Until extraordinary events occurred this week on the London Metal Exchange, some investors, and governments, believed the age of oil, coal and gas was being replaced by an era of renewable power and electric vehicles, a metal-heavy shift with its demand for CLANCs (copper, lithium, aluminium, nickel, and cobalt).
Energy transition will still happen but it has been delayed, perhaps for decades, by a brutal wake-up call in Ukraine where Russia is trying to subjugate a neighbour and blackmail the world with its vast reserves of oil, gas and coal.
Unfortunately, Xiang Guangda, the major shareholder in Tsingshan Holding Group, China’s dominate nickel producer, made a wrong-way energy bet, believing that war in Ukraine was likely to depress the nickel price, creating an opening to sell nickel short in the hope of buying back later at a depressed price.
Xiang’s bet backfired because he didn’t count on a U.S. and European ban on Russian nickel, which sparked a jump in the price to a 10-year high of $US25,000, a point at which he was forced to try and buy nickel to cover his short position.
The net result was that nickel rocketed into the stratosphere, touching an all-time high of $US101,000/t before the LME stopped trading to give Xiang time to meet a margin call which is understood to have stretched at least one Chinese bank.
In essence, a crisis in a metal traditionally used to make stainless steel has become a financial markets crisis because of its role in new energy applications, especially batteries, a key part of the drive towards energy transition.
What’s even more remarkable is that while a new energy metal was booming (in a manipulated way), old energy was also booming with thermal (electricity producing) coal hitting a spectacular all-time high of $US424 a tonne (it was $US80/t at this time last year) while oil rose to $US127 a barrel, before easing slightly.
Australian investors spent most of this week in a bunker with stock-market trading subdued or, as one seasoned stockbroker said, “the phones are not ringing”, a remark which cuts to the key factor, no-one knows whether what’s happening is a buy event caused by shortages as Russia slips behind a freshly erected iron curtain, or a sell event because sharp commodity price rises can mean demand destruction.
This uncertainty saw stocks which might reasonably have been expected to rise strongly go the other way with no better example than Mincor, a local nickel producer which is a theoretical beneficiary of the sky-high metal price but which lost 14c this week to $2.08.
Mincor’s fall, however, was small beer compared with the 44c (27%) lost by Nickel Mines as it fell to $1.20 because it is a partner with Tsingshan in a series of metal smelters in Indonesia. Credit Suisse, which see the stock rising back to $1.35 noted the cost pressure and “counterparty” risks faced by Nickel Mines.
Other nickel stocks did better, but not by much with,
- Panoramic adding 1.3c to 31c after reporting a new nickel zone at its Savanah North project in WA’s Kimberley region.
- Centaurus rising 1c to $1.29 after reporting high grade results from the latest drilling at its Jaguar project in Brazil, and
- Widgie Nickel putting on 5c to 42c following encouraging news from its Mt Edwards project in WA.
St George Mining was an exception to the nickel drift with a rise of 1.7c (40%) to 6c after announcing the recruitment of former Western Areas boss Julian Hanna as its general manager in charge of growth
Copper, the leading member of the CLANC clan, could be next to attract speculative interest as a tug-of-war develops between concern about supply shortages and fear of demand destruction.
On commodity markets, copper rose to an all-time high of $US5.01 a pound before sliding to $US4.57, driven up initially by the Ukraine war and sanctions on Russian metal, plus reports of Chile moving closer to nationalising its copper and lithium industries.
By the end of the week demand destruction dominated discussion, fueled by a report from BHP that it had revised down its global economic growth forecast from 5% to 0.5% thanks to high commodity prices which have triggered a feed-back loop.
Other copper moves included:
- Rex Minerals, up 1.7c to 24c after announcing a deal with engineering firm Ausenco for work on its promising but long-delayed Hillside project in South Australia.
- Stavely Minerals adding 5c to 44c after reporting wide copper and gold intercepts at the Cayley Lode in Victoria with a best hit of 3m at 3.81% copper and 0.11g/t of gold from a depth of 328m.
- Hammer Metals up 0.2c to 10c despite reporting a promising 11m intersection assaying 5% copper and 2.5g/t of gold from a depth of 22m at its Ajax project in Queensland.
- OZ Minerals losing $1.06 to $25.88 as investors took some money off the table after the stock’s stellar rise from $6.30 two years ago, and
- Sandfire, down 46c to $5.60 as investors weigh its challenge of tackling two new projects at the same time in foreign countries, Botswana and Spain.
Gold, the perennial safe haven in times of war and economic crises, did reasonably well but couldn’t hang on to a near record $US2065 an ounce ($US2/oz shy of the al-time peak of $US2067/oz reached in August 2020.
Talk of a possible deal to end the fighting in Ukraine and the persistence of the U.S. central bank to stick with its plan to increase official interest rates sent gold back to the $US1976/oz, roughly where it was a week ago.
Local gold leaders rose and fell with the gold price. Northern Star got as high as $11.11 on Wednesday before easing back to $10.80 for a gain of 85c. Evolution reached $4.54 before easing to $4.42 for again of 26c.
The higher gold price sparked a rush for fresh funds, led by Westgold Resources which is reported to be seeking $100 million, and Pantoro which is said to in the market for an extra $45 million.
Iron ore stocks, despite the price of the steel-making material hanging on to an inflated $US156 a tonne, generally weakened with Fortescue Metals down $1.13 to $18.29 and Champion Iron down 37c to $6.54.
Fenix and GWR were the exceptions in iron ore with the two small miners delivering modest rises. Fenix added 1c rise to 25c after reporting a $14 million net profit for the six months to December 31. GWR was up 0.5c to 17c after reporting record monthly production of 300,000 tonnes from its C4 mine in WA.
Calidus, a company normally associated with gold, got a lithium boost this week. The stock added 4.5c to 83c after reporting a significant lithium discovery in WA’s Pilbara region with rock chip samples up 2.34% lithium oxide.
Most other lithium stocks lost ground, partly as a result of the global energy crisis potentially affecting sales of electric vehicles. Pilbara Minerals slipped 5.5c to $2.85. Allkem was down 8c at $10.14 and Core Lithium lost 1c to 99c despite reporting a high-grade drilling hit at its Finniss project in the Northern Territory with a best intersection of 40.3m at 1.53% lithium oxide.
Other news and market moves, either way, included:
- Whitehaven Coal shrugging off the record coal price to slip 3.5c to $3.95. New Hope Corporation fell further, down 7.5c to $2.81 in a sign that investors either don’t believe the high coal price will last or there are concerns about east coast floods effecting production.
- Vimy added 4c to 23c after raising $17 million in a share issue priced at 17c for work on its Mulga Rock uranium project in WA. Okapi Resources slipped 1c lower to 29c despite reporting high grade rock chip samples of up to 1.24% uranium from its Rattler project in the U.S.
- Firebird reported a big increase in the manganese resource at its Oakover project in WA which now stands at 172 million tonnes grading 9.9% manganese. On the market, Firebird added 6.5c to 34c.
- Galileo Mining rose by 0.5c to 22c after reporting encouraging palladium results from drilling at its Norseman project in WA with a best assay of 18m at 0.29g/t palladium from surface, and
- Lucapa Diamond eased back by 0.3c to 7.7c after raising $12.5 million at 7.5c for work on its multiple diamond projects.
