Guy on Rocks: It’s not just about gold and iron ore — this one nickel stock is looking mighty fine
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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”.
We’ve seen a lot of the investment banks raising their forecasts for iron ore in the wake of the recent price hike, but I still think a lot of them are conservative.
Citibank’s base case was around $US115 a tonne in 2021, $US90 in 2022 and $US80 in 2023, but only assuming a 1 per cent year-on-year growth in Chinese steel demand, which is significantly higher than that — more like 6 to 8 per cent currently.
I think the bank’s bull case of a 5 per cent increase in Chinese steel demand is probably more likely, which should see the price head over $US150, not far off from where it is sitting at the moment at around $US146.
And, as I mentioned a couple weeks ago, we’re coming into cyclone season, so I think that should help underpin prices.
On the gold front, we’ve seen the precious metal stubbornly hold above $US1800.
There was about 261,000oz in outflows last month from the ETFs on a 10-day weighted average, which has dropped to about 46,000oz as of the 7th of December. We’re seeing a switch back, but there seems to be a lot of short positions in gold at the moment.
I think a lot of the positioning is for a lower gold price — that’s what the derivative activity is telling us.
Obviously with the uncertainty surrounding a possible COVID vaccine subsiding and the US looking more stable, gold is looking for more direction or something to happen.
News of the US’ plans to build up its naval presence in the South China Sea with the re-establishment of its First Fleet is a fairly significant move. But for some time, China has been accumulating a very large stockpile of oil, importing 42.56 million tonnes (14.1 million bpd) with domestic production topping 16.4 million tonnes for a total of 58.9 million tonnes (equivalent to 13.9 million bpd).
There are more and more juniors looking at small scale iron ore production, including GWR Group (ASX:GWR) with its Wiluna West project in Western Australia.
The project has a resource of about 131 million tonnes at 60 per cent Fe. GWR is actually in production as we speak and they’re able to get that direct shipping ore (DSO) material straight to port.
The company has a market cap of about $65m with just under $2m in cash, so it seems like it’s in reasonable shape.
GWR has about $3.3m in funding for its initial-stage C4 project. So that is one to watch.
Another iron ore explorer that has popped up is Magnum Mining and Exploration (ASX:MGU), which just acquired the Buena Vista magnetite in project in Nevada in the US.
That project has had about $30-odd million spent on it and can produce concentrate of up to 67.5 per cent Fe. It’s very close to rail, power and port.
Magnum is looking at updating the feasibility study by the middle of next year. So that’s another one to watch.
I think the difference here is the Buena Vista magnetites are metamorphic in origin and are not as capital intensive as the Australian magnetite banded iron hosted deposits.
A company we haven’t mentioned before but has been very active is nickel explorer Azure Minerals (ASX:AZS).
The company announced a fantastic result on Thursday of 16.2m at just over 2 per cent nickel and 0.75 per cent copper at its Andover project.
That’s the high-grade portion of an intercept of 42m at 1.1 per cent nickel and 0.57 per cent copper from the VC-07 conductor Azure was targeting. That is extremely interesting.
It looks like that VC-07 conductor is open down plunge. I think that’s yet another example of a nickel explorer kicking some serious goals.
That drilling program is going to continue into next year. They have plenty of width, good grades, some high grades up to 3.5 per cent, so pretty encouraging.
Azure has a market cap of around $230m.
The other one worth mentioning is Viking Mines (ASX:VKA), which is acquiring the First Hit gold mine in Western Australia.
First Hit was previously mined by Barra Resources. It had quite a bit of exploration done and returned very high-grade intersections of 7m at 22 grams per tonne (g/t) and 3m at 77.6g/t — all in the top 200m.
That’s adjacent to the Zuleika Shear, which hosts some world class deposits like Davyhurst and Paddington. The East Kundana joint venture between Northern Star Resources (ASX:NST) and Tribune Resources (ASX:TBR) is also not far from the First Hit mine. It’s highly prospective.
First Hit is still covered by a mining lease through to 2032.
When it was mined 20 years ago cash costs were around $US345. Working on the basis that costs have tripled in the last 20 years, that still puts costs under about $US1000/oz.
The mine had very good recoveries and there’s six mills in the district, 50km from Davyhurst.
Viking is looking at completing a resource by November/December next year.
Another company kicking some goals recently is Pacifico Minerals (ASX:PMY), which is advancing its Sorby lead-zinc project in the north of WA.
In late August it announced the results of a pre-feasibility study which estimated a pre-tax net present value of over $300m and a 1.5-year payback for the project.
I still think Pacifico is pretty cheap at a cap of around $64m. It’s moved up a little bit recently, but I think that should be trading well over 3c in the current market.
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.