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Monsters of Rock: New Hope turns to profit as coal miners remain buoyant

Timing is, as they say, everything. Coal miner New Hope Corporation’s financial reporting period is one example of that. While … Read More
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Timing is, as they say, everything.

Coal miner New Hope Corporation’s financial reporting period is one example of that. While most companies go by calendar or financial year, New Hope (ASX:NHC) reports from August to July.

That allowed it to soak up some of the coal bull market which has driven domestic price in China up by the hour to as high as US$670/t.

Australian producers are locked out of China at the moment due to the less-than-friendly relationship between our governments and their ability to (painstakingly) source supply from elsewhere.

Premium hard coking coal out of Australia is still up at historic highs of US$385/t though, with thermal and lower quality coking coal also generating consistently good gross margins.

While many Aussie coal miners still booked losses for FY21 while using their commentary to celebrate bullish market conditions of the 2022 financial year, New Hope gets the best of both worlds.

Thermal coal prices have risen sharply as well. Pic: New Hope Corporation

 

Production down, profits up for New Hope

New Hope’s production fell at its east coast coal assets from 11.3Mt in 2020 to just 9.6Mt in 2021, but saw its underlying EBITDA soar by 78% from $290 million to $367 million.

It swung from a $157 million loss to a net profit after tax of $79 million, backing a final dividend payment of 7c and a full year dividend total of 11c a share.

CEO Reinhold Schmidt said both improved prices for thermal coal and cost discipline underpinned the final result.

“The Newcastle 6000 Index hit 10 year highs by financial year end rapidly recovering from the depressed market conditions experienced at the start of the financial year. The Company achieved an average realised price of $101.36/t in 2021. At 31 July 2021, the Newcastle 6000 Index had almost doubled from January 2021 levels, to USD$150 per tonne, and has continued to trend upwards,” he said.

“The Company also benefited from reduced underlying Free on Board cash costs of $63.70 as a result of cost savings implemented at both Bengalla and New Acland, and the rationalisation of the Brisbane corporate office.”

New Hope’s realised prices doubled from the first quarter to the final quarter of the year, when it sold coal at an average of ~US$120/t, prices that would be mild by today’s standards, even for thermal coal.

 

New Hope Corporation share price today:

 

 

Is a correction coming in coal prices?

It is a largely accepted narrative that China’s ban on Australian coal has played a big role in the meltdown of its supply chain.

The trade between the nations was the sun around which the solar system of the met coal trade revolved, as BHP famously says, and the removal of 24mt of imports from Australia left China 16Mt short year on year.

The redirection of Australian rock elsewhere has seen China lean on its decrepit domestic mines, production from across the inland border in Mongolia and the US, Russia and Canada.

US, Russian and Canadian mines don’t export enough to satisfy China’s hungry steel and energy sectors, and Mongolian product has been hamstrung by Covid restrictions.

According to UBS, China’s imports are down around 16Mt year on year, leaving it well short of requirements and fuelling a squeeze on supplies.

But as we’ve seen in iron ore, what goes up must come down at some point.

“We expect met-coal prices in China to turn down before end-2021 with demand weakening and supply lifting; average met-coal prices are however set to remain elevated in 2022, averaging ~US$190/t (broadly flat y/y) as inventories are low and trade tensions between Australia & China are unlikely to ease near-term,” UBS analysts led by Myles Allsop said.

 

Will steel cuts come for coal too?

Steel production cuts and concerns around China’s struggling and debt-laden property sector that have hit iron ore could strike the end market for coal as well.

“We expect China steel output (and pig iron production) to slow into 2022 against a less favourable economic backdrop; there are also increasing signs that major China steel mills plan to cut output in 2H21 to achieve the central government’s directive of keeping annual production unchanged vs 2020,” UBS said.

“To this extent we have noted a sharp slowdown in crude steel and pig iron output so far in 3Q21.”

Higher prices could also bring supply on in China despite efforts to curb production due to safety concerns and pollution crackdowns.

“Given how elevated prices are, we expect met-coal supply to lift in China domestically over the coming months. This, combined with weaker pig iron production / met-coal demand and some alleviation in the power shortage, is likely to trigger a correction in China domestic prices from current record levels,” the analysts noted.

“The magnitude of the supply response in China may however be capped by 1) government control and 2) geological resource.

“Further, low coal inventories and the decline in the iron ore price may allow for increased tolerance of higher coal prices over the next 6 months.

