China’s slow return from its eight-day New Year celebrations weighed on most commodity prices and investor sentiment but a return to normal business activity could be a factor in the optimism of some investment banks.
Citi was quick to detect signs of a lithium revival, telling clients that the price of the battery metal could be close to a bottom as surplus material is removed from the market.
Mineral Resources became the latest lithium producer to put a project on hold with its Wodgina expansion delayed until prices improve, further limiting future supply.
“Our ASX lithium coverage is up 7%-to-20% over the last two trading days, with equities pricing in well-above the spot lithium price,” Citi said on Tuesday.
Albemarle, the big U.S.-based lithium producer with extensive interests in Australia, moved up with Citi’s comments to post a gain of US$4.96 (4.4%) in New York, trading at US$118.55 to be US$10 up on the 12-month low reached earlier this month.
Liontown, a local favourite, also reacted to Citi’s comments with a 16c rise early in the week to a one-month high of $1.26 before running out of steam to close yesterday at $1.12, up 3c over the week or up 18c over the past four weeks.
IGO, a company with lithium and nickel interests, surprised with a steady dividend after a 53% profit fall in the half-year to December 31.
Investors liked the result, lifting IGO by 4.5% from its low point early in the week to trade at $7.16, perhaps on its way to an updated target price of $9.65 (and buy tip) from Jarden – which also had fun with the company’s ASX code of IGO (“I go”) by heading its note to clients “I remain”.
A flood of annual and half-year reports kept brokers busy with Australia’s big two of mining, BHP and Rio Tinto, reporting solid results with generous dividends attached, much better than arch-rival Glencore, which cut its dividend as it gets ready to absorb Canada’s Tech Resources.
Another international miner carrying a heavy burden is First Quantum, part owner of WA’s Ravensthorpe nickel project. First Quantum has lodged a US$20 billion claim against Panama for the closure of its Cobre Panama copper mine. The company’s shares have plunged by 65% over the last six months.
Though lithium and nickel are both battery ingredients, the critical difference is that lithium producers are behaving rationally and reducing production whereas Indonesia’s nickel industry is using the price collapse to reinforce its dominant position as the low-cost leader, showing no sign of reining in output.
More evidence is needed to be confident that the market is in a recovery mode or whether it will remain in the doldrums until central banks take their foot off the interest rate pedal.
Overall, the market remains stuck in an annoying process of one-step forward and one-step back as shown in the all ordinaries which is up 2% over the past four weeks and down 0.7% over the past week.
Zinc, a metal with a name that rhymes with stink for many investors, had a surprisingly strong week, up 3% to US$2397 a tonne, aided by comments from Glencore boss Gary Nagle that he would persevere with the company’s Queensland zinc assets because he expects a sustainable price recovery.
Nagle also dropped a hint that his nickel assets, led by the Murrin Murrin mine in WA, remain profitable despite the nickel price crash.
But the real zinc surprise came from boutique investment bank Wilsons Advisory which said the Earaheedy discovery in WA of Rumble Resources was looking at a “huge resource potential”, good enough for Wilsons to forecast a share price surge by Rumble from its current 7c to 40c – close to a 500% win (if correct) for a brave investor.
Gold, the ultimate safe haven in uncertain times, had a solid week, rising steadily from opening trades at US$1990 an ounce to reach US$2031/oz on Wednesday, before easing back to US2027/oz.
ANZ Bank attributed the recovery to fresh evidence of central bank buying, refreshing a price target for later in the year of US$2200/oz. Citi pushed the boat out further with a tip of US$3000/oz if there’s a crisis of confidence in the U.S. dollar.
Central banks have been loading up ahead of the inevitable fall in interest rates and have acquired more than 1000 tonnes of gold in each of the last two years.
Explosives and chemical maker Orica signalled its ongoing confidence in gold with the US$640 million acquisition of U.S. sodium cyanide maker Cyanco which has gold producers in North and South America as its major customers.
Local gold stocks failed to follow their metal. Northern Star slipped 13c lower to $12.97. Genesis was 1c weaker at $1.57, and Evolution lost 6c to $3.01.
Santana was the best of the smaller gold stocks as interest grows in its Rise and Shine project in New Zealand with a resource upgrade lifting the stock by 4c to $1.13.
Most other gold stock lost ground as investors hugged the sidelines. Red5 produced a solid half-year profit only to see its shares ease back by 1.5c to 31c. Perseus announced an expanded exploration effort in Africa, only to lose 1.5c t $1.69, and Alkane produced a reasonable profit but fell 4c to 49c even as Bell Potter upgraded its target price for the stock to $1.
Copper stocks had a good week as investors looked closer at the fundamentals of a metal which wins from industrial production and battery demand, a combination which lifted the price this week back to US$8500 a tonne.
ANZ Bank said the fundamentals of copper supply and demand continued to improve with supply being crimped and demand surprisingly strong. It expects the copper price to move above US$9000/t in the short term and then up to US$10,000/t over the next 12-months.
29Metals was the copper star of the week, up 8c 27c, clawing back a little of the drop from $1.76 on this day 12-months ago. Sandfire added 45c to $7.62 and newly listed Metals Acquisition put on $1 to $19.01.
Iron ore news was dominated by profit results from BHP, Rio Tinto and Fortescue with investors underwhelmed by what they saw and ongoing concern that Chinese demand is weakening.
RBC Capital Markets acknowledged anemic Chinese buying during New Year holidays but said it expected a recovery as steel mills re-enter the market and the effects of iron ore production shortfalls are felt, including Citic being forced to reduce production because of a never-ending dispute with billionaire investor Clive Palmer.
Fortescue’s 41% increase in net profit to US$3.3 billion for the half-year to December 31 was greeted with an 83c share price slide to $27.61 while Mt Gibson’s sharply higher profit was met with a 3c fall to 48c.
Other news and market moves of interest this week included:
- WA Resources adding $1.56 to $11.901 after releasing the latest batch of encouraging niobium assays from its West Arunta project in central Australia, with a best hit of 41.1 metres at 1.5% niobium. The stock was trading at $1.24 on this day 12-months ago.
- Iluka Resources rose by 45c to $7.57 after it reported a stronger than expected full year profit of $343 million from mineral sands production while pushing ahead with its rare earth expansion project, and
- Deterra Royalties slipped 14c to $4.99 and while not a closely followed stock as it simply harvests a BHP iron ore royalty it is starting to attract attention because it could be poised to start buying additional assets.
- Finally, you could have done a lot better over the past 12-months than follow the mining market because the top commodity has been chocolate, or to be correct, cocoa. Poor harvests of cocoa in west Africa have this year seen the price of cocoa rise by 126% to US$6198 a tonne, including a 35% rise over the past month. Not just a top investment, it tastes good too!