There’s a ceasefire in the US-China tariff war and Aussie mining stocks are loving it
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News that the US and China has called a 90-day ceasefire in their escalating trade war has been a bit of a shining light for several ASX-listed small cap miners after months of pain.
US President Donald Trump and his Chinese counterpart Xi Jinping over the weekend agreed to place new tariffs on hold for the next three months while they continue talks.
The White House said President Trump had agreed not to raise US tariffs on $US200 billion ($271.5 billion) worth of Chinese imports from the current 10 per cent to 25 per cent on January 1, 2019 as previously planned.
In turn, China has agreed to purchase a “very substantial” amount of agricultural, energy, industrial, and other products from the US to reduce the trade imbalance between the two countries.
The White House says both sides will also “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft”.
But if talks are unsuccessful, “the 10 per cent tariffs will be raised to 25 per cent”, the White House warned.
The S&P/ASX 300 Metals & Mining index was up 3.3 per cent, while the S&P/ASX Small Ordinaries Resources index advanced 0.3 per cent on Monday.
“This bodes exceptionally well for the beaten-up resource sector, as the USD falls and investor risk-appetite picks up,” Niv Dagan, executive director at boutique investment firm Peak Asset Management, told Stockhead.
“We expect for the ‘risk-on’ trade to continue as well into Christmas, driving asset prices higher.”
Angus Geddes, the founder of fund manager Fat Prophets, agrees stock market indices should all be much higher in December, and running into January.
Mr Geddes believes a deal between the US and China will be reached in the next 90 days — despite that not being the consensus view.
“While China would undoubtedly be the loser in a trade war, the US would also suffer collateral damage,” Mr Geddes said.
“Time is of the essence and Trump now only has two years to secure his second term, so if the wrong decisions are made today, it will be impossible to correct those mistakes in two years’ time, if the US were to fall into recession.
“The Trump Administration therefore needs to get it right now, and bed the US economy down.”
Could be worse
Westpac chief economist Justin Smirk told Stockhead that the improved market sentiment was really just a rebound from expectations that things could’ve gotten worse.
“They’ve basically kicked the can down the road, they haven’t come to any agreement to negotiate new terms, but they’ve just agreed not to escalate things,” he said.
“That just gave the market a bit of a reprieve.”
Meanwhile, Fat Prophets resource analyst David Lennox said the halt on increasing tariffs is good news for commodities.
“We’d expect the US dollar on that news to probably weaken and with that we’d expect to see commodity prices rise in the short-term,” he told Stockhead.
But if the US tariffs on Chinese imports do end up being increased, that could be bad news for commodities.
“That will probably spell a difficult time for commodities longer term, but if we see a more conciliatory approach then we would expect to see a moderately better outlook for commodities longer term,” Mr Lennox said.
ASX small cap resources benefit
Gold miner Gascoyne Resources (ASX:GCY) added more than 37 per cent to its share price on Monday. It closed at 12.5c.
The company is in the process of commissioning its Dalgaranga project but has faced some challenges in ramping up to full production.
“The grade underperformance from the upper levels of the Gilbeys and Golden Wings pits, a slower than expected mining ramp-up and a number of temporary set-backs with the plant have all combined to extend the commissioning phase of Dalgaranga longer than expected,” chairperson Sally-Anne Layman said at Gascoyne’s AGM last week.
“In addition, Ian Murray’s decision to step down from the board within two weeks of being appointed chairman and the subsequent resignation of managing director Mike Dunbar understandably caused further concern to our shareholders.”
Ms Layman said the board was working to improve the performance of Dalgaranga and restore the confidence of the market.
Gold explorer Dateline Resources (ASX:DTR) climbed more than 33 per cent to 0.4c.
Dateline owns about 810ha in the Gold Brick District of the Colorado Mineral Belt.
The Belt has produced over 25 million ounces of gold but no new significant precious metals exploration or mining has occurred in Colorado since the Summitville disaster of 1992.
Drilling done earlier this year by Dateline at its Gold Links mine returned high grades of up to 223 grams per tonne (g/t).
Anything over 5g/t is generally considered high-grade.
Energy metals explorer Alligator Energy (ASX:AGE) also advanced more than 33 per cent to 0.4c.
The company recently committed to a phase two exploration program to earn a greater stake in the Piedmont nickel and cobalt project in Italy.
Gold and base metals explorer Enterprise Metals (ASX:ENT) gained 30 per cent to close at 1.3c on Monday.
Enterprise is a partner to larger copper producer Sandfire Resources (ASX:SFR) on the Doolgunna copper and zinc project in Western Australia. Sandfire can earn up to a 75 per cent stake in the project.
Enterprise is also a partner on the Fraser Range nickel and copper project in Western Australia.
The Fraser Range shot to fame back in 2012 when Sirius Resources uncovered the Nova-Bollinger nickel, copper and cobalt mine, which eventually earned the company’s backers the very large sum of $1.8 billion.
Among Peak Asset Management’s top picks, European Cobalt (ASX:EUC) was up over 7 per cent at 4.5c, while fellow cobalt explorer Jervois Mining (ASX:JRV) jumped nearly 18 per cent to 23c.