Oil crisis highlights key diversification roles of copper, lithium, uranium and critical minerals

Apart from the energy stocks, it has been a tough week for the ASX-listed resources sector.

Both producers and explorers have been pummelled in response to the worsening situation in the Middle East.

The gold sector in particular has been hit hard, with falls of 10% for the producers in Thursday’s market reflecting alarm that the price of the yellow metal had retreated from its plus-$US5,000/oz levels.

Gold is meant to enjoy haven buying in troubled times. But the lack of an interest rate cut in the US and a halt to buying during the war by central banks for de-dollarisation purposes – the main driver in gold’s rise in recent times – has hit sentiment on gold for the time being.

The ASX base metals sector has performed better but metal prices have come back to reflect growing concerns that the creeping emergence of a global energy crisis could force an economic recession, hitting demand.

On top of that there is the near-term concern that the resources sector won’t be able to obtain the diesel supplies it needs to keep its operations ticking over and if it can maintain supplies, it will be at a substantially higher cost.

Already there are indications that diesel supplies are under the pump, with reports from the WA goldfields that suppliers are only guaranteeing 40% of supply going forward to its smaller customers.

Having said all that, there were as many buyers in the ASX resources sector as there were sellers in Thursday’s particularly sharp sell-off. The buyers are nibbling away at what is perceived as over-sold positions.

If there was a theme to the nibbling it was that as horrendous and complicated as the Middle East situation is, we are another day closer to a resolution. 

On top of that is the enduring power of the big investment thematics: copper for electrification, lithium for EVs and storage batteries, the nuclear power renaissance, central bank buying of gold for de-dollarisation purposes, the build out of a non-China critical metals supply chain, and so on.

If anything the Middle East has added to the greater purpose of the thematics, particularly around copper for electrification, lithium for EVs and storage batteries, and the nuclear power renaissance. Having 20% of the world’s oil supply under threat kind of does that. 

Stavely Minerals (ASX:SVY):

That the copper thematic is alive and well is best demonstrated by the fortunes of Stavely Minerals (ASX:SVY).

Back in October 2019 Stavely was riding high with a market cap of $260 million on the strength of its Caley Lode copper discovery at its namesake project in the shadows of the Grampians in western Victoria.

Fast forward to this week and Stavely is trading at all of 1.4c for a market cap of $9.6m. Deduct its cash and it’s got an enterprise value of a little more than $9m.

But get this. Copper averaged US$2.70/lb in the Caley Lode discovery year of 2019. And even after this week’s price buffeting, the red metal now commands a structurally supported price of US$5.62/lb.

It has to be said that initial enthusiasm for the Caley Lode discovery waned when it proved to be on the small of things, albeit with a good grade. And then there was the still-elusive hunt at Stavely for an Andes-scale porphyry discovery at depth.

So the retreat from the company’s peak valuation of $260m in October is no surprise, But what is a surprise is that unlike its ASX copper exploration peers, Stavely has not re-rated in keeping with the new copper paradigm.

Not yet anyway. The company led by industry veteran Chris Cairns is now putting in place the blocks needed to breakout out from its sub-$10m market cap and catch-up to its ASX peers with similar project metrics which, by and large, have market caps of more than $100m.

The first of the blocks was put in place earlier the week when the company updated the mineral resource estimate for the project to 60Mt at 0.58% copper equivalent (0.46% copper, 0.09g/t gold and 2.8g/t silver for 280,000t of contained copper, along with gold and silver).

As Cairns reported, the main driver for the upgrade (contained copper was up by 31%) was the substantial increase in metal prices since the MRE was last calculated. It assumed prices better than is currently the case and ahead of consensus.

Using less heroic consensus prices pulls the resource estimate back to 190,000t of copper, 110,000ozs of gold and 3.6Moz of silver at a copper equivalent grade of 0.74%, again all comparable with Stavely’s $100m-plus ASX peers.

The company is using the consensus pricing in a scoping study which it expects to release by mid-year, if not earlier.

Cairns said the release of the scoping study would be a flag in the sand moment for the company as for the first time, it would be able to demonstrate the value of the project to the market.

“I am not able to speak to those financials without having put that scoping study out,” Cairns told an investor call on Thursday.

“That is beholden on us to get that flag in the sand as I describe it out there for people.

“We think that we have similarities with a number of peers in the copper space, albeit it’s worth noting that there aren’t many copper stories on the ASX, so there is not a lot to choose from.

“We’re not far away from being able to get that scoping study out in public domain and demonstrating the values.

“So, if your investment thematic is copper stronger for longer, I think that we’re probably offering particular value in this asset.’’

Legacy Minerals (ASX:LGM):

It has been said here previously that the best way for a junior to buck commodity price pressures is to make a discovery.

And it doesn’t matter if the company went looking for more silver and found more gold.

That’s what has come to pass for Legacy Minerals (ASX:LGM) at its Mt Carrington project near the town of Drake in the northern NSW portion of the New England Fold Belt.

While all were headed south in Thursday’s market, Legacy was a veritable tower of strength by holding the line with a 16c share price for a market cap of $32 million.

The hold-the-line performance was a result of the first diamond hole at the Mascotte prospect at the broader project area returning a 40m hit from 151m grading 1 g/t gold, including 9m at 2.7g/t gold from 180m.

Silver values were also returned but were not in the same league as the gold. As it was, Mascotte was targeting repeats of the very high-grade silver hits recorded in drilling there during the 1970s.

Legacy said the system maybe transitioning to a gold dominant system at depth, or it points to the existence of parallel silver-rich mineralised structures. The second hole in an 8-hole program is underway.

Importantly, the Mascotte hit sits outside of the existing 115Moz silver equivalent (silver and gold) mineral resource estimate for Mt Carrington, a project Legacy picked up in March 2024 from the administrator of White Rock Resources for the knockdown price of $190,000.

A bit like Stavely, Legacy’s market value is well short of what its ASX peers with silver equivalent resources under their belt command. The Mascotte gold discovery could well be the trigger for a re-rating.