Commodities rollercoaster roars on, this time with gold finding its feet but nickel falling

Waiting for a sea-change in financial markets can be frustrating, and it certainly was this week for investors who moved too quickly into industrial metals in the belief that gold has run its race. But that’s not quite how events played out.
15th November 2019
Tim Treadgold

Waiting for a sea-change in financial markets can be frustrating, and it certainly was this week for investors who moved too quickly into industrial metals in the belief that gold has run its race. But that’s not quite how events played out.

Next year it could be a different story given the early signs of the global economy entering a recovery phase after a horrid year, though the core problem remains the same - the unpredictable moods of the US President, Donald Trump.

A number of leading investment banks subscribe to the theory that the worst is over and it’s time to rotate funds out of safe havens such as gold and the US dollar and put money back to work in assets exposed to manufacturing and finance.

Morgan Stanley, in a comment on the global economy, referred to the switch as the “reflation trade”, a view based on stronger-than-expected US payroll data, German factory orders rising, China’s manufacturing index hitting a multi-year high and global trade stabilising.

Those are all positive signs for 2020 being a better year than 2019 and now might be a good time to make portfolio adjustments, but it also seems there’s no rush to move because this week saw the two key metal indicators, copper and gold, defying the better-times forecast with copper down US4 cents and gold up $US5 an ounce.

Nickel, another base metal favourite of Australian investors, also went the wrong way if there is a revival starting, shedding US38c to fall below the important $US7-a-pound mark after Indonesia lifted its export ban on a number of miners, a boost to supply which hit Australian nickel miners.

Western Areas lost 15c to $2.97. Independence fell by 35c to $6.24. Poseidon was 0.3c weaker at 4.7c while Mincor enjoyed an early rise to 72c before easing to close steady at 68c, well short of an optimistic research report from Bell Potter which reckons Mincor is heading to 85c thanks to exploration success at its Cassini project.

The other big nickel mover this week was Panoramic, which dropped 10c to 34c, roughly where it started before Independence lobbed a share-swap takeover bid that Panoramic says has already breached a number of conditions.

Rare earths, which had faded from the headlines, reclaimed investor interest after the Australian Government said rare-earth project developers could apply for funding through a $4.4 billion defence-exports financing package, a move sparked by recent US Government interest in Australian rare earths.

Good for headlines, the stock-market reaction was cool. Lynas Corporation, the leading local producer of the exotic elements which make up the rare earth family, fell 15c to $2.31 while other potential producers managed modest gains. Northern Minerals added 0.6c to 5.9c, Alkane was up 4c to 66c and Peak Resources moved 0.2c higher to 4.2c.

Lithium and other battery metal stocks had a poor week as doubt lingers about future sales of electric cars unless governments offer buyers generous financial subsidies.

Galaxy Resources lost 8c to $1.02. Orocobre was down 18c to $2.61. Liontown slipped 1c lower to 8.9c and Pilbara Minerals was 4c weaker at 30.5c despite an upbeat report on improvement lithium recoveries from its process circuit.

Gold stocks started badly as investors mulled the resource-sector investment rotation theory and finished strongly as the gold price started to claw back some of its recently lost ground.

Northern Star, which dipped to $8.90 in early Thursday trade, moved back rapidly to $9.20 to be 20c ahead for the week. Evolution performed a similar trick, wiping off a 5c loss to be 3c up at 3.96, while OceanaGold shrugged off the effects of the lower gold price to rise by 24c to $3.44 thanks to continued strong exploration news.

The iron ore price continued to fall as supplies from Brazil built up. At $US75 a tonne for high-grade material, the price is down 33% on its mid-year peak.

Fortescue, the leading local iron ore producer, has felt the most heat from the price correction, shedding 81c over the week to close at $8.74 but with a number of stockbroking firms tipping a fall back to around $7.50. Mt Gibson lost 8c to 76c and Champion Iron was down 10c to $1.94.

The fertiliser sector produced a number of winners thanks to a revival of interest in potash and phosphate, led by Reward Minerals which is exploring the potential of Lake Disappointment in the north-west of WA and this week struck an exploration deal over areas north of the dry lake with Fortescue.

On the market, Reward traded up to a 12-month high of 13c before easing to 11.5c for a gain over the week of 1.5c. Highfield, which is attracting interest in its Spanish potash projects, added 3c to 72.5c while Danakali was also up 2c to 64c.

Other news events and interesting market moves included:

  • OZ Minerals fell by 60c to $10.35, partly as a result of the weaker copper price but also after reporting problems with incorrect equipment being delivered to its new Carrapateena mine in South Australia. J.P. Morgan, an investment bank, reckons the stock could fall further.

 

  • Pantoro added 1c to 16c on the back of a promising review in to processing options at its emerging flagship, the historic Norseman gold project in WA. The company also reported excellent drill results from the Daisy South project near Norseman with a best hit of 7 metres at 28.8 grams a tonne.

 

  • Red 5 signed an option agreement to buy the Great Western gold deposit from Terrain Minerals. Great Western is 80 kilometres from Red 5’s Darlot processing plant, and

 

  • Aeon Metals released a scoping study into its Walford Creek copper and cobalt project which it said demonstrated the viability of development. Investors were cautious, keeping the stock at 12c. Bell Potter was enthusiastic, tipping a future price for the stock of 60c.

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