Lithium’s back, fully charged by takeover fever and exploration success

Lithium returned as a market driver this week through a combination of discovery news
10th May 2019
Resources Rising Stars

Lithium returned as a market driver this week through a combination of discovery news and the potential for further takeover developments, eclipsing continued strength in iron ore and signs of a gold revival as international affairs took a turn for the worse.

The big news was a possible second bidder entering the race for control of Kidman Resources, the lithium stock in the sights of industrial conglomerate, Wesfarmers.

Rio Tinto, which has been toying with a number of lithium projects such as Jadar in Serbia, is said to be looking closely at Kidman and its Mount Holland project in WA.

Some investors believe that Rio Tinto, or another player in the game, is serious about mounting a rival bid, with the share price of Kidman moving past the $1.90 offered by Wesfarmers, closing yesterday at $1.91, having briefly traded at $1.96 on Wednesday.

In the field, the important news was confirmation that Liontown Resources has made a significant lithium discovery at its Kathleen Valley project in central WA, a region better-known for its gold and nickel mines.

A steady flow of drilling reports have built a picture of what looks to be a world-class series of pegmatites, the lithium host rock in WA, with latest assays including 18 metres at 1.6% lithium oxide, with a core of 12m at 2.2%, from a depth of 190m, and 48m at 1.4% with twin cores assaying 2.3% over 8m and 2.2% over 4m.

Liontown shares doubled over the week, rising from 3.7c to 7.4c.

Other lithium stocks joined in the revival as sentiment warmed after a cooling period which saw the lithium price sag under the weight of over-supply and uncertainty about demand for electric cars.

Pilbara Minerals, one of the local lithium leaders, benefited from the burst of takeover activity, adding 11c to 78c. Galaxy rose by 11c to $1.64 after reports of Rio Tinto’s possible interest in Kidman, and Orocobre was up 27c to $3.61.

Iron ore and gold were the other strong sectors this week, outperforming the base metals complex which includes copper, nickel and zinc. Those metals were sold off amid fears of the US v China trade war taking a turn for the worse and lower-than-expected Chinese economic growth data.

Fortescue Metals Group, the leading pure-play iron ore producer, added 28c to $7.46 thanks to a series of reports which highlighted the growing pressure in the global iron ore supply chain as Brazil struggles to return to full production.

Speculation that the benchmark price for 62% iron ore could soon top the $US100-a-tonne mark is growing, aided by a series of studies, including one from Macquarie Bank which maintained buy tips on most iron ore stocks with Fortescue said to be heading for $8.70.

But the analysis which really caught the eye was an estimate from Macquarie that if the spot-market price for iron ore remains around the same inflated level then it can be argued that Fortescue has 155% upside potential, or comfortably more than double its current $7.46.

There is a problem with forecasts based on spot market prices because they really are just “snapshots” of the market that rarely survives over the long-term.

Interestingly, Shaw and Partners, a Sydney broking house, reckons the iron ore squeeze could last longer and be more significant than some people expect because stocks of ore in China are much lower than the official numbers show – which plays into the Macquarie thesis of iron ore miners trading higher for longer.

Gold, as has been said many times, loves a crisis and while the China v US trade war has the potential to become a crisis, there are other issues brewing which have the potential to spark a significant revival in the gold price which is trying hard to reclaim the $US1300 an ounce mark, but is not quite getting there, yet.

Gold this week added $US10/oz to reach $US1282/oz while the Australian price rose by $A20/oz to $A1838/oz thanks to the Australian dollar slipping back through the US70c mark, perhaps because of the China slowdown and perhaps because a potential change of government in Canberra could be just over a week away.

Northern Star was the pick of the gold pack, adding 67c to $8.82. Evolution was 14c stronger at $3.23. Saracen gained 16c to $2.92. Bellevue rose by 8c to 60c and St Barbara put on 7c to $3.14.

Base metal stocks were hit by concern about an expansion of the trade war, with copper, nickel and zinc weakening, taking most stocks exposed to those metals down a few cents.

Western Areas led the nickel retreat, shedding 4 to $2.16. OZ was the weakest of the copper stocks with a fall of 28c to $9.32.

Other newsworthy events, few of which moved the market by more than a few cents either way, included:

  • Heron Resources enjoyed a modest re-rating after starting production at its re-developed Woodlawn zinc and copper mine in NSW and the discovery of a promising structure adjacent to the historic mine. On the market, Heron added 5c to 63c.
  • Mincor initially defied the weaker trend among nickel stocks with a rise of 2c to 46c in early trade before easing to close steady at 44c after reporting progress on a fresh offtake agreement to supply ore to Nickel West under a toll-treating arrangement.
  • Tietto Minerals added 1c to 15c after reporting high-grade, shallow, gold intersections from drilling at its Abujar project in Ivory Coast with a best hit of 100.73 grams a tonne over 4 metres from a depth of 76m.
  • Breaker Resources added 1c to 34c after reporting the discovery of a new gold-bearing lode in the southern portion of its Bombora project in WA, and
  • Cygnus crept one-tenth of a cent higher to 5c after reporting the discovery of nickel and platinum group metals in surface sampling on its Bencubbin North prospect in WA’s wheatbelt.

 

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