Monsters of Rock: Miners tumble as energy crisis drives the market
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Oil, gas and coal prices are spiralling out of control, placing a rocket up companies across those sectors.
But power shortages, particularly in China, are emerging as a broader problem for a market still catching its breath after last week’s Evergrande and iron ore ructions.
Prices for iron ore rose back towards US$120/t overnight, which analysts attributed to restocking ahead of the week long National Day holiday in China, but it did little for the big miners as BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue (ASX:FMG) all came off.
While the materials sector sagged by 2.31% coal miners were the big winners with Whitehaven Coal (ASX:WHC), New Hope Corporation (ASX:NHC) and Yancoal (ASX:YAL) rising by 6.51%, 5.13% and 3.91%, respectively.
China is now paying three times its comfort level of RMB500-570/t for thermal coal, the sweet spot at which both its domestic coal miners and power producers are making money.
“Domestic thermal coal prices in China are tracking close to RMB 1300/t (5500kcal/kg Net As Received), well above China’s target range of RMB 500‑570/t,” Commbank analyst Vivek Dhar said.
“Since most Chinese power plants sell electricity at regulated rates, high coal prices have actually led to some utilities to curb power generation in order to limit losses.
“Combined with high gas prices, it’s no surprise that power shortages are increasing in China.”
Kirkland Lake is headquartered in Canada but maintains a sparsely traded presence on the ASX which it initiated after the Fosterville mine in Victoria emerged as one of the jewels in its portfolio.
Its collection of high production, low cost operations are sure to pique the interest of most majors.
That includes Fosterville, the mine which contains the highest grade ore body in Australia gold mining at the Swan Zone, and Detour Lake in Canada, where Kirkland Lake just posted a 10Moz resource upgrade this month.
While Kirkland Lake is big enough to be a buyer of substantial gold assets, the latest rumour is that it’s a target being head-hunted by the world’s biggest gold miner Barrick Gold.
According to independent blog IKN News, KLA is in play in a process led by BMO Capital Markets.
The report states Newcrest Mining (ASX:NCM), Newmont and Agnico (both North American) are also circling after a friendly deal with Barrick fell through.
Kirkland Lake has, like many gold stocks, meandered over the past 12 months since gold prices hit all time highs during the pandemic, but is among the rare ASX gold stocks to be up year to date, with an 8% gain for 2021.