With the Russian invasion of Ukraine entering its third week, an acute squeeze on key strategic commodities has caused a new wave of capital markets pandemonium.
And in a week when Australia’s benchmark ASX 200 index continued its volatility, it was the performance of a gaggle of well-positioned stocks that best explained what is happening in global commodity markets:
- Nickel explorer St George Mining (ASX: SGQ) up 50%
- Lithium project developer Core Lithium (ASX: CXO) up 14%
- Dividend-paying gold producer Gold Road Resources (ASX: GOR) up 12%
- Oil producer Buru Energy (ASX: BRU) up 11%
- Uranium explorer Vimy Resources (ASX: VMY) up 9%
Nickel broke all price records on Tuesday, rocketing 250% to more than $100,000/t overnight after reports that holders of Russian metal physically stored at the London Metal Exchange (LME) warehouses had relinquished holdings.
Few could have seen it coming, let alone Chinese nickel investor Xiang Guangda whose company Tsingsh could be up for an $8 billion hit if it does not meet margin calls on its very large short position. The LME took the unprecedented step of cancelling nickel trading and the Shanghai Futures Exchange also suspended trading until Friday.
When Russia attacked Europe’s largest nuclear power plant, Zaporizhzhia, it sparked a uranium-price nose dive before the market quickly recovered and rediscovered the importance of strategic deposits of a fuel regarded a key part of the global decarbonisation push.
Leading consultancy UxC, whose U3O8 weekly price update is closely watched by the industry, pegged the spot price at US$51 per pound – trading near 12-year levels – ahead of Monday’s weekly update.
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Anyone who still drives a petrol-fuelled car will be aware of the spike in the crude prices – both the West Texas Intermediate and Brent price benchmarks have soared above $US100 a barrel – amid concerns about global sanctions against Russia, one of the world’s largest oil producers.
Not that it worries Buru Energy, one of the ASX’s few Australian oil producers, amid expectations of extra dollars for every barrel produced from the Ungani field in the onshore Canning Basin.
Soaring oil and gas prices are also the sort of tonic the electric vehicle revolution needs, which explains why investors are continuing to flock to quality lithium stocks.
And where better to park money during times of global turbulence than in gold – US-dollar gold is back above $US2000 an ounce and in Aussie terms has traded above $2800/oz.
Just as we have seen with COVID-19, internationally significant events cause waves of volatility that benefit well-positioned ASX-listed explorers and producers.
St George this week announced twin pieces of good news that were lapped up by investors – strong metallurgical results from nickel-concentrate concentrate test work for its Mt Alexander project in WA and the recruitment of nickel industry veteran Julian Hanna.
Mt Alexander is a complex and hugely exciting mineral system that continues to tease savvy nickel investors with eyes on the big exploration prize.
Latest metallurgical test work from Mt Alexander confirmed the potential to produce nickel and copper as two separate, commercially attractive concentrates with potential for high-pay PGE credits. This was coupled with a flowsheet, designed using conventional flotation processes, that supports commercial production from a starter mine.
In a research note, MineLife’s Gavin Wendt said the test work and flowsheet were an “important milestone in terms of what the market was looking for”.
The appointment of Mr Hanna as St George’s general manager growth and development was a further fillip for investors. Mr Hanna was co-founder and managing director of Western Areas (ASX: WSA) and oversaw the company’s growth from a $6 million IPO to one of Australia’s most successful independent nickel sulphide producers through the discovery and development of the Flying Fox and Spotted Quoll nickel deposits.
Vimy Resources is in the unique position of having a development-ready, world-scale uranium project – Mulga Rock in the north-eastern Goldfields – and an exciting exploration project, Alligator River in the Northern Territory. Both projects are in a Tier 1 mining jurisdiction, as Vimy’s peers are well aware of.
Uranium prices have been on the rise on the back of global decarbonisation and the general focus on baseload fuel requirements.
Vimy, wanting to cash in on rising investor interest in its pipeline of quality projects, went to tap the market last Friday for up to $20 million at 19¢. Then Russian forces starting attacking the Zaporizhzhia nuclear power plant in Ukraine, rattling uranium markets worldwide and forcing Vimy to pause its raising.
By Monday, investors were back on the uranium hunt and Vimy, having marginally scaled back its raising to $17 million at 17¢ to reflect the market turbulence, easily topped up its coffers. By last night Vimy’s shares were worth 24.5¢ a piece.
The Perth company is now fully funded for this year’s activities, which include completing a bankable feasibility study for Mulga Rock and an aggressive drilling campaign at Alligator River.
“The long-term fundamentals for uranium remain robust and this is reflected in the strong support from investors,” managing director Steven Michael said.
“The potential to establish two uranium projects in Australia at this time of heightened geopolitical uncertainly cannot be underestimated.”
Gold is often ignored during times of equity market bull runs so the precious metal’s rise this week above the psychological $US2000/oz barrier put another rocket under quality gold stocks.
UBS analyst Levy Spry and his team became the tenth broking house team to kick off research coverage of Gold Road, initiating with a buy recommendation and $1.94 price target.
Gold Road’s key asset is a 50% stake in the Tier 1 Gruyere gold mine in the north-eastern Goldfields, which this year is forecast to produce 300,000oz to 340,000oz.
“Gold Road offers exposure to a long-life, producing gold asset through its 50% stake in the Gruyere gold mine which, despite recent operational hiccups, represents a quality mine in the ASX gold sector,” Mr Spry said in UBS’ initiation note.
“While many of its peers are fighting declining grades and increasing costs at aging operations, we think Gruyere’s best years lay ahead.
“Debottlenecking the plant to a 10mtpa run-rate by mid FY24E and accessing higher grades should see production rates increase to >380,000ozpa.
“This growth comes with almost no additional capex and the increased production rates should keep downward pressure on unit costs.
“GOR does present single mine risk and (therefore) M&A risk but it has shown good discipline on the latter and at 4.5x EV/EBITDA and >9% FCF yield, we think this is well in the price.”