• Pullback in gold price only temporary, ‘will move back towards $US2,000 per ounce relatively quickly’
  • Iron ore price seen as unlikely to go below $US100 per tonne, as China has ‘limited options’ to diversify supply
  • Zinc is a standout metal this year; lithium has good prospects under a Joe Biden presidency

 

‘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’ve had a bit of a pullback in gold obviously with the resolution of the US election, but it seems to be finding support above $US1,850 per ounce ($2,543/oz).

I think it will move back towards $US2,000 per ounce relatively quickly. I’m still standing by $US2,300 per ounce by early next year.

We’re running out of time, but I think there’s still enough drivers to get it there.

Iron ore and steel

In other commodity news, we saw a slight uptick in iron ore inventories at Chinese ports.

Interesting views on the steel and iron ore market emerged this week from a conference held by Mysteel, which puts out a lot of commentary on steel and iron ore, and probably the most informed commentary on China that you’ll find.

The outlook for steel is expected to be flat and increasing slightly. Real estate demand seems to be picking up.

Auto demand is also picking up.

Steel margins are likely to be unchanged next year. The view from the Mysteel conference is that current iron ore prices are pretty much justified and are obviously linked to steel prices.

The general sentiment, which is not surprising, is that if Vale can come back online, we would see the iron ore price come off a bit.

But it’s unlikely to go below $US100 a tonne ($138/tonne) at the moment.

They’re actively trying to diversify that supply chain of iron ore outside of China, but I think that’s got limited options, predominantly West Africa.

Zinc stocks

On the other metals that are starting to move, I think the standout this year has certainly been zinc, which is sitting up at $US2,600 a tonne.

It’s up 12 per cent for the month, which is a bit unusual because there’s a forecast surplus of just under 400,000 tonnes for 2020 in the market, and there’s a surplus predicted at the LME of currently 220,000 tonnes.

So it’s up 166,000 tonnes.

It seems to be working in reverse, maybe driven by weak mine supply, because we have Peru down 9 per cent year on year and 12 per cent over last year.

Bolivia which was about 4 per cent is 40 per cent down this year.

In the interim, China has been restocking zinc quite aggressively, buying concentrates and hence the concentrate price has come up to about 85 per cent payable on recoverable zinc. So that’s been very strong.

There’s not a lot of juniors in the zinc space. There’s obviously New Century Resources (ASX:NCZ), but not a lot of other players.

So we’re working quite hard in the next few weeks to see if we can reposition there.

Lithium, nickel, cobalt

The other big news in the last couple of weeks, obviously with Joe Biden winning the US election, is there’s going to be a very strong push towards electrification of the US.

That’s very, very bullish I think for lithium. But there’s plenty of lithium supply around.

I can see that increasing slightly, but not to any great extent.

In particular I’ve been talking about nickel for a while and we’ve seen some spectacular rises in some of our recommendations.

None other than Chalice Gold Mines (ASX:CHN), which I think we called around the 50c mark, has now hit over $3.20 a share, giving it a billion dollar market cap.

Chalice, along with De Grey Mining (ASX:DEG), has been the spectacular standout this year with 98m at 8 grams palladium, 2.6 per cent nickel and 1 per cent copper returned not that long ago in a new mineralised zone.

It’s a remarkable result. That story is going to get a lot bigger.

We had a great run on Blackstone Minerals (ASX:BSX) from around 8-9c to just under 40c currently.

I think that theme is only going to improve moving into next year with battery grade metal having to be derived from sulphides.

And that probably follows for cobalt.

I’m highly sceptical of their ability to substitute cobalt even though Tesla has come out and said it wants to do that.

Movers and shakers

Some of the other companies that we’ve talked about previously and have been on the move include Venture Minerals (ASX:VMS).

Earlier this month the company reported it had hit 33m of disseminated to semi-massive sulphides with copper and zinc at its highest priority volcanogenic massive sulphide (VMS) target at Golden Grove North.

The drilling was targeting immediately below an historic (2008) reverse circulation drill hole that returned an intersection of 22m at 0.76 grams per tonne (g/t) gold, 0.64 per cent copper and 1.3 per cent zinc from 38m. That’s pretty encouraging.

We first recommended Venture when it was trading at just 1.5c. It’s now trading at 4c.

The other one to watch, which has come off a bit and is probably coming back into buying territory is Tempest Minerals (ASX:TEM).

Tempest is on the southern end of that Golden Grove extension.

The other stock that has had a great run is Auroch Minerals (ASX:AOU), which on Wednesday announced it had hit 5m of nickel-bearing semi-massive to massive sulphides at the Horn project near Leinster, from 120m depth.

That was a 20m step out from an old hole that returned 7m at 2.6 per cent nickel and 0.6 per cent copper. So I think that is going to be in the spotlight.

Auroch closed Thursday at 19.5c. We called that when it was trading around 7c.

So we’ve had a great run on some of these recommendations, which is pretty exciting, and there’s plenty more to come.

 

Hot stocks to watch

We haven’t been promoting that many Lachlan Fold projects, but I think there seems to be a lot more interest, probably more in Victoria, but certainly in the Lachlan Fold belt, which has been disappointing for a long time.

One of Sultan Resources’ (ASX:SLZ) Lachlan Fold targets is Ringaroo, where a recent induced polarisation (IP) survey identified a 650m long chargeability anomaly.

IP surveys can identify changes in electric currents caused by different rocks and minerals beneath the surface, and is often used in porphyry exploration.

Sultan is following up a known area of gold and copper soil anomalism. It’s also coincident with a magnetic high complex which is open to the east and west.

I was encouraged by the very high grades they had on surface – ranging between 2 and almost 8 per cent copper.

Impact Minerals (ASX:IPT) is just to the north with its Apsley porphyry copper-gold discovery.

Ringaroo looks like a genuine target – a 4km by 1.5km magnetic high, open in all directions.

Sultan reported up to 3g/t gold in the soils with a peak value of about 20 parts per billion. So that looks pretty interesting.

Once the company tests that IP magnetic high, I think that drilling is going to get pretty interesting.

Sultan has a bit more processing of the geophysics to do and a bit more mapping, but I think that’s one to watch.

The company has a market cap of around $16m and just finished a capital raising of about $2.4m.

 

Sultan Resources (ASX:SLZ) share price chart:

 

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.

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