If a warning from Commonwealth Bank chief executive Matt Comyn about interest rate cuts being delayed until next year wasn’t enough, it was followed by the clearest indication so far that BHP could mothball its entire nickel division, costing WA 3000 mining jobs.
The impact on BHP was muted with its shares slipping by a modest 2% but the message for the rest of the nickel sector was dire because if the biggest producer of a metal can’t make money because of Indonesian over-production, what hope is there for smaller miners?
BHP’s nickel alert, including a $5.4 billion asset value write-down, was contained in an exceptional items update preceding the company’s half-year profit statement scheduled for release next week with the other big iron ore miners, Rio Tinto, Fortescue and Mineral Resources, also due to report.
Costs are already being cut at BHP’s NickelWest operations with a wholesale shutdown an all too real possibility even as the nickel price shows signs of a revival, up 2.2% over the week to climb back above the US$16,000 a tonne mark.
Glencore, another big nickel producer at the Murrin Murrin project in WA, has started its exit from the metal, announcing plans to suspend production and sell its stake in the Koniambo project on the Pacific Island of New Caledonia, a slap in the face of the French Government which is trying to save the business.
In total, the Australian market had another of those up-and-down weeks as investors tried to decipher the mixed signals flowing off commodity, stock and bond markets leading some to turn to the riskiest of all “assets,” cryptocurrencies where Bitcoin traded up to US$52,000 – a gain of 15% in the week, taking its 12-month rise to 115%.
Gold, another non-interest bearing asset, has failed to match the appeal of the casino counter which is Bitcoin, falling by US$20 an ounce to slip below the US$2000/oz mark, last trading at US$1992/oz.
Curious forces, apart from rampant speculation, are driving Bitcoin, including so-called “halving”, which is a once in every four-year process of reducing the rate of coin production, with a slower rate of creation theoretically increasing the price of coins in circulation.
As well as the artificial manipulation of the supply of Bitcoin, there could be the effect on U.S. investors of a new boom sweeping through financial markets with the S&P500 index sitting close to an all-time high of a shade above 5000.
But the most concerning event this week was a survey of 250 U.S. fund managers in control of US$650 billion saying that they are the most bullish in two years.
It sounds encouraging, but those fund managers are all investing in the same stocks, the so-called “magnificent seven,” Microsoft, Apple, Alphabet, Nvidia, Amazon, Meta and Tesla – a perfect example of a crowded market, not unlike Bitcoin.
Those seven stocks currently account for a whopping 33% of the entire value of the U.S. market – an IT peak last reached in the year 2000, just before a 10-year bear market.
If/when the tide turns, the stampede for the exits could be quite spectacular, and not something to look forward to.
It was on top this exhibition of unbridled optimism that Comyn warned that Australia wasn’t doing enough to drive down inflation, followed by the Governor of the Bank of England, Andrew Bailey, saying much the same thing in London, a clear sign that interest rates will remain elevated.
This week’s key numbers showed that once the roller-coaster effect of day traders is eliminated, not much actually happened, with the all-ordinaries index down 0.5% to still be up 1.4% over the past month, but almost exactly where it was at the start of the year.
The Australian economy received mix news this week with unemployment rising above 4% for the first time in two years while the country’s most valuable export, iron ore, was forecast to have a strong second half, perhaps reclaiming a high of US$140 a tonne, up US$12/t on last trades.
Morgan Stanley, an investment bank, was the source of the iron ore price increase forecast, based on a survey of the Chinese steel scrap sector which has failed to develop and might not be the threat to Australia’s iron ore industry as feared for the past 10-years.
That news helped Fortescue, the leading pure-play iron ore miner, rise by 1% yesterday, partially offsetting an earlier fall to end down 2% over the week. Champion Iron performed the same trick, up 1% yesterday, down 1.5% over the week.
If nickel was the really sick man of the battery metals sector, then lithium might have taken its first steps into the recovery ward after weeks of news about project closures, investment plans postponed and a warning from Liontown boss Tony Ottaviano that more Australian projects will close without government aid.
The lithium price has been edging up in China, with Macquarie Bank putting a positive spin on upcoming lithium company reports, enough to help Patriot’s share price rise by 2c to 81c and Global to gain 4c to 48c.
Exploration news also got a slightly better hearing this week with Accelerate Resources rising by 0.1c to 2.9c after reporting encouraging rock chip assays from material on its Prinsep project in WA’s Pilbara.
Gold, as mentioned earlier, was sold off after the latest banker comments about a delayed start to cutting interest rates, with the predictable effect being weaker share prices across most of the sector.
The big loser of the week was SSR Mining (formerly Silver Standard of Canada). It crashed by $7.44 (51%) to $7.04 after a landslide at its Copler mine in Turkey killed nine workers.
The heap leach pad behaved like a tailings dam, crumbling and flowing into a valley, almost certainly sparking a fresh crackdown on all mine planning.
Winner of the week was Spartan Resources which put on 6c to 50c after reporting visible gold 170 metres below the resource at its Never Never project in WA.
Evolution pleased the professionals with a solid underlying half-year profit which got a tick from Macquarie and a forecast price rise from $3.05 to $3.80 but slipped 5c lower on the market to $3.
Horizon and Greenstone are the two latest gold minnows to announce a merger. Horizon slipped a fraction (0.05c) to 3.1c while Greenstone added 0.02c to 0.8c. Horizon has a market capitalisation of less than $20 million. Greenstone is less than $10 million.
Cashed-up Kin Mining is also on the merger hunt, reporting that it is talking with smaller PNX Metals about a possible transaction. Kin added 1c to 6.7c this week.
Dateline Resources failed to react positively to what looked like an upbeat drill result of 70.1 metres assaying 6.53 grams of gold a tonne at its Colosseum project in California. The company has a high-profile board which makes its stock market value of just $24 million even more curious.
Other news and market moves this week included:
- South32 became the first of the big diversified miners to report a half year result which was weaker than expected, sparking a 19c share price fall to $2.98 even as RBC Capital Markets stuck with a price target of $3.80.
- Syrah Resources moved closer to first graphite sales from its Vidalia active anode plant in the U.S. but slipped 1.5c lower on the market to 57c even as UBS listed its as a buy with a price target of $1.
- Lynas continued to lose ground after reporting an end to merger talks with MP Materials in the U.S., a withdrawal which UBS believes might be a tactical maneuver with more talks to come.
- Hastings Technology Metals was the best of the rare earth stocks with a rise of 5c to 62c, and
- Uranium stocks weakened across the board thanks to Canada’s Cameco announcing plans to boost production. Locally, Boss fell 34c to $5.34 and Paladin lost 4c to $1.30.
