Lithium stocks bounce as Macquarie backs Pilbara to be a big winner from stronger market

9th November 2018
Tim Treadgold

Despite multiple distractions, including US election fever, a spectacular derailment on BHP’s iron ore railway, and a horse race in Melbourne, the recovery on the market reported here last week has continued -- with lithium stocks taking the lead.

Off-colour since mid-year thanks to reports of a lithium glut killing the price of the battery metal, the latest developments have been largely positive, with some stocks delivering a return to rival Cross Counter’s winning dividend for punters on the Melbourne Cup.

Orocobre, the Australian miner extracting lithium from a brine lake in Argentina, moved up by a sharp 83c (or 22%) to $4.70 despite a production slippage and an expansion project timetable being pushed out.

Bell Potter, a stockbroking firm and close follower of Orocobre, reckons there’s much more to come, reinforcing a buy tip during the week, and while the broker trimmed its 12-month share price forecast from $8.25 to $7.25, that’s well above where the stock is today.

Pilbara Minerals, Galaxy Resources and Kidman Resources also responded positively to the improved outlook for lithium stocks. Pilbara added 6c to 86c, Galaxy rose 65c to $2.79 and Kidman gained 44c to $1.44.

Macquarie Bank, in what could prove to be a significant research report, said the outlook for lithium was strong but that recent events in China would favour bigger miners at the expense of small producers unable to meet strict quality and reliability standards.

Pilbara and Galaxy are at the top of Macquarie’s latest lithium tip sheet. Altura Mining is at the bottom, with the bank citing the need for Altura to possibly raise an extra $40 million in fresh capital to finalise funding of its mine in WA.

The Chinese event flagged by Macquarie is a possible change in the way subsidies are calculated for consumers buying electric cars, with the energy density in batteries having to reach 140-watt hours per kilogram for a subsidy to apply rather than the current 120Wh/kg.

The increase, which could become law from as soon as January 1, will favour big battery makers and their suppliers, which are generally big lithium miners able to deliver the tonnage required at the grade demanded.

Macquarie reckons Pilbara shares are heading for $1.20, while Altura could trade around 19c, which is actually up 1c on where the stock was yesterday.

Other sectors of the market delivered mixed performances, though the overall trend was up, modestly.

Saracen and Bellevue led the gold sector early in the week with both touching 12-month share price highs. Saracen hit $2.56 on Wednesday as the gold price moved up in the hours after the US election result when uncertainty prevailed. It closed yesterday at $2.46, down 6c over the week.

Bellevue did better, hanging on to some of its rise after hitting a Wednesday peak of 49c. It closed yesterday at 44c for a gain of 3c.

Stocks on the losing side of the ledger included Ausdrill, which paid a hefty price for missing out on the renewal of its contract covering the Edikan gold mine of Perseus Mining in Ghana. Ausdrill’s share price slid 14c to $1.46, up on the 12-month low of $1.39 reached midweek.

Iron ore stocks had a better week. Even BHP shook off the stigma of its runaway train, adding 2c to $33.34, though BHP is such a big business that one train off the rails is not a share-price mover.

Fortescue Metals, on the other hand, is a classic one-trick pony, benefiting from signs of an easing in the discounts which have hit its revenue. Over the past week, Fortescue rose by 10c to $4.26.

Mt Gibson, however, was the big iron ore winner with a rise of 9c to 62c as confidence grows in the redevelopment and dewatering of its high-grade Koolan Island mine.

Other price moves and news events of note included:

  • Adriatic Metals rising to a 12-month high of 72c on Wednesday after reporting government approval of an expanded land concession around its Rupice zinc and lead project in Bosnia. The stock eased later in the week to close at 68c for a 6c rise.
  • First Cobalt reversed a year-long slide by adding 6c to 26c after an upbeat presentation to North American investors.
  • Troy Resources added 2c to 12c after reporting encouraging assays from its Ohio Creek gold project in the South American country of Guyana. Best hit was 16 metres at 10.07 grams a tonne, with a 1m slide assaying 93.78g/t from a depth of 2m.
  • Kingston Resources added 0.4c to 2.4c after reporting a 40m-thick section grading 3.17g/t from drilling at its Misima gold project in Papua New Guinea.
  • Calidus reported fresh high-grade drill results from its Warrawoona gold project in WA with a best intersection of 6m at 7.61g/t with 1m in that zone assaying 40.64g/t. On the market Calidus rose by 0.3c to 3.3c.
  • Sipa Resources raised $1.5 million for ongoing work on its promising Paterson Province gold and copper project in WA. On the market, and despite the extra shares being issued, Sipa’s price rose 0.1c to 1.1c thanks to the heightening interest in the Paterson where Rio Tinto is leading the hunt for world-class base metal deposits.
  • Arafura Resources added half-a-cent to 7.5c after announcing plans to build a rare earth separation plant at its Nolans project in the Northern Territory, potentially benefiting from the problems dogging rival Lynas Corporation, which has split its mine and processing plant between Australia and Malaysia.
  • Strandline Resources added 1c to 12c after raising $3 million for its Fungoni titanium minerals project in Tanzania.
  • Trek Metals added 0.2c to 1.2c after encouraging metallurgical test work at its Kroussou project in the African country of Gabon, and
  • Geopacific Resources released the results of a definitive feasibility study into its Woodlark gold project in PNG with a life-of-mine all-in sustaining production cost of $A1033 an ounce thanks to its shallow pits and outcropping soft ore. On the market, the stock added 0.3c to 2.3c.

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