Miners tipped to bounce back as investors look for hard assets as tech alternative

An investment theory advocating exposure to companies owning “Heavy Assets with Low Obsolescence,” HALO theory surfaced earlier this year as investors grew wary of the artificial intelligence (AI) boom which has driven technology stocks to unsustainable levels.

The original HALO advice started by questioning the potentially short-life expectancy of AI-exposed stocks as technologies were rapidly superseded, whereas the physical structures to house and operate AI, especially data centres, offered greater permanence and investment reliability.

Investment bank UBS revisited the HALO theory this week with a report which recommended miners, energy producers and utilities as offering exposure to the “tangible” economy with a telling comment being that “minerals and energy cannot be produced or replaced by AI.”

Another bank, Morgan Stanley, also promoted the case for mining in a research note which said a recent sell-off had been driven by profit taking after an 18-month upward run, rather than a lasting downturn in the cycle.

“The pullback creates opportunities to rotate into commodities with stronger demand fundamentals, led by copper and uranium,” Morgan Stanley said.

The optimistic comments from UBS and Morgan Stanley about the resource sector were published as I was visiting mining analysts in London, the traditional home of mining finance and the world’s leading mining companies.

John Meyer, mining analyst and partner at SP Angel, told clients in a mid-week research note that the copper price is being supported by “sustained price disruptions, tariff expectations from the U.S., and a reversal of the recent U.S. dollar rally.”

A major storm approaching Chile could be the next event to lift the copper price if heavy flooding develops as feared, squeezing copper supply just as the Chinese owners of the biggest copper mine in Pakistan suspend operations until local violence subsides.

Supply factors were the major contributor to a 4% rise in the copper price over the week to US$6.34 a pound with most copper-exposed stocks posting solid gains, led by Capstone which added $1.17 to $13.80 and Sandfire, up 52c to $18.68.

Australian stockbroking firm Morgans said near-term risk to copper was two-sided. Structural demand remained strong thanks to electrical system grid build-out while war-related disruption clouded the outlook.

Big miners Rio Tinto and BHP rose early in the week before fading. Rio added $2.65 this week to $163.47. BHP added 87c to $58.56.

Two small Australian copper stocks received special mention during the week.

Caravel, which is making progress with its namesake project in WA’s wheatbelt, rose by 1c to 24c but received a strong buy tip from Shaw and Partners which said in a research note initiating coverage that the stock will rise to $1.15.

Linq Minerals added 1c to 29c but was the subject of a bullish report from Bell Potter which likes the company’s Monza project in NSW where thick, high-grade drill intercepts have been reported, including 5 metres at 5.36% copper from a depth of 124m. The broker has a price target of 90c on Linq.

The return of oil to around US$85bbl was a negative for the broader market, but not for oil and gas companies, where Woodside led a price surge, up $1.31 to $29.93 while Santos rose by 23c to $7.68.

Over the week the Australian market’s major indices flatlined or crept up marginally. The all ordinaires and metals index added less than 1% each. The gold index, unsurprisingly, fell by 3% as the price of gold slipped US$40 an ounce to US$4031/oz but did fall briefly below US$4000/oz.

As for much of the past few weeks, there was not a discernible trend in the market with a handful of relatively strong performers against a backdrop of concern that with oil stockpiles close to empty, a return to all-out war in the Gulf could see a crisis conditions redevelop.

Morgan Stanley’s view is that uranium, the key energy metal, will continue to march higher having already reached US$97 a pound in long-term sales, a price which is significantly higher than the spot (short-term) price of US$85/lb.

Local uranium stocks were as mixed as the long and short-term prices of the fuel. Bannerman did best with a rise of 13c to $3.51. Paladin led the way down with a fall of 46c to $9.32. Other moves were a few cents either way.

Gold news was dominated by the successful bid from Genesis Mineral for Vault Minerals with both stocks moving higher as the cash and share swap bid was welcomed as a step in creating a new top tier gold stock. Genesis added 37c to $5.96. Vault rose by 7c to $4.89.

Most other price moves by gold stocks were modest, reflecting the uncertain price outlook which is being heavily influenced by U.S. interest rate policy which ANZ Bank said is likely to hold the gold price in a range of US$3800/oz to US$4000/oz.

Over the longer term, ANZ sees gold bouncing back strongly as investors “recalibrate” interest rate expectations with a price of US$4600/oz expected by the end of the calendar year, and US$5400/oz over the next 12-months.

Gold news and moves this week included:

• Pantoro, down 4c to $1.99 but with CG Capital Markets forecasting a future price of $4.20.

• Yandal Resources slipping 1c lower to 20c even as interest grows in drilling at is Siona project in NSW. Shaw and Partners have a price target on the stock of 51c.

• Forrestania, down 1.5c at 40c after agreeing to buy the Edna May project in WA from Ramelius Resources and with a Bell Potter price target of $1.25, and

• Kingsgate Consolidated down 1c at $4.23 thanks to an outage at one of its mills in Thailand and despite a CG buy tip and price target of $8.10.

Rare earth news was dominated by another attempt to dislodge Chinese investors from the share register of Northern Minerals, this time with a cancellation of their voting rights. On the market. Northern was flat at 2.8c.

Dateline Resources was the biggest rare earths winner of the week, up 4c to 16c after fresh assays confirmed extensive rare earth mineralisation at its Music Valley project in California.

Brazilian Rare Earths was also a winner with a rise of 12c to $4.07. Lynas was the biggest loser, down 33c at $16.48, while Hastings rose by 1c to 28c after releasing an updated definitive feasibility study into its Yangibana project in WA.

Other news and market moves this week included:

• Global Lithium, up 3.5c to 47c after announcing the acquisition of the Nova nickel processing plant of IGO to treat lithium ore from its Manna project in WA.

• Fortescue, up 91c to $19.08 as investors build exposure to the iron ore miners invariably generous dividend payout.

• Stelar Metals, up 1c to 15c after reporting widespread tungsten mineralisation at its Hill of Leaders project in the Northern Territory, and

• Sky Metals, down 1c at 24c despite reporting an expanded mineral resource at its Tallebung tin project in NSW and a Bell Potter buy tip and price target of 35c.