“Outside China, we expect supply to lift in Australia with BHP able to lift production if prices stay high and Anglo to normalise supply/ debottleneck the Moranbah & Grosvenor complex.”

 

What happened on the markets?

The iron ore price feel even further overnight in the direction of US$90/t, but investors laid off the selling after yesterday’s $50 billion bloodbath.

Singapore iron ore futures were also largely unchanged.

BHP (ASX:BHP), Rio (ASX:RIO) and FMG (ASX:FMG) all held around yesterday’s trading levels and the ASX 200 Materials sector was up slightly.

Champion Iron (ASX:CIA), a pick from Tribeca Investment Partners head of research Todd Warren for when the iron ore price bottoms out, was one of the most productive mid caps.

$2.3 billion-capped Champion, which runs the Bloom Lake mine in Canada, was up more than 4% at 3.50AEST.

$2.8b rated Whitehaven Coal (ASX:WHC) also returned to winning ways with a similar gain.

 

Champion Iron and Whitehaven Coal share prices today:

 

The post Monsters of Rock: New Hope turns to profit as coal miners remain buoyant appeared first on Stockhead.




Author: Josh Chiat

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Monsters of Rock: Lithium shares flush with positive sentiment to dominate the gains

Lithium miners were the kings, queens, jacks and aces of the bourse on an avalanche of positive news around the … Read More
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Lithium miners were the kings, queens, jacks and aces of the bourse on an avalanche of positive news around the sector.

The biggest trigger was probably the incredible rise in value for Tesla overnight, which soared beyond a US$1 trillion valuation on news Hertz would order US$4 billion worth of electric vehicles from the automaker.

As the leading electric vehicle maker in the western world, and with a big presence also in China and energy storage, Tesla is one of the biggest end users of lithium products globally.

Its boss Elon Musk, now the richest man ever, has a fair bit of sway on the market as well.

On top of that Pilbara Minerals (ASX:PLS), up 525% over the past 12 months since spodumene prices bottomed out at under US$400/t (it sold a batch for upwards of US$2000/t last month), gained 7.66% after formally announcing plans to develop a lithium chemical plant in a JV with South Korea’s POSCO.

Core Lithium (ASX:CXO) declared the start of construction on its Finniss Lithium Mine in the Northern Territory. That will be shipping concentrate from the end of 2022.

$550 million capped Neometals (ASX:NMT) was up 14% after announcing its battery recycling demonstration plant in Hilcenbach, Germany, had been fully commissioned.

The one time lithium miner is up 405% over the past year.

Vulcan Energy (ASX:VUL), Sayona (ASX:SYA), Liontown (ASX:LTR) and Orocobre (ASX:ORE) were among the lithium miners to dine out on the day’s news, while rare earths miner Lynas (ASX:LYC) was also up.

On the flippity flip, iron ore miners were weak with Fortescue (ASX:FMG) and Rio Tinto (ASX:RIO) cancelling out a gain from BHP (ASX:BHP), while Mineral Resources (ASX:MIN) cancelled out the gains it made with yesterday’s announcement the Wodgina lithium mine would be coming back online with news it ate a 48% price discount on iron ore sales in the September Quarter.

MinRes’ average realised prices fell from US$178/t to around US$78/t between the June and September Quarters.

The bright green is all lithium baby. Pic: Commsec

 

Base metals inventories falling, but can it be sustained?

Base metals were back up on Monday, with production cuts in energy starved China and Europe hitting primary supply.

Inventories held by the major exchanges are being chewed up.

While price moves among the miners was muted, nickel rose 3.2% to climb back over US$20,000/t overnight after hitting US$21,000/t briefly last week.

“Nickel rallied after Eramet disclosed a 19% drop in ferronickel production from its operations in New Caledonia,” ANZ analysts said in a note.

“The market is also showing signs of tightness, with cash contracts closing at their biggest premium to futures in two years. LME inventories are down nearly 50% since April.”

LME stockpiles for copper hit their lowest level since 1974 last week, but Commbank analyst Vivek Dhar says it is too early to say whether the market is as tight as it seems, or whether some traders are hoarding to capitalise on high prices.

The market is expected to be in a small deficit at the end of this year to a 328,000t surplus in 2022 on rising supply (about 1.3% of global demand).

Mined supply is expected to increase 2.1% this year and 3.9% in 2022, but Dhar warned copper miners had a history of underwhelming.

