The world in a nutshell: energy coal up, coking coal down

Important as the rising oil price might be, a more concerning economic message is being told by old king coal.

Energy coal, which is used to produce electricity, has risen from US$110 a tonne to US$140/t whereas coking coal, the material used to make steel, has slipped marginally to US$221/t.

The higher price for energy coal is a direct response to an emerging oil and gas drought, whereas the sliding price of steel-making coal reflects fear of a broad economic slowdown.

That theme of energy first and everything else second can also be seen in the performance over the past month of this week’s two big resources sector newsmakers, BHP and Woodside Energy.

BHP, which announced the selection of a new chief executive, fell by 2.7% this week, taking its fall over the past month to 9% thanks to uncertainty about future demand for its key industrial commodities, iron ore and copper, if global growth stagnates.

Woodside, which upgraded the status of its temporary chief executive to permanent, rose by 6.8% this week, taking its gain over the past month to 24%.

Other oil and gas stocks rose with commodity prices. Santos is up 15% in a month and even struggling Beach Energy has risen by 12%.

Finding winners elsewhere in the Australian resources sector was not easy this week as investor confidence was bruised by the prospect of higher energy prices which will feed into the cost of everything and erode corporate profits.

Gold, which is an easy asset to discard when the going gets tough, was pushed below the US$5000 an ounce mark to trade late in the week at around US$4849/oz, back to where it was at the start of the year.

Leading investment banks, including UBS and Morgan Stanley, are sticking with gold even as the price falls because they both believe that the rising oil price will unleash a burst of inflation which will aid a gold recovery.

“We remain positive about the backdrop for gold,” UBS said. “Uncertainty relating to the Middle East conflict, geopolitical tension, ongoing trade tension, the modest outlook for global growth and “de-dollarisation” are all supportive of gold at US$5200/oz.

UBS went further than forecasting a gold price recovery. The bank also expanded its coverage of the Australian gold sector by initiating research into five emerging mid-cap stocks complete with optimistic price targets. The new stocks on the UBS list are:

• Westgold Resources which fell by 78c this week to $5.51 but with UBS rating the stock a buy with a price target of $10.25.

• Ora Banda Mining, down 9c to $1.31 but with a “pathway” to production of 200,000oz a year which makes it a buy up to $1.60.

• Catalyst Metals, down 29c to $6.14, close to half the $11.25 price target of UBS.

• Pantoro Gold, down 6c to $3.52, less than half the UBS price target of $7.50, and

• Minerals 260, down 3c to 58c, perhaps poised for a run up to $1.20, according to UBS.

Morgan Stanley said gold weakness at the start of the latest conflict was expected but history suggests the metal will rebound quickly after shocks are absorbed. 

“If we see more persistent inflation that drives interest rate hikes, the set up might be more challenging,” Morgan Stanley said.

“We continue to see upside, but two-ways risks are rising,” the bank said when refreshing its second half bull case for gold at US$5700/oz.

West African Resources was one of a handful of gold stocks to rise this week, up 9c to $2.91, possibly on track for the target price of $4.80 set by Barrenjoey in a midweek research note which highlighted the stock’s potential for a “cash harvest” later this year.

New Zealand focused Siren Gold also went against the outgoing tide with a rise of 1c to 9.2c after confirming gold outside the main zone at its Sams Creek project.

Other gold news and price moves this week included:

• Gorilla Gold, down 5c to 35c despite reporting encouraging assays from step out drilling at its Mulwarrie project in WA.

• Brightstar, down 9c to 36c, despite reporting high grade assays from the latest drilling at its Sandstone project in WA with a best hit of 2.02 grams of gold a tonne over 22.7 metres from a depth of 267.3m.

• Southern Cross Gold, down 54c at $8.80 even after reporting a drill result of 15.3g/t over 17.3m from 251.1m at the Sunday Creek project in Victoria with a bonus of 3.2% antimony, and

• Unico Silver, down 16c at 66c despite lifting the measured resource at Joaquin project in Argentina to 167 million ounces of silver.

Another significant event in gold this week was the continued decline of Northern Star which has been battered by an investor exodus after repeated downgrades to production forecasts. This week, the stock lost another $4.03 to $19.27. It was trading at $31.73 three weeks ago.

Rare earth stocks were in the news early this week after Lynas scored a double header with an extended sales deals to Japan and a first sale to the U.S. but by the end of the week the steam had leaked out of the stock with Lynas losing $1.28 over the week to $19.64.

CG Capital Markets said the outlook for rare earth stocks was strong. The broker updated research on Iluka with a buy tip and price target of $6.55 as the stock slipped 38c lower to $6.26, and forecast a price of $8 for Brazilian Rare Earths as it fell by 91c to $4.28.

Solstice was the pick of the copper sector with a rise of 5c to 91c, a move which looks even better alongside a long list of falls, including Sandfire, down $1.35 to $15.56 and Capstone down $1.32 to $10.45.

Other news and market moves of interest in a wild, downhill ride this week, included:

• Centaurus, down 1c at 53c in late trading after a solid rise early to 59c following an announcement that it had secured its first nickel offtake sale with Glencore for concentrate from its Jaguar project in Brazil. CG sees Centaurus rising to 85c.

• Almonty, down $3.76 to $25.94 after announcing completion of the first stage of re-commissioning of the Sangdong tungsten mine in South Korea.

• PMET Resources, down 5.8c to 42c despite reporting the widest intersection of Caesium so far at is Shaakichiuwaanaan project in Canada.

• Paladin, down $1.16 to $10.64 in a weak the uranium sector. Bannerman lost 41c to $3.54 and Boss was 5c weaker at $1.52.

• Liontown Resources slipped 20c lower to $1.43 even as Macquarie Bank tipped a 12-month price target for the stock of $1.75, and

• Core Lithium eased back by 2c to 21c despite announcing details of its plans to restart operations at its mothballed Finniss project in Northern Territory, and the successful raising of $120 million in an institutional share placement.