Ground Breakers: The Good, The Bad and The Ugly of the ASX resources sector

The Good: A lithium price record for Pilbara Minerals
The Bad: Iron ore down as Covid Zero bites in China
The Ugly: St Barbara hammered on horror gold production report

The ASX resources sector on October 18, 2022, channels the spirit of Sergio Leone’s 1968 Spaghetti Western Il Buono, Il Brutto, Il Cattivo, with new lithium price records being set, iron ore prices down and one gold miner copping a hiding that could push us closer to a long mooted consolidation play.

First, the good

Ennio Morricone’s score peaks in Leone’s final act with the climactic L’Estasi Dell’oro — the Ecstasy of Gold — but it’s the ecstasy of lithium that the punters are really drinking in these days.

Pilbara Minerals (ASX:PLS) is down slightly today. But don’t take away from the fact it has set yet another spodumene price record through its latest Battery Material Exchange sale.

It raked in over US$7000/t in hard currency for the first time, pulling in US$7100/dmt pre-auction for 5000 tonnes of sub-grade 5.5% Li2O FOB Port Hedland.

That is a massive US$7830/t on a 6% basis, the benchmark for lithium concentrate. It shows strong demand conditions remain of the EV battery material, which experts have been quick to caution will remain strong even as some analysts muse of a potential supply hike and price collapse in 2023.

Wild, huh?

Battery metals stocks were up early before retreating, with PLS down 0.84%, MinRes (ASX:MIN) off 0.39%, IGO (ASX:IGO) up 1.33%, Lake Resources (ASX:LKE) up 2.99% and graphite miner Syrah Resources (ASX:SYR) 4.78% higher.

Battery Metals share prices today:

The bad

China is doing its thing under Xi and Zero Covid is going nowhere fast.

Iron ore was down almost 2% to around US$92/t yesterday as a result, around $5 up on last November’s 12-month lows of US$87/t.

The bulks were mixed with BHP (ASX:BHP) up 1%, Fortescue (ASX:FMG) down 0.03% and Rio Tinto (ASX:RIO) off 0.8% after opening slightly in the green.

Most analysts don’t see much upside for iron ore prices if Zero Covid remains in place.

Rio released its results today as well, maintaining its 320-335Mt iron ore guidance range, though it will, as is often the case, need to produce its best quarter of the year to hit the mark in the December term.

Rio will spend around US$7b in capex this year, down from US$7.5b, largely due to a weaker Aussie dollar and the timing of its investment in decarbonisation, but says it still expects to spend US$7.5b on decarbonisation to 2030.

Exploration spending, meanwhile, has increased by 15% year on year to US$593 million year to date, with an increase in drilling in Guinea, Argentina (where Rio owns the Rincon lithium project) and Australia.

Iron ore giants share prices today:

The very, very ugly

St Barbara (ASX:SBM) stock collapsed 22% after a disastrous September quarter, with 63,700oz produced at a radically higher than expected all in sustaining cost of $2490/oz.

It pulled in an average selling price for that gold of just $2486/oz.

St Barbs has also deferred $180 million of expansionary capex for 12 months, including the development of the Aphrodite mine, the construction of a refractory milling circuit at its Gwalia processing plant and a proposed expansion from 1.4mtpa to 2.1Mtpa.

The fall, up to 62% for the year to date, brings SBM’s value close to potential suitors Red 5 (ASX:RED) and Raleigh Finalyson’s Genesis Minerals (ASX:GMD), the latter of which has been in talks over consolidation with the larger St Barbara for months.

The Gwalia gold mine is the jewel in the crown of the Leonora province, which some believe could be consolidated into a modern Kalgoorlie, tying together a number of assets previously controlled by the old Sons of Gwalia company in the early 2000s before its collapse.

Genesis shares rose 4.69% today along with a handful of other gold stocks after the release of the SBM quarterly.

SBM’s guidance for FY23 has been hit from 280-315,000oz at $2050-2150/oz to 260,000-290,000oz at $2250-2500/oz, raising the prospect it could lose money this year depending on gold prices.

Underlying its struggles at Gwalia, St Barbara boss Craig Jetson said, was a shortage of skilled fitters and maintainers in the WA mining industry.

“In our planning for quarter one we assumed that with the lifting of border closures and the reducing impact (of) COVID-19 isolation rules, we would be able to accelerate our improvement rates as more highly skilled staff joined the company,” he said on a conference call.

“This wasn’t the case and what we didn’t anticipate was a high competition for skilled fitters and maintainers. Not only were we not able to quickly fill our positions, we actually lost key staff as well.”

He said most of the positions are filled now, though not at the same skill level as before. Gwalia’s productivity is expected to fall from a planned 1.1Mt to around 950,000t in FY23.