Gold glitters again, but beaten-up nickel shows signs of life

14th December 2018
Tim Treadgold

Gold continued to outperform the rest of the resources sector this week but a bounce could be brewing among unloved nickel stocks as a deficit of the metal grows and a Chinese de-stocking cycle comes to an end.

For most investors, the nickel recovery is not yet in sight as the price has slumped from close to $US7 a pound six months ago to $US4.88/lb. But recent comments from a man who knows a lot about commodities, and a bank which knows almost as much, point to a nickel revival in the new year.

Ivan Glasenberg, chief executive of the big commodity trading and mining company Glencore singled out nickel for a special mention in his optimistic assessment of the year ahead as seen through supply shortfalls.

Macquarie was the bank which noted the current pressure on nickel caused by a decline in demand from Chinese stainless-steel makers, but echoed Glasenberg by pointing out that a price-boosting supply shortfall was likely to continue for several years.

The key point from the commodity trader and the bank is that stockpiles of nickel, and several other metals, are shrinking even as the world struggles to understand the effects of the China v US trade war.

According to Glasenberg, the past three years had seen the global nickel stockpile average 15.7 weeks of consumption but over the past few months the stockpile, which is an essential buffer against outages at nickel mines, has dropped to 9.4 weeks.

Macquarie’s calculations are even more interesting because it reckons the nickel surplus stood at a whopping 21.9 weeks in 2016 but will be down to 9.1 weeks in 2021, before sliding to just 6.6 weeks in 2023.

For a metal exposed to the development of a new market as an ingredient in batteries, that decline in available nickel is almost certain to be reflected in a higher price, not that any such move can currently be seen with the trade war and de-stocking leading to weakness across the nickel sector.

Panoramic, which is redeveloping the Savannah mine in the Kimberley region of WA, has suffered along with the nickel price, with its shares dropping by 40% since mid-year, though this week they held firm at 38c.

Independence, another nickel producer, has fallen by 22% since June but that relatively modest drop compared with Panoramic could reflect the benefit of its significant exposure to gold. Whatever the explanation, Independence added 16c this week to trade at $3.96.

Mincor, another stock with nickel roots and plans to re-enter the business, was up 1c at 33c after reporting a promising set of assays from drilling at the Durkin mine near Kambalda in WA, with best intersections of three metres at 10.33% nickel and 4m at 9.15%.

Gold stocks continued to attract support from investors keen to dodge the trade war fall-out with a number of stocks returning strong results including Kirkland Lake, which added $4.24 (13.7%) to $35 after announcing a dividend increase thanks to strong profits from its Australian and Canadian mines.

Alacer Gold was also in demand, rising by 9c to $2.26 while also receiving a strong buy tip from Credit Suisse, an investment bank, which reckons the stock is heading to $5.30 over the next 12-months. Perseus Mining was another gold stock on the Credit Suisse buy list and while it managed a 3c rise this week to 37c, the bank is tipping a price target of 57c.

Other gold news included:

  • Azumah Resources added 0.4c to 2.4c after reporting high grade assays from its Bepkong East project in Ghana with a best hit of 9.9m at 8.42 grams a tonne, from within a wide zone measuring 93m at 2.33g/t.
  • Intermin Resources and MacPhersons Resources announced a merger to create a specialist Kalgoorlie gold stocks. Intermin was steady at 14c, MacPhersons added 0.2c to 8.2c.
  • Ramelius added a 2c cash component to its takeover offer for Explaurum with the combination of shares and cash said to be worth 13.4c. On the market Explaurum added 2c to 11c while Ramelius also rose by 2c to 44c, but that move was probably more to do with promising assay results from the company’s Mt Magnet and Edna May mines.
  • Bellevue Gold reported high-grade assays from drilling at the Bellevue Surrounds part of its namesake project in WA with a best intersection of 2.4m at 26.1g/t. On the market, Bellevue lost 3c to 40c, and
  • Capricorn Metals added 1.2c (20%) to 7.2c after announcing that it had secured a $107 million funding package from Macquarie Bank for the development of the Karlawinda gold project in WA

Among lithium stocks, the most significant news was settlement of a dispute between Kidman Resources and a group of investors who had appealed against it being awarded a mineral claim at the heart of its Mt Holland joint venture with Chile’s SQM. On the market, Kidman added 18c to $1.40.

Mt Gibson was the pick of a thin iron ore sector, adding 4c to 54c after reporting that it was on track to re-start the Koolan Island mine in the next few months with first sales expected by the end of March.

Other events of interest, though not with much market movement, included:

  • Ausgold added 0.7c to 2.7c after reporting high-grade vanadium assays from drilling at its Red Hill project near the WA wheat-belt town of Katanning. Best intersection from a company better-known for its gold exploration was a 3m zone grading 1.14% vanadium within a broader sector of 56m at 0.44% vanadium.
  • Technology Metals and Venus Metals were two other vanadium hunters in the news with Technology reporting encouraging results from metallurgical test work on material extracted from its Gabanintha project in WA and Venus saying it had completed a drilling program at its Youanmi project also in WA. Both stocks lost 1c. Technology to 39c and Venus to 14c.
  • Peel Mining said a zone of high-grade zinc, lead and copper mineralisation continued to grow at its Southern Nights project near Cobar in NSW with a fresh drilling program that featured a best result of 15m at 12.35% zinc, 6.13% lead and 0.56% copper. On the market, Peel lost 6c to 46c, and
  • Lucapa Diamond Company reported the recovery of a 78-carat white diamond from the Mothae mine in the southern African country of Lesotho, only to see its share price lose 2c to 19c.

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