“The rising forecasts for copper mine production reflect 5 major copper projects due to arrive by the end of 2022,” Dhar said.

“That compares with just two major copper projects in the last 4 years.

“Given the track record of mine disruptions (i.e. labour strikes, power and water scarcity and geopolitics) and the decline in copper grades, elevated copper mine production growth forecasts don’t tend to last long.

“We think it’s worth considering that new mine supply may take longer than currently expected to hit the market.”

The post Monsters of Rock: Lithium shares flush with positive sentiment to dominate the gains appeared first on Stockhead.







Author: Josh Chiat

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Lefroy Exploration secures major nickel frontier land package in WA

Special report: In line with its multi-commodity gold and base metals strategy, Lefroy Exploration has pegged five exploration licence applications ……

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In line with its multi-commodity gold and base metals strategy, Lefroy Exploration has pegged five exploration licence applications over a new nickel project named Glenayle.

The Glenayle Project covers a massive contiguous 2735sqkm of the Proterozoic age Salvation Basin that is intruded by multiple dolerite sills which extend over the entire land package.

These dolerite sills are part of the Warakurna Large Igneous Province (LIP), which extends west to the Bangemall Basin and east to include the Giles layered intrusive complex. More importantly, they are considered prospective for nickel mineralisation.

Glenayle represents a first mover approach by Lefroy (ASX:LEX) into a frontier nickel-copper exploration project with its stake over the Warakurna LIP.

New wholly owned subsidiary to list on ASX in 2022

The Glenayle tenement package is held by a new wholly owned LEX subsidiary, Johnston Lakes Nickel (JLN), which Lefroy aims to list on the ASX in 2022 subject to shareholder and regulatory approvals.

JLN will also hold other nickel assets currently held by LEX at Lake Johnston and at Carnilya South in the Lefroy Gold Project.

The company expects the tenements to be granted in Q4, 2022.

While the explorer aims to expand its portfolio in search for nickel, the focus remains on exploration at Eastern Lefroy and the Burns gold-copper prospect.

A rare opportunity

LEX managing director Wade Johnson said it is not often that an opportunity like this presents itself.

“It is a monster land package,” he said.

“We have taken the first mover approach into a new area that has seen very little exploration.

“We are very keen to further develop and apply knowledge learned about nickel mineralisation in large igneous provinces that will provide exploration targeting criteria for target selection,” he said.

“Glenayle adds another wholly owned project to the LEX greenfields exploration portfolio and complements our other nickel assets at Lake Johnston and Carnilya South.”

The Glenayle project relative to the other company projects and key geological rock units in Western Australia. Pic: Supplied

Identified in desktop assessment

The Glenayle nickel project was identified after a desktop assessment to identify new areas in Western Australia considered prospective for nickel mineralisation.

Prior geological knowledge of the area from a field reconnaissance trip in 1998 by Wade Johnson and the subsequent review of the research paper by Pirajno and Hoatson (2012) supported LEX’s acquisition.

What’s next?

Lefroy has kicked off compilation and assessment of previous surface geochemistry, geophysical and drilling data from WAMEX at Glenayle.

The location of drill core from the only three diamond holes drilled at Glenayle is being sourced, with two of the three holes being located.

Geophysics, and in particular interpretation of gravity survey data, will play a key role in guiding exploration targeting within the project.

Development of a detailed aeromagnetic and gravity dataset is underway and will be the primary exploration tool in the interpretation of the distribution of the mafic rocks such as feeder sills, layered intrusions and dykes within the Salvation Basin.

This will then be followed by targeted stratigraphic diamond drilling in 2023.

The company will apply for funding support through the WA State Governments Exploration Incentive Scheme (EIS) for this drilling where applicable.

LEX has also commenced land access negotiations with the determined Native Title group.

 


 

 

This article was developed in collaboration with Lefroy Exploration, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Lefroy Exploration secures major nickel frontier land package in WA appeared first on Stockhead.





Author: Special Report

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Resources Top 5: Investors pile into ASX stocks as global magnesium shortage bites

China is slashing magnesium production due to ongoing power crisis and buyers are getting desperate ASX magnesium stocks Korab, Latrobe … Read More
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  • China is slashing magnesium production due to ongoing power crisis and buyers are getting desperate
  • ASX magnesium stocks Korab, Latrobe and Magnotec soar in early trade
  • Emmerson hits visual copper in drilling, Aguia inks phosphate sales agreement

Here are the biggest small cap resources winners in early trade, Tuesday October 26.

