The knock-on effects of Rio Tinto potentially acquiring Glencore, and BHP making a fresh bid for Anglo American would be profound, almost certainly unleashing a fresh wave of merger and acquisition (M&A) activity across the resources sector.
But whether the rumour mill has been cranked up by brokers to generate business is an interesting consideration because the May to August period can be a time when Northern Hemisphere bankers have idle hands as they sun themselves in St Tropez and Long Island.
A new BHP bid for Anglo American was the first big (possible) deal to hit the headlines this week, driven by a theory that a move could be made once Anglo American finalises its exit from South African platinum, which should happen next week.
The latest reports of Rio Tinto moving on Glencore followed, powered by a claim that plans for a bid were the cause of the resignation of Rio Tinto’s chief executive, Jakob Stausholm, who clashed with his chairman Dominic Barton, a man keen to make his mark on the company.
Easy to dismiss as unlikely because both deals would require multiple government approvals, investors seem to have taken notice with both targets (Anglo American and Glencore) rising slightly while both bidders fell slightly – which is how M&A trading theory is supposed to work: target up and bidder down.
Glencore, which had been heavily sold off early in the year as coal prices tumbled, is up 4% this week on the London stock market while Rio Tinto is down 4%. Anglo American is up 5% in London while BHP is down 2%.
Locally, M&A activity remains focused on the red-hot gold sector with Bellevue a prime target after its hedge book crisis wiped 50% off the company’s share price.
Regis, Northern Star and Evolution are said to be considering a move on Bellevue, with signs of a bid emerging this week as the stock rose by of 5c in a week when the gold price lost US$70 an ounce.
Alongside speculation of a fresh burst of gold sector M&A, following De Grey’s acquisition by Northern Star and Gold Road’s capitulation to Gold Fields, was investor uncertainty over the effects of tax-loss selling and fear of a major market meltdown.
Investors dumping underperforming lithium stocks could be a factor in Pilbara Minerals shedding 5% this week and Liontown dropping by 8%, with both possible recovery situations when the selling ends on June 30.
The meltdown theory, based on a view that Trump, despite a loss this week in a U.S. trade court, will continue to maul markets with his madman behaviour.
MST Marquee, a respected research house, warned that the Australian market was “on the precipice” of a 20% collapse.
Falling profits expected to be revealed in the upcoming reporting season will cause investors to reconsider sky-high valuations which have seen the all-company forward price-to-earnings (PE) ration at 18.4 times, one of the highest readings in 40 years, according to MST.
The flipside of that gloomy warning is the lure of falling interest rates with last week’s 0.25% cut by the Reserve Bank expected to be followed by a series of similar reductions with Wilsons Advisory saying that a rate cutting cycle would “support a modest uptick in economic activity.”
Gold, as ever the canary in the minefield of competing opinions, made a fresh attempt to reclaim a price high above US$3400/oz but failed, perhaps a sign that investor interest is fading after a three-year boom.
Citi, an investment bank, remains a believer in gold with a repeat forecast during the week of a rally back to US$3500/oz over the next three months, a tip which accompanied some remarkable gold investment calculations.
According to the bank, investment in gold is running at 0.5% of the world’s gross domestic product (GDP), up 400% over the past 20- years to be at its highest level in 50 years.
Global household wealth in gold, including jewellery and bars, has doubled over the past 20 years to 3%, and gold producer profit margins at their highest in 50 years.
Gold sector news and market moves this week included:
- Dateline Resources, a well-connected Australian explorer active in the hunt for gold and rare earths in California, woke with a jolt after identifying hidden extensions in the historic Colosseum mine, rising by 2.7c (49%) to 8.2c.
- Magnetic rose by 3c to $1.73 but did get as high as $1.80 on Tuesday thanks to speculation that it could be the next takeover target after Bellevue as sector consolidation runs riot.
- Predictive Discovery fell by 5c to 37c but was down at 34c on Wednesday after reporting that it had lost some of its exploration ground in Guinea thanks to government tightening of land access regulations.
- Focus Minerals rose by 11c (45%) to 35c. but did get as high as 50c after raising $250 million from the sale of its Laverton gold project to Genesis Minerals which rose by 17c to $4.50, perhaps on its way to the $5.15 target set by CG Capital Markets, and
- Medallion Metals added 2c to 27c after reporting encouraging results from drilling at its Kundip project near Ravensthorpe in WA.
Corporate activity also stirred the copper sector with MAC Copper agreeing to a takeover offer of $18.93 per share from South Africa’s Harmony Gold, bringing to end an over-promoted but under-performing stock which is working Australia’s deepest and oldest copper mine.
On the Australian market, MAC rose by $3.29 (21%) to $18.66, a price which indicates that investors are not expecting a counter bid, whereas on the Johannesburg stock exchange Harmony fell by 4.8% — another example of buy the target and sell the bidder.
Carnaby Resources rose by 6c to 35c after reporting encouraging assays from the first hole at its Trekelano project near Mt Isa in Queensland with a best hit of 41 metres at 2.3% copper and 0.5 grams of gold a tonne.
Develop, which is redeveloping the Woodlawn copper and zinc mine near Canberra, said it had also stated underground activities at the Sulphur Springs copper project in WA ahead of am update definitive feasibility study. On the market, Develop was steady at $3.77.
Uranium stocks ran hot early in the week after reports of U.S. plans to speed the redevelopment of its nuclear power capacity but soon ran out of steam.
Boss, which rushed up to $4.43, faded to $3.97 for a gain of 11c. Paladin hit $6.58 on Monday before easing back to $6.13, up 23c, and Lotus added 3c to 21c early in the week but slipped back to 19c for a 1c gain.
Lithium stocks remained under pressure as an oversupplied market further weakened the lithium carbonate price in China, taking its fall over the past month to 9.9%, and 41% since the start of the year.
Local leader Pilbara was 8c weaker at $1.30. Liontown lost 3c to 63c while Core swam against the trend with a rise of 0.3c to 9.1c.
Mineral Resources was the iron ore newsmaker, for the wrong reason, shedding $1.36 to $22.62 after a poorly received site visit for investors to its troubled Onslow project and its accident prone haul road. Morgan Stanley is sticking with the stock telling clients there was “light at the end of the tunnel” with a target price of $35 being maintained.
Other news and market moves this week included:
- Locksley Resources jumped 3c (83%) higher to 6.6c after successfully raising fresh funds to drill its promising Mojave antimony and rare earth prospect in California.
- Trigg was another antimony winner, rising by 2.7c (44%) to 8.4c after reporting that it had started to explore its Antimony Canyon project in Utah.
- Cobalt Blue rose by 1.2c to 6.7c after announcing a contract with Glencore for the supply of cobalt to its proposed cobalt refinery at Kwinana in WA.
- Victory Metals gained 6c to 92c after raising $4 million to accelerate pre-feasibility studies of its North Stanmore rare earths project near Cue in WA, and
- Hastings Technology Metals put on 1c to 33c, not from rare earths but rather from acquiring the Whiteheads gold project near Kalgoorlie in WA.
