bank, which sees the stock falling by $5.50 to $14.25, a tip which precedes the release of September quarter production reports next week from most of the big miners.