 

KORAB RESOURCES (ASX:KOR)

(Up on no news)

There are only a handful of current or likely magnesium producers outside China, which is slashing production due to an ongoing power crisis. Buyers are getting desperate.

$20m market cap KOR is currently in a pause pending a further announcement after shooting up almost 100% in early trade.

This sleepy explorer has been trying to develop, or sell, the ‘Winchester’ magnesium project in the NT for over a decade.

Over the last few months, KOR says it has been approached by two separate groups expressing an interest in developing Winchester.

The latest unsolicited proposal would see the two parties “jointly develop the Winchester quarry where the other party will fully fund the development in exchange for sharing the future profits from the quarry”.

No commercial terms have been met as yet, KOR said September 30.


 

LATROBE MAGNESIUM (ASX:LMG)

(Up on no news)

LMG plans to develop a 3000tpa operation which will convert fly ash from the Yallourn coal operations in the Latrobe Valley into magnesium and a host of other industrial products.

Latrobe still has engineering and other studies to complete before issuing tenders for construction of its plant in January next year but managing director David Paterson said end users facing supply woes out of China were already desperate to get their hands on mag product.

“That’s why we keep on talking about diversity of supply,” he told Stockhead on September 30.

“We’ve had probably at least three or four inquiries a week, probably one a day.”

“We’ve had two today just on can we supply mag at a price, at any price, because they can’t get supply.”

 

MAGNOTEC (ASX:MGL)

(Up on no news)

China and Europe-based MGL isn’t a miner, but it does sell primary and recycled magnesium alloys into the auto, power tool and electronics sectors.

In the first six months of 2021 the metals businesses experienced a ‘difficult period”. The principal constraint on Magontec’s metals business in China is the absence of raw material supply, it says.

“Auto sector output was constrained, logistics costs rose sharply, magnesium prices were volatile and Magontec’s key magnesium alloy cast house at Golmud, Qinghai province, PRC continued to source its raw material from regional Pidgeon producers pending resumption of supply from the Qinghai Salt lake Magnesium Co Ltd (QSLM),” the company says.

“Until this supply re-commences the MAQ business will continue to be unprofitable at the EBITDA line and, with depreciation charged on this currently non-performing asset, will continue to negatively impact reported profit.”

MGL’s other metals businesses — recycling of magnesium alloy scrap in Germany and Romania — is also challenged.

“A slowdown in the automotive sector due to chip shortages, among other issues, has reduced volume throughput for the European recycling facilities over the last 12 months and we don’t expect a recovery in the short-term,” the company says.

 

EMMERSON RESOURCES (ASX:ERM)

A maiden drilling program pulled up visual copper at ‘Hermitage’, one of a cluster of targets held by ERM in the 5.5Moz gold, 470,000t copper Tennant Creek Mineral Field (TCMF).

Drill hole HERC002 and HERC003 intersected thick zones of malachite (copper ore) chalcopyrite (copper ore), interspersed with native copper.

Here’s what that looks like:

Native copper in RC drill hole HERC003.

HERC003 terminated in mineralisation at 192m, ERM says.

Drilling continues, and first assay results are expected in the current December quarter.

Hermitage has not seen any systematic, modern exploration since the 1980s.

The first phase of this exploration is aimed at following up historic hits like 9m at 12.8g/t gold from 176m and 23m at 4.84g/t gold and 3.7% copper from 203m.

$37m market cap ERM has been treading water, up 7% over the past month and down 6% year-to-date.

 

AGUIA RESOURCES (ASX:AGR)

This aspiring fertiliser miner has presold 30,000 tonnes per annum of natural phosphate fertiliser from the ‘Três Estradas’ Phosphate Project (TEPP) in Rio Grande do Sul, the southernmost state of Brazil.

The MOU — with well-known fertiliser and agribusiness distributor Tuch — potentially represents well over half of AGR’s projected first year of TEPP sales, estimated at 50,000 tonnes, the company said.

The sale price from AGR to Tuch is $74 per tonne FOB for the product in bulk. Operational expenditure has been estimated at just $11/t.

The project, which will cost just $8m to build, is expected to produce 306,000tpa over 18 years following a three-year ramp up, AGR added.


The post Resources Top 5: Investors pile into ASX stocks as global magnesium shortage bites appeared first on Stockhead.




Author: Reuben Adams

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