Man on Rocks’ is a Stockhead sequence wanting on the important happenings of the assets market every week.
Former geologist and skilled stockbroker Man Le Web page, director and accountable government at Perth-based monetary companies supplier RM Company Finance, shares his excessive conviction views in the marketplace and his “sizzling shares to observe”.
Market Ructions: Lithium on the march, palladium heading for US$3,000?
Appears like Palladium (determine 1 and a pair of) is getting set to check $US3,000 ($3,866) an oz. someday this 12 months on the again of a big projected deficit (1 million ounces, in response to Citibank, over the following two years) spurred on by automotive spending.
That is all despite efforts to substitute platinum (we word related efforts to cut back cobalt content material of batteries has additionally been problematic). Platinum (determine 1 and a pair of) can be prone to observe swimsuit on the again of funding demand and hypothesis round palladium substitution.
It’s a bit laborious to foretell worth motion right here in gentle of a surplus and can little doubt be tied partly to funding demand.
Additionally attention-grabbing to notice, and never surprisingly, that iron ore forecasts from the most important banks/brokers going out to 2022 all seem like effectively above $US100/tonne (62 per cent fines). That is in stark distinction with Macquarie Financial institution’s projections this time two years in the past (determine 3), which turned out to be $US80/tonne decrease at round $US70/tonne in comparison with present spot costs within the vary of $US150/tonne.
With all the subtle modelling instruments it reveals that commodity forecasting is certainly a darkish artwork. Of their defence, different forecasters weren’t dissimilar.
There’s nonetheless loads of hypothesis round iron ore breaking via $US170, which is able to proceed to position strain on Chinese language metal margins. Cyclones in Port Headland noticed a discount in transport volumes by 16 per cent week on week in comparison with Vale, which witnessed a forty five per cent decline in transport volumes over the identical interval.
Gold has strengthened over the past week or so within the wake of a weakening greenback, international uncertainty and destructive actual rates of interest.
Gold valuations had been stretched over 1Q 2021 as our gold index (ASX:XGU) reveals (determine 4), nevertheless a 15 per cent correction within the gold worth has seen a 30 per cent correction within the valuations of ASX-listed gold producers (determine 5), which has had a knock-on impact on the junior finish.
Gold producers are buying and selling at 1.3x internet current worth — an analogous stage to the earlier interval of “flat” gold markets.
So, what does additionally this imply? There’s scope for share costs to carry on the again of rising gold costs in CY2021.
The resurgence in lithium costs (determine 6) has caught many people abruptly, with lithium carbonate China/spot costs now again over $US10,000/tonne in comparison with marginal prices of round $US7,000/tonne.
Costs are additionally firming in Japan and Korea. Based mostly on the tightness of provide, it appears to be like like additional near-term will increase will doubtless be buoyed by EV demand and an uplift throughout commodity costs.
Movers and shakers
GWR Group (ASX:GWR) (determine 7) has joined the ranks of iron ore producers after loading 50,000 tonnes of high-grade lump on the Port of Geraldton web site 88 for supply to offtake associate Pacific Minerals from its Wiluna West iron ore mission.
GWR will now look to safe offtake for stage 2, comprising 20 million tonnes of iron ore assets.
Challenger Exploration (ASX:CEL) (determine 8) introduced some very broad intersections this week from its Hualilan gold mission, together with 227m (from 139m down gap) at 1 gram per tonne (g/t) gold equal (0.80g/t gold, 2.7g/t silver, 0.2 per cent zinc).
The corporate has loved a 70 per cent share worth rise for the reason that begin of the 12 months. There’s extra to come back, I might suppose, if Challenger can again it up with extra bulletins like this.
Viking Mines (ASX:VKA) (determine 9) is making ready to start out diamond drilling at its not too long ago acquired First Hit mission (50km north of Kalgoorlie, located simply off the prolific Ida and Zuleika shear zone) after publishing outdated face pattern assays from underground workings.
These workings revealed quite a few eyewatering gold high-grade gold values, together with 0.4m at 668g/t and 0.6m at 337g/t.
The February 11 announcement is value a learn and likewise checking the pockets of the drillers and area workforce as they’re leaving the location after an sincere day’s work when the drill bit begins turning.
Sizzling shares to observe
Plenty of ASX-listed juniors have benefited from the lithium rise, with the likes of Northern Territory spodumene lithium developer Core Lithium (ASX:CXO) up from March 2020 lows of 1.4c to not too long ago contact 40c (27/1/2021).
AVZ Minerals (ASX:AVZ), which is creating the Manono lithium and tin mission within the DRC ($US1bn submit tax NPV10 primarily based on JORC confirmed assets of 44 million tonnes at 1.65 per cent lithium and 700 elements per million tin) has risen from 5.2c to 23c over the past 12 months.
This brings me to the gravity defying Lake Resources (ASX:LKE) (determine 11), which has an analogous share worth trajectory to different juniors within the sector.
The corporate is proposing a revolutionary direct extraction expertise to get well high-purity lithium merchandise from its Kachi mission, (JORC assets of 4.4 million tonnes of lithium carbonate equal), in addition to three different lithium brine initiatives in Argentina.
I’ve a desire for brine over spodumene initiatives, and LKE is located in a chief location throughout the Lithium Triangle, adjoining to 5 main lithium producers (40 per cent of world lithium is manufacturing).
Pilot research are underway on direct lithium extraction processing (DLE) at Lilac Options’ pilot plant (Hazen Analysis) within the US, concentrating on battery grade 99.97 per cent lithium carbonate (determine 12).
A bankable feasibility examine is in full swing and I’m optimistic that the prefeasibility examine numbers (25-year mine life, capex of $US544m, submit tax NPV8 of $US748m at an inside charge of return of twenty-two per cent and EBITDA of $US155m in 12 months one among operation) can be exceeded.
At a market capitalisation of round $300m the inventory isn’t low cost, nevertheless it has the momentum of the “second wave” of lithium curiosity. It has discovered itself in the precise place on the proper time with a doubtlessly superior processing expertise that might propel the corporate into the bottom value quartile of lithium carbonate producers.
There’s nonetheless threat related to brining new expertise on-line, nevertheless with scalability of tanks not a significant situation, I’m cautiously optimistic on this one.
At RM Company Finance, Man Le Web page is concerned in a variety of company initiatives from mergers and acquisitions, preliminary public choices to valuations, consulting, and company advisory roles.
He was head of analysis at Morgan Stockbroking Restricted (Perth) previous to becoming a member of Tolhurst Noall as a Company Advisor in July 1998. Previous to getting into the stockbroking trade, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the US.
The views, info, or opinions expressed within the interview on this article are solely these of the interviewee and don’t characterize the views of Stockhead.
Stockhead has not offered, endorsed, or in any other case assumed duty for any monetary product recommendation contained on this article.