BHP’s on/off bid for OZ Minerals is all about increasing exposure to copper and nickel, two of the big commodity winners from energy transition, whereas Beach Energy’s proposed acquisition of Warrego Energy is all about increasing exposure to the key energy transition fuel – gas.
Investors enjoyed the positive shift in sentiment, lifting the all ordinaries index by 1% this week, taking the recovery of the past month to 7%, but the biggest move was in the mining sector, which rose by 4.5% this week, taking its four-week bounce to 10%.
The combination of energy demand and hints of China easing its lockdown rules as well as stepping back from confrontation with the U.S. and Australia (but not Canada) could have set the scene for upbeat pre-Christmas trading.
But hopes for a brighter outlook hang heavily on what happens next in the central bank interest rate cycle and the threat of a global recession, as well as increasingly unpredictable events in Ukraine, which have spilled over into neighboring Poland.
Macquarie Bank, in one of the first detailed looks by a bank at what to expect next year, warned clients yesterday that it was still a case of remaining “buckled up”.
“We think the Australian stock market is near the end of a bear market rally, not a new bull market,” Macquarie said.
“The rally was driven by reduced rate hike expectations as the balance of risk shifts from high inflation to recession.”
That’s the bad news from Macquarie. The good news is that the next bull market “could start in mid-2023” though a lot will depend on the actions of the U.S. central bank and Australia’s Reserve Bank which ANZ reckons will hike by another 0.25% next month after this week’s better than expected unemployment report.
“China re-opening, monetary policy easing and rising real disposable incomes should all be factors supporting the next bull market,” the bank said.
While BHP has its sights set on more copper, it was lithium which this week demonstrated the uncertainties in the market with local star performer Pilbara Minerals reporting a fresh record price for its spodumene of US$8575 per tonne as its share price dropped by 7.8% to $4.93.
What made the fall more remarkable was news that Pilbara’s profit flows are so strong that it is on the cusp of graduating to the status of being a dividend paying mining company.
Macquarie reckons Pilbara will declare a maiden 34c a share dividend for the current financial year with its share price expected to rise to an all-time high of $7.70.
Other lithium stocks were hit by the same selling wave as Pilbara. Allkem lost $1.54 (10%) over the week to $14.85, while Global Lithium also suffered a 10% fall as it fell by 28c to $2.30.
Nickel, a factor in BHP’s pursuit of OZ thanks to the proposed development of the West Musgrave project, which could include a value-added nickel processing stage to produce a mixed hydroxide precipitate (MHP).
But the problem of trying to value a remote nickel and copper asset was demonstrated on Monday when RBC Capital Markets published a research note it will be regretting.
After acknowledging the MHP study, RBC valued OZ at $18 – the day before speculation of a fresh BHP bid surfaced and OZ rocketed to $26.92 and a trading suspension was requested.
Rapid price moves on the nickel market are keeping investors on their toes with a surge from less than US$10 a pound earlier this month to a midweek peak of US$13.05lb before falling back to US$12.68/lb.
Iron ore stocks had an excellent week, boosted by reports that China is returning to a “growth first” policy which will require more steel.
Fortescue Metals led the way up with a sharp gain of $2.42 to $19.91. Mineral Resources, which also benefits from its lithium interests, rose 78c to $83.80 but won a fresh price tip from Macquarie which lifted its target for the stock from $100 to $125.
Commodity market volatility is likely to continue into next year as metal traders try to account for a possible loss of Russian material, especially nickel, copper, and oil.
Local nickel stocks had a roller coaster ride this week led by Centaurus which announced an increase in the metal content of its Jaguar project in Brazil, news which initially lifted the stock by 13c to $1.23 before the nickel market correction which rubbed 6c off the price to $1.19 for a gain over the week of 10c. CG Capital Markets, the rebranded Canaccord Genuity, reckons Centaurus is heading up to $1.65.
Other nickel moves included Galileo, down 3c to $1.10 despite fresh high grade drill results from its Callisto discovery in WA. Mincor, down 7c to $1.66, and Lunnon Metals, down 10c to 80c.
In the old energy sector the big news was the start of what looks to be a major shuffle of interests in the born-again North Perth Basin where a series of gas finds have been ranked among Australia’s best onshore discoveries.
The first move in the west coast gas game was a long-overdue merger proposal by Strike and Warrego which share ownership of the West Erregulla gasfield. That cosy deal was trumped by Beach Energy lobbing 20c a per share bid for Warrego.
Waiting in the wings is Santos, which needs more gas to replenish declining WA reserves, and Mineral Resources which has made a major discovery at the nearby Lockyer Deep project.
Mineral exploration news was dominated by the rush to the remote West Arunta region which WA1 Resources put on the map last month with its niobium and rare earth discovery. A second nearby discovery maintained investor interest while reports of a possible $10 million capital raising saw the stock shed 22c to $1.77
Relatively new Lycaon joined the West Arunta hunt with a deal to buy the Stansmore carbonatite project which lifted the stock by 6c to 49c, followed by Encounter Resources which said it had secured a government grant to help pay for the drilling of the Aileron target which gave the stock a 3.5c boost to 21c.
Other rare earth stocks did less well this week. Lynas, which has water problems at its Malaysia processing centre, lost 55c to $8.65 and Hastings slipped 7c lower to $3.58.
WA1 was not alone in using this week’s mood improvement to look for a cash top up from investors eager to get back into the game. Other capital raisings included: Element 25 ($35 million). Caravel Minerals ($12 million). Volt Resources ($10 million). Riversgold ($6 million). Winsome Resources ($6.8 million). Magmatic Resources ($4 million). Tesoro Gold ($8 million). Southern Gold ($2 million), and Hannans Ltd ($2 million).
Gold stocks had a mixed week as the price of the metal rose strongly to around US$1782 an ounce early in the week before rolling over to around US$1767/oz.
St Barbara gained nothing with the replacement of Craig Jetson with Dan Lougher as chief executive, closing the week down 1.8c at 61c, neither did Northern Star, which slipped 26c lower to $10.01 despite a lament about “investor short-termism” by chairman Michael Chaney.
Black Cat Syndicate was the pick of the gold stocks, up 4.5c to 37c after reporting the presence of visible gold during drilling at the Paulsens project in WA and the possible discovery of a new gold-bearing Lode at the Coyote project in the Northern Territory.
Other news and market moves this week included:
- Boss Energy slipped 7c lower over the week to $2.46 despite bullish research reports from CG Capital Markets and Macquarie after a visit to its Honeymoon uranium revival project. CG is tipping a future share price of $3.22. Macquarie sees $3.30 as the target.
- Rumble Resources added 4c to 26c after reporting what it called exceptional metallurgical test result from ore extracted at its Earaheedy zinc project in WA.
- Stanmore Resources ended its stellar run with a fall this week of 10c to $2.48 as concern grows about coal stocks having run too far, too fast. Stanmore started the year at 97c.
- Elementos said it has found additional tin mineralisation at its Oropesa project in Spain, a report which lifted the share price by 5c to 33c, and
- Galena added 1c to 19c after reporting that underground work at its Abra lead and zinc mine in WA had reached the orebody.
