The US$10.6 billion Allkem Livent merger is expected to be the first of a series of deals timed to coincide with what looks to be a positive turn in the price of lithium with other battery metals, including copper and nickel, to follow.

The fact that merger and acquisition (M&A) action is spread across the mining industry is a sign that the driving force is not conventional supply and demand for a particular commodity.  It’s more a belief that the worst of the slowdown is passing and next year could see a widespread economic recovery.

Price premiums at this stage of the recovery cycle can be significant with the takeover of Chesser Resources by Canada’s Fortuna Silver a case study and while a share-swap arrangement, it theoretically means Chesser shareholders are getting a price 95% higher than pre-deal trades on the market.

The Allkem/Livent deal followed BHP’s acquisition of OZ Minerals, Newmont’s merger with Newcrest, and the intervention by Silver Lake in the proposed tie-up of Genesis and St Barbara.

Though not yet a feeding frenzy, the signs point to a period of rampant deal making in which every company with quality assets, but not yet a clear pathway to development, can be seen as a potential target and that includes emerging gold stocks such as De Grey and Bellevue and polymetallic explorers moving towards development, such as Chalice.

Encouraging market action was not matched by price moves with the overall market, as measured by the all-ordinaries index, starting strongly before fading to a modest gain of just under than 1%, with the downturn possibly a result of investors forming a negative view of the Australian Government’s mid-week budget which was heavy on handouts and light on business incentives.

With billions of dollars being drained out of the Treasury to help causes close to the roots of the government, the cash cupboard will soon be empty, which is a bad sign for Australian interest rate settings if/when the government is forced to borrow again.

Gold, always a good (but inverse) measure of confidence in government policy, edged higher over the week to trade around US$2032 an ounce, a few dollars short of last week’s record high of US$2060/oz but still a high price by most measures. Next target for gold, according to Citi’s Ed Morse, is US$2400/oz.

Despite the encouraging trend in the gold price, most local gold stocks struggled to make headway. Northern Star and Evolution, the two most likely takeover targets for the world’s second biggest goldminer, Barrick, barely moved even as Barrick boss Mark Bristow said he was on the takeover trail.

Bristow is keen to not let Newmont get too far ahead in the status race with Northern Star, which added 2c to $14, and Evolution, which slipped a marginal 0.5c lower to $3.90, seen as prime targets for Barrick.

Other gold news and market moves included:

  • Silver Lake, down 9.8c to $1.11 as investors fret about it possibly overpaying for St Barbara if it can beat Genesis to the prize – or is it a poisoned chalice?
  • Genesis also lost ground, down 3.5c to $1.22. St Barbara was 0.5c weaker at 70c.
  • De Grey, which is shaping as a major gold producer, ran out of steam this week with a fall of 10c to $1.50 even as CG Capital Market refreshed a buy tip with a new target price of $2.50, down 10c on the previous forecast, and
  • Kingsgate rounded out a surprisingly weak performance by gold stocks with a 6c fall to $1.42 despite announcing solid progress in bringing the Chatree mine in Thailand back into production.

Lithium stocks, powered by signs of a recovery in the price of the battery metal and the Livent/Allkem merger, performed strongly, led by Allkem which rocketed $3.13 to $15.07, storming past the price tips of most big investment banks.

In what might be a sign that a rival could enter the play, Morgan Stanley saw $13.80 as a target price for Allkem. RBC Capital Markets went up a notch to $14, while Citi led the way at $14.50, all well down on where investors have driven the stock.

Other lithium news and market moves included Pilbara, up 40c to $4.75. Galan, up 24c to $1.03. Core, up 12c to $1.07 and Delta, formerly Red Dirt, up 13c to 57c thanks to fresh high-grade lithium assays from its Yinnetharra project in WA.

Nickel stocks, which are also being driven largely by the battery metals thematic, had a mixed week as the price of the metal dropped by 4% late in the week to US$22,450 a tonne.

Centaurus led the way down among the nickels with a fall of 9.5c to 76c, while Chalice (which is being treated as a nickel play) was stuck at $7.74 while a capital raising was underway.

Lynas led the rare earth sector with a rise of 94c to $7.40 thanks to an extension of the operating licence at its processing plant in Malaysia. CG Capital Markets reckons Lynas will enjoy a short-term earnings upgrade from the Malaysian decision, reviving a buy tip and target price of $10.50.

Hastings Technology Metals added 13c to $2.08 in what looks like a delayed reaction to announcements earlier this month about awarding construction contracts for its Yangibana project in WA.

Rare earth exploration news included Lindian Resources adding 3.5c to 53c after reporting high grade assays from ongoing work at its Kangankunde project in Malawi.

Dreadnought slipped 0.6c lower to 5.4c but received a speculative buy tip from CG Capital Markets after its analysts made a site visit to the company’s Mangaroon project in WA, leading to a price target of 24c.

Iron ore stocks had a mixed week with CZR the pick of the smaller players with a rise of 2c to 18c after announcing an increase in reserves at its Robe Mesa project to a project-sustaining 27.3 million tonnes at 55.5% iron.

Sector leader Fortescue slipped 38c to $20.26 as investors tried to balance the good news of its Iron Bridge magnetite project against the ongoing uncertainty over its plans to become a hydrogen producer.

Other news in what was a flat week included:

  • Group 6 Metals was steady at 14c after announcing that it was set to start tungsten production at its Dolphin mine on King Island off Tasmania.
  • Sunshine Gold lost 0.2c to 1.9c after announcing the $3.25 acquisition of the Greater Liontown zinc project near Ravenswood in Queensland, and
  • Bryah Resources slipped 0.3c lower to 1.6c despite reporting encouraging manganese assays from drilling at Redrum project in WA with a best hit of 7 metres at 26.4% manganese from a depth of 9m.