Gold, copper make the news but coal makes the money

Corporate deals in the gold sector and copper discovery announcements dominated the news cycle in mining this week, though the more interesting share-price moves where in a part of the industry that some politicians wish would go away: coal.
1st March 2019
Tim Treadgold

Corporate deals in the gold sector and copper discovery announcements dominated the news cycle in mining this week, though the more interesting share-price moves where in a part of the industry that some politicians wish would go away: coal.

Gina Rinehart, Australia’s richest person, demonstrated decisively her belief that coal is here for the long term, especially metallurgical coal, by plopping down $740 million to buy the shares she doesn’t already own in Riversdale Coal which is developing a mine in Canada.

Adding steel-making coal to the iron ore mining business of her Hancock Prospecting group is a natural addition, as BHP has demonstrated over the years by selling iron ore and coal to Asian steel mills which are big buyers of both commodities.

Rinehart’s father, the late Lang Hancock, tried several times to match his iron ore interests in the Pilbara region of WA with coal deposits in Queensland, even going as far as proposing a transcontinental railway hauling the raw material to matching steel mills on both sides of Australia.

That bold plan is highly unlikely to surface again. But what is happening is that coal has become spectacularly divided, with some people running for cover by selling out in fear of political and environmental activism while others dive deeper in as the prospect of reduced supply bumps into strong demand, producing the inevitable higher prices.

While impossible to prove, it appears that Rinehart’s move on Riversdale sparked a mini-rush into other coal stocks such as New Hope, which rose to a 12-month high of $4.28 during the week before easing to $4.19 for a week’s gain of 18c. New Hope was trading at $2 at this time last year.

Stanmore was another coal winner this week, adding 9c to $1.20, but that closing price yesterday came after the stock touched a 12-month high of $1.23.

Atrum also reached a 12-month high when it traded up to 24c, which was yesterday’s closing price. But the big winner was Chinese-dominated Yancoal, which posted a bumper profit and then delivered a whopping $1.07 (35%) share price rise to $4.19.

What appears to have sent coal stocks on a sector-wide rally are the reports of Rinehart’s takeover move, which followed news that one of the world’s biggest coal miners, Glencore, has bowed to activist investor pressure and will not develop any new mines while governments continue to raise barriers to coal projects.

While money was being made in coal, it was not being made among gold stocks, despite a proposed mega-takeover of Newmont Mining by Barrick Gold to create a globally dominate gold producer.

Rather than welcome the $US18 billion deal, investors ducked for cover, possibly because in the last cycle of mega gold deals, more value was destroyed than was created.

Newmont, the target and the stock which should have risen this week, fell by $US1.43 (4%) on the New York Stock Exchange to $US34.02, a hefty decline given the modest $US10 an ounce slide in the gold price and a sign that investors are wary of the proposed Barrick bid.

Barrick, in turn, did even worse, shedding $US1.08 (8%) to $US12.50, confirming the view that investors don’t like the deal or the bitter exchange of words between the rival chief executives who are turning a corporate event into a private feud, which could prove to be very costly for everyone involved.

 

 

Australian gold stocks, which could be in the market for cast-offs from a Barrick/Newmont merger, also had a less-than-impressive week, perhaps because of the slightly weaker gold price but also because of the risk of over-paying for Newmont/Barrick asset discards.

Newcrest, widely-seen as the most likely buyer of unwanted mines, slipped $1 lower to $24.29. St Barbara lost 31c to $4.46. Saracen was 9c weaker at $2.60. Northern Star eased back by 20c to $9.20 while Evolution swam against the tide with a 1c to $3.60, aided by interest in its acquisition of a 19.9% stake in Tribune Resources.

Copper stocks were surprisingly weak given that the price of the metal was knocking on the door of the $US3 a pound mark and Rio Tinto was making headlines with a skimpy report on its drilling at the Winu prospect in WA which has been talked up by speculators but is yet to reveal anything startling in drilling results.

Best assay reported mid-week by Rio Tinto was a thick (741 metre) intersection assaying 0.45% copper and 0.52 grams of gold a tonne, plus useful silver grades.

To put those numbers into perspective, a small Australian company, Xanadu Mines, has also reported thick copper mineralisation over the past two weeks with a 713m section at its Kharmagtai prospect in Mongolia.

Assays from the Mongolian project are pending but the drill core included a 100m section showing visible signs of the high-grade copper mineral bornite. On the market, Xanadu has risen by 3c to 14c over the past week.

Other newsworthy reports and market-moving events this week included:

  • Nzuri Copper received an offer too good to refuse from a Chinese company keen to get its hands on Nzuri’s Kalongwe copper and cobalt project in the Democratic Republic of Congo. Interestingly, Nzuri shares only rose by 8c to 32c, well short of the offer price of 37c.
  • Ausdrill continued its price recovery with a rise of 7c to $1.74 after announcing a solid profit result and renewed contracts for its services in Africa. The specialist driller had been sold-off after a senior management change and takeover which drove its price down to $1.04 in early January.
  • Kibaran added 1c to 11c after raising $1.1 million in fresh capital to continue evaluation work on its Epanko graphite project in Tanzania. Talga, another emerging graphite stock, announced an expanded exploration effort at its Swedish projects, with its shares rising by 6c to 48c.
  • West African Resources gained 2c to 28c after releasing drilling results from its Sanbrado project in Burkina Faso, with a best hit of 6.5 metres at 61.8g/t, with a core of 3m at 132g/t, and
  • Kirkland Lake, the Canadian company with an ASX listing which has revitalised the Victorian gold industry, moved up by another 93c to $51 after expanding its gold resource. Macquarie Bank upgraded its price target for the stock from $50 to $60.

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