‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director, and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.


Market Ructions: We’re on a highway to hell …

Despite US GDP shrinking in the last three months to 0.90% and 1.6% the previous quarter, the Biden administration appears to be in denial about a recession.

And it’s just not the headline GDP figures that are telling the story; lumber prices, and new home sales are also slowing.

An inverted yield curve for US treasuries is showing 2-year treasury bills yielding more than 10-year bills by a factor of 20 basis points.

Copper, another leading indicator that the Stockhead faithful are more familiar with, is down 30% from its highs of US$4.80/lb early this year to around US$3.40/lb — however it appears to be turning the corner (figure 1).

Figure 1: 6-month copper spot prices (Source: www.kitcometals.com).

LME warehouse levels are also continuing their downward trend (figure 2).

Copper declines have also been mirrored by nickel, zinc, and lead.

Figure 2: 6-month copper LME stockpiles (Source: www.kitcometals.com).

So how is the US consumer faring? Wages up 5% against inflation of 8-10%, so their standard of living is declining with significantly less discretionary spending.

A closer look at US unemployment numbers is equally alarming, showing new unemployment claims of 3.6% (that is not unemployment as we know it in Australia) with 10 million fewer working aged people actually employed compared to pre-pandemic levels.

So, what is required to ease the pain?

A dramatic rise in interest rates, not unlike the 1979 to 1983 period when interest rates were increased at a greater rate than inflation.

The chances of this, in my opinion, are near zero so we are in for a protracted recession as the most likely outcome.

Unfortunately, last week’s rate rises of 50bp (Australia) and 75bp (US) are just not enough.

The icing on the cake is surely rising energy prices with the Biden administration turning its back on fossil fuels and moving from a net exporter to a net importer of oil.

The IMF has also shipped in and leant on countries such as Ghana and Sri Lanka to focus on alternative energy with disastrous results.

Unfortunately, there is a price to pay for the US$8 trillion stimulus package and that is a protracted recession.

Not surprising there is chatter among the Trump supporters who enjoyed 1.5% inflation and a booming economy before he left the building. Gold also performed well over the currency of the Trump administration which is why we all love him here in the West.

At the same time, China is doing its level best to combat the weakening outlook for the domestic economy, in particular the struggling property sector (figure 3).

China may introduce two key measures including a real estate fund to assist distressed developers through the acquisition of property projects.

Figure 3: China property sales and construction starts (source; Morgan Stanley, July 2022).

Among other initiatives, the government has committed to purchase of developer bonds, and provide equity to assist in project development and completion.

According to Reuters there are around a dozen developers facing financial hardship that could receive something in the order of RMB200-300bn each.

Morgan Stanley are anticipating a rebound on the back of these stimulus measures to around 2.7% YoY for 3Q and 4.7% in 4Q.

The benchmark iron ore (62% Fe) prices traded above US$110/t last week closing at US$113/t on Thursday on the back of a slight improvement in economic data coming out of China last week.

Steel margins also appear to have improved with expectations that more blast furnaces could restart in the near term.

Figure 4: Iron ore (62% fines) spot prices and Macquarie forecasts (source; Macquarie Research, 5 August 2022).

Apologies to the Stockhead faithful for being offline last week as I did a job on myself at Diggers and Dealers last week.

The conference boasted a record attendance with just over 2,600 and had a strong ESG, gender equality and battery metal theme. Even the Palace Hotel got in on the act and introduced a form of basketball with ping pong balls. Even better the players included the bar staff, so the gender balance was spot on from what I observed. I believe former Fremantle footballer Ryan Crowley was the star performer here…

At every turn you see ESG rearing its head with environmental groups putting pressure on Tesla last week to reconsider its plans for nickel investment in Indonesia, the world’s top nickel producer.

Obviously, there are concerns regarding supply chains everywhere with Tesla  last week signing new contracts according to Bloomberg (1 August 2022) with Chinese battery-materials suppliers namely Zhejiang Huayou Cobalt and CNGR Advanced Material.

I thought the quality of the presentations was good. Hard to pick a winner but I thought West African Resources (ASX:WAF) had an outstanding year of under promising and overdelivering and on track to produce around 220Koz of gold for FY 2022 at an AISC of under US$1,100/oz.

On the junior end I though Peel Mining (ASX:PEX) with the high-grade Mallee Bull (6.8t @ 1.8% Cu, 31g/t Ag) and Wirlong (2.5Mt @ 2.4% Cu, 9 g/t Ag) did an excellent presentation and look like they will go close to having the critical mass for a standalone plant in the medium term.

Thanks also to the punters that turned up to the RM Corporate Finance hosted presentations featuring Greenstone Resources (ASX:GSR), Conico (ASX:CNJ) and Sarytogan Graphite (ASX:SGA).

A good series of presentations. Surprised nobody heard the Kazakhstan national anthem to the tune of the ‘Stars and Stripes’ but I had a good singalong before everybody got there.


New ideas… My name is Borat

Figure 5 SGA share price chart (Source: CMC Markets, 5 August 2022).
Figure 6: Sarytogan Graphite Project in Kazakhstan (Source: SGA ASX Announcement, 18 July 2022).

Sarytogan Graphite is a recent ASX listing (18 July 2022) led by geologist Sean Gregory whose primary asset is the Sarytogan Graphite Project situated 170km by highway to Karaganda (figure 6), the largest industrial city in Kazakhstan.

The project contains an Inferred JORC Resource of 209 Mt @28.5% TGC (containing 60Mt of graphite) making it the highest grade and second largest graphite deposit of its ASX peers.

Full disclosure, RM Corporate Finance was joint lead manager for the ASX Listing with Inyati Capital and currently holds in excess of 5% of the issued capital of SGA.

As the Stockhead faithful are well aware, graphite can’t be substituted and is a major component of lithium batteries (figure 7).

Figure 7: Components in lithium batteries (Source: SGA ASX Announcement, 18 July 2022).
Figure 8: Chinese Anode Production (Source: SGA ASX Announcement, 18 July 2022).

With Chinese anode production forecast to increase sharply in the coming year, SGA could potentially find itself in the right place at the right time.

While size does matter, it is more about flake quality, impurities and metallurgical recoveries so hopefully this very large (and likely growing) deposit may have the potential to produce both flake (fire retardants) and amorphous (used in batteries) graphite.

Figure 9: Sarytogan Graphite deposit, drill plan (Source: SGA ASX Announcement, 18 July 2022).

The company is in the midst of a 4,000m HQ diamond drilling campaign that will cover the Central Graphite Zone (figure 9) with an excellent chance of extending known mineralisation outside of the current Mineral Resource.

As well as growing the overall resource, the program should upgrade portions of the resource from inferred to indicated as well as providing material for metallurgical testwork. First assay results are anticipated in the 4th Quarter.

Comparisons with other producers/developers (figure 10) can be a little tricky due to different product mixes, stages of development and a number of producers growing downstream businesses, however the project does stand out from a size and grade perspective with the next phase of drilling having an excellent chance of growing the resource.

Figure 10: Sarytogan deposit comparison with other graphite projects based on JORC Resources and total graphitic carbon (source: Oracle Capital, 5 August 2022).

I’ll let the reader decide whether the company is cheap/expensive (Figure 11) at an enterprise value of just under $40 million.

Figure 11: Sarytogan comparative EV/JORC Resource (source: RM Research, 5 August 2022).

So, what do we think of Kazakhstan?

Just ask Borat — “Kazakhstan is the greatest country in the world, all other countries are run by little girls…….”


At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States. The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.


Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.