Iron ore tiddlers and potash stocks join the party while gold gets another boost from The Economist’s epiphany

22nd February 2019
Tim Treadgold

Two forgotten sectors of the Australian market made a return this week, with small iron ore stocks riding the price wave created by Brazil’s production outage and potash explorers kicked back into play courtesy of BHP saying that fertiliser remains a growth option.

Gold too continued its climb with an unexpected new member of the gold-class cheer squad while palladium, for which there is extremely limited investment exposure, made headlines as it closed in on a record $US1500 an ounce, double where it was two years ago.

For Australian investors with an eye for smaller resource stocks, the most interesting news in a week packed with excellent profit results and bumper tax-dodging dividends was the awakening of slumbering iron ore and potash plays.

Brockman, a star from eight years ago, came back with a bang this week in the hope that its world-class Marillana iron ore deposit in WA’s Pilbara might finally get a development green light thanks to a 50/50 joint venture it struck last year with seasoned project developer Mineral Resources.

Trading at 2c (and less) for much of the past three years, Brockman this week added 1c to 7c, but did touch an eight-year high of 9.7c in early trade yesterday, at which point it was double the price of two weeks ago. Mineral Resources lost 45c to $16.84.

Grange, another of the leftovers from the iron ore boom of a few years ago, reached a five-year high of 29c on Tuesday, before easing to close yesterday at 28c. Mt Gibson rose by 3c to 71c.

The other big event in iron ore was FMG reporting a strong profit and a bumper dividend, the latest in a long-line of companies clearing out their surplus cash before the introduction of proposed tax changes by the Opposition, which could be in government later in the year.

Over the week, FMG added 13c to $6.41 but it did hit a two-year high of $6.74 on Tuesday, before easing back. FMG has risen by 85% from $3.53 last September.

What happens to the iron ore price over the next few weeks as Brazil moves to fix the problems it has with tailings dams will determine the immediate future of the iron ore price, but the common view is that the mini-boom is over and the next iron ore move will be down.

Potash, a material which blossomed in the years of the China-boom because of a belief that farmers needed more of the stuff to boost crop yields, returned to investor radar screens after BHP said it was pushing ahead with its Jansen mega-mine in Canada because it believes demand will exceed supply over the next few years.

Those comments, in BHP’s half-year report, helped smaller players in the potash garden, led by Kalium Lakes, which also announced the securing of a $74 million loan package from the Australian Government’s Northern Australian Infrastructure Fund. On the market, Kalium added 9c to 42c.

The reaction of other potash stocks to BHP’s optimism was less enthusiastic, perhaps because Jansen could fill what gaps develop in global potash demand. Danakali and Davenport both added 2c to 74c and 8c respectively. Highfield lost 2c to 62c while Australian Potash was steady at 8c.

 

Gold started the week strongly before hitting a speed bump early yesterday, which rubbed $US9 an ounce off the price before recovering to around $US1339/oz, which converted into a near-record Australian price of $A1870/oz.

Leading gold stocks, including Northern Star and Evolution went on a roller-coaster ride to end up close to where they started the week, Northern Star at $9.57 and Evolution at $3.64.

Among the smaller gold stocks, many of which attracted a strong following at the well-attended Explorers Conference in the WA port city of Fremantle, Bellevue last traded at 61c (down 1c over the week) but was in a trading halt as it finalises a $20 million capital raising.

Perhaps the most interesting gold news of the week was a remarkably positive report about the metal in an influential magazine which has always dismissed gold as a “barbarous relic”, which is what Lord Keynes dubbed it in the 1930s.

The Economist praised gold as a viable investment alternative to other safe havens, better than the US dollar, euro, Swiss franc or Japanese yen, especially in today’s uncertain economic and political times.

While not competing with the Biblical story of the conversion of St Paul on the road to Damascus, the Economist’s awakening is another signpost on gold’s long march back to a record price.

Other interesting price moves, up or down, included:

  • Dacian Gold adding 5c to $2.70 after releasing fresh assays from drilling previously untested ground at its Mt Morgans project in WA with best hits of 7.7 grams a tonne over 16.15 metres from a depth of 473.55m and 6.4g/t over 9.55m from 500.25m.
  • Hot Chili earned a speeding inquiry from the ASX when its shares more than doubled from 1.4c to 3.1c after management delivered a well-received presentation at the Fremantle conference into its discovery of a new copper/gold prospect near its flagship Productora project in Chile.
  • Stavely Minerals reported a second thick zone of bornite (a copper-rich ore) from drilling at its Thursday’s Gossan project in Victoria, news which lifted the stock by 8c to 34c.
  • Galileo Mining said it had started a maiden drilling program at its keenly-watched Lantern and Nightmarch copper and nickel prospects in the Fraser Range of WA. On the market the stock rose by 1c to 19c.
  • Syrah Resources remained under intense short-selling pressure with 16.4% of the issued capital of the graphite producer listed as being sold short with those bets that it will fall further, and uncertainty in the graphite market, pushing the stock down to a 12-month low of $1.20 in early Thursday trade before bouncing back to $1.32 to still be down 4c over the week.
  • Clean TeQ, another closely-followed battery metals stock slipped to a 12-month low of 30c, down 4c over the week and $1.05 over the past year.
  • Talga Resources said it had found a way to improve the energy performance of batteries using a technology it has developed to commercialise its Swedish graphite deposits. On the market, Talga put on 4c to 42c.

 

  • Strandline rose by 1c to 10c after reporting encouraging assays from drilling at its Tajiri titanium minerals project on the coast of Tanzania with a best result of 39m at 3.5% total heavy minerals, and
  • Jupiter Mines, the ASX-listed but South African focussed manganese producer talked up its strong profits and dividend paying power only to be rewarded with a modest 1c rise to 33c.

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