Locally, the deal which caught the attention of investors was the proposed takeover of Brazilian focused Latin Resources by Pilbara Minerals, which is offering generous share swap terms equivalent to a 57% price premium for Latin shareholders.
On the market, Latin rose by 5.7c (44%) to 18c and Pilbara fell by 37c (12%) to $2.70 in a classic demonstration of buy the target and sell the bidder.
Internationally, there was a Bloomberg report of increased activity in lithium contracts on futures markets as traders probed for a value gap in U.S. and Chinese lithium prices which could be bottoming out.
Liquidity in Chicago-based CME Group’s lithium contracts, according to Bloomberg, has continuously hit new records since April and while seen as an arbitrage play between U.S. and Chinese lithium prices “some participants are slowly going long”, the report said, a pointer to confidence in a price recovery.
Pilbara’s play for Latin has not received the full support of bankers who remain concerned about demand for electric vehicles in China with the latest research report from Morgan Stanley highlighting a 10% fall in EV sales month-on-month.
RBC Capital Markets was quick yesterday to deliver a negative assessment of the Pilbara bid for Latin but stuck with a buy tip and price target of $3.80, well above last sales at $2.70.
But there are investors who remember Pilbara as both an early mover in the original Australian lithium boom, then as a survivor of the first crash, and then when the company moved quickly to snap up bargains among the wreckage to emerge as a winner with a market value of $8.5 billion.
Patriot Battery Metals was another lithium winner this week with a rise of 1c to 50c, as well as being the recipient of speculative buy tip from Bell Potter, which initiated coverage of the stock with a price target of 80c.
There were two other items of lithium news which could shape the sector, if indeed it is in the early stages of a recovery. First was a report that Independence Group is mulling an increased stake in the big Greenbushes mine in WA if U.S.-based Albemarle opts to sell down another portion of its interest, followed by news of fresh protests in Serbia which seem likely to slow a revival of Rio Tinto’s stalled Jadar project.
The question for investors is whether the Chicago commodity traders and Pilbara Minerals’ latest corporate move is a convincing argument for taking a look at lithium, where the price of the metal remains depressed.
The Morgan Stanley comment on Chinese EV sales also goes to the heart of another, and potentially much bigger issue, the ailing Chinese economy, which is dragging down prices for bulk commodities, especially iron ore, which is poised to fall through the US$100/tonne barrier.
Hu Wangming, chairman of Baowu, one of China’s leading steel producers, warned during the week that conditions were likely to be “longer, colder and more difficult than expected”, meaning it’s time to preserve cash.
That warning and the falling iron ore price weighed on mining sector leaders BHP, down $1.34 this week to $39.20, and down $11.20 (22%) since the start of the year, and Fortescue (down $1.10c this week to $16.90 and down $12.50 (43%) since the start of the year.
The health of the Chinese economy is becoming a significant drag on commodity markets with the country’s hard line government also a factor in a record outflow of foreign capital with US$15 billion withdrawn in the three months to June 30, only the second time capital flows had turned negative.
Problems for the iron ore miners do not stop at the price of their material with changed government laws opening the way for the re-unionisation of the workforce in WA’s Pilbara region with a potentially negative affect on costs.
For Fortescue and Mineral Resources in particular, the outlook is darkening by the day as the iron ore price falls and their problems with other interests causes investor anxiety.
Fortescue is yet to demonstrate how it will generate profits from its high profile adventures in new energy, hydrogen in particular, and MinRes battles low prices for iron ore and lithium as well as a balance sheet stretched by high debt levels, a toxic mix which saw the stock drop to a 12-month low this week of $44.56 before recovering to $45.34, down $6.19 for the week.
Gold, as was crystal clear at the Diggers & Dealers forum in Kalgoorlie earlier this month, remains the metal of choice for investors large and small as interest rate cuts near, the U.S. Presidential election heads for its November showdown and war rages in Ukraine (and Russia) as well as across the Middle East.
During the week, gold edged closer to an all-time high with sales up to US$2475 an ounce, prompting ANZ to dust off its gold crystal ball with a fresh price tip of US$2550/oz by the end of the year.
M&A interest continued to build in the gold sector following the US$1.6 billion merger of South Africa’s Gold Fields with Canada’s Osisko Mining, a deal with Australian implications as Gold Fields is a key player in ASX-listed Gold Road which is, in turn, a player in the future of emerging producer De Grey Mining.
One midweek calculation showed that Gold Fields is paying the equivalent of US$508 per reserve ounce for Osisko, a value which if applied to De Grey, would value it at A$4.7 billion compared with a current stock market value of A$2.9 billion.
Despite the near record gold price, most gold stocks made modest progress. Northern Star added 10c to $14.19 while Evolution was up 21c at $3.98 but copped a kicking from Jarden which reckons the stock will fall to $3.19.
Copper staged a recovery after hefty fall over the past two weeks, adding US10c a pound to US$4.04/lb thanks to an outbreak of strike action at several big South American mines, including the biggest, Chile’s Escondida, which is run by BHP.
ANZ said in a copper report published yesterday that unplanned outages such as strikes will keep the copper price high even as demand for the metal plateaus.
Apart from the prospect of protracted industrial action in South America, the other factor influencing the copper market is corporate activity. Locally, that involves the rumoured sale by Rio Tinto of its Winu project in WA.
Internationally, it’s the BHP and Lundin joint venture which could see the development of a globally significant mine in Argentina’s Vicuna region which borders Chile.
Among the smaller copper stocks, Sandfire did best this week with a rise of 15c to $8.23 while 29Metals added 1c to 37c,
Interest returned to the uranium sector this week as the price edged higher to US$81.50 a pound with local stocks led up by Alligator Energy which rose by 0.5c to 4c after reporting a promising discovery in South Australia’s Cooper Basin which is said to be the first in the State for 20 years,
Bell Potter likes the Alligator story, which is based on intercepts of uranium mineralisation in paleochannels (old, buried waterways) in Lake Eyre sediments, telling clients that Alligator is heading up to 10c. Lotus was another Bell Potter favourite with the broker tipping a 65c price for a stock trading at 24c.
Other news and market moves on interest this week included:
- Ardea surprising the market with a 1c rise to 45c after releasing a positive update on its Goongarrie nickel project near Kalgoorlie, including approval from the Foreign Investment Review Board.
- Morgan Stanley retained a gloomy view of the nickel market but said further downside for the depressed metal seemed unlikely as supply continued to tighten, and
- Litchfield Minerals rising by 1c to 13c after reporting encouraging zinc and lead assays from drilling at its Mt Doreen project in the West Arunta region of WA with a best hit of 3m at 11.84% lead and 5.62% zinc from a depth of 51m.
