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Guy on Rocks: Gold fires up, iron ore continues recovery — but lithium remains the standout

It ain’t no lithium, yet, but gold finished November with a 7% gain — its best month since May 2021. … Read More
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This article was originally published by Stockhead
  • Gold finished November with a 7% gain — its best month since May 2021
  • While iron ore has continued its recovery, closing at US$105/tonne (62% fines) last week, the standout remains lithium
  • Stock to Watch: a (hopefully) ‘Greg Chappell-like’ Dundas Minerals (ASX:DUN)

‘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: Central banks load up on gold

Figure 1: USD index. (Source: Wagner, G., www.kitco.com, 2 December 2022).

With the USD index in retreat (figure 1) and increasing expectations that the Federal Reserve will slow rate hikes, gold finished November with a 7% lift, its best month since May 2021.

Late on Friday the February 2023 contract was fixed at US$1,812.2/oz with gold finishing at US$1,797/oz last week (figure 2).

Silver also ended the month with a 14% gain to close at US$23/oz.

This coincided with strong jobs data (figure 3) out of the US last week (263,000 jobs created versus expectations of 200,000) and inflation at 5.1% which was well above expectations.

Figure 2: Gold futures (Source: the www.goldforcast.com).
Figure 3: New monthly US jobs (Source: Wagner, G., www.kitco.com, 2 December 2022).

Edward Moya, from analytical firm OANDA, believes the Federal Reserve, which is due to meet next on 14th December, will be wary of waning consumer demand which has led many commentators to view a 50-basis point rise as the most likely outcome.

Figure 4: S&P/ASX Gold Index (Source: CMC Markets, 2 December 2022).

While we have seen a lift in gold equities in Australia starting in late October 2022 (figure 4) we are yet to see ETFs benefit with  SPDR Gold Shares (NYSE: GLD) seeing their holding fall by nearly 12.5 tonnes last month, despite the rally.

Figure 5: S&P/ASX Gold Index (Source: CMC Markets, 2 December 2022).

Central banks, as I mentioned a few weeks ago, have been aggressively buying gold (figure 5).

The other significant event is the meeting of OPEC next week which are likely to recommend more production cuts, potentially putting more upward pressure on oil which closed just under US$80/bbl last week.

Another notable event was the cap put on Russian oil by the EU of US$60/bbl.

Russia has indicated it will cease shipments to countries employing the price cap which only applies to countries using Western ships and Western insurers. Last week, according to Julianne Geiger (from www.oilprice.com), China and India were purchasing crude oil from Russia at a US$33.28 discount to Brent, well underneath the price cap set by the EU which is due to come into effect from 5th December.

While iron ore has continued its recovery closing at US$105/tonne (62% fines) last week in response to Chinese stimuli, the standout remains lithium which UBS believes has a solid short- and medium-term outlook.

Prices received by miners vary significantly based on contract terms/sales book composition, grade/quality with a trend according to UBS (Lithium, 26 November 2022) of moving away from fixed price contracts towards business that refers to a price against a spodumene benchmark vs a % of the chemical price.

In the September Quarter prices for UBS coverage ranged from US$3500-5000/t which they believe could widen to US$3500-6100/t in the near term before converging (figure 6).

Figure 6: Realised v spot lithium prices (Source: UBS, Lithium; Realising Higher Price, 26 November 2022).

 

ASX stock ideas: Dunny hole followed up with ‘S’ bend visit

Figure 7: DUN 12-month share price (Source: CMC Markets, 2 December 2022).

 

It appears as if the first-class ski vacation to St Anton (Austria; I know the Stockhead faithful are familiar with this resort) for the Dundas Minerals (ASX:DUN) board has been downgraded to a time-share opening at the “S-Bend” Caravan Park in South Greenough (Western Australia).

Going down the “S” bend is something every explorer has experienced from time to time, so it’s nothing to be ashamed about.

Follow up diamond drilling (22CEDD001 and 22CEDD002; figure 8) on the “Dunny Hole” bore a striking resemblance to Greg Chappell’s string of ducks (7 in total including 4 in a row) over the 1981-1982 Test cricket season in Australia.

Unfortunately, the assays failed to trouble the scorer with the best result of 57ppb gold (not far off what the gravel at the S Bend Caravan park assays). Well, I did warn the Stockhead Faithful not to “hold their breath” for any high-grade assays.

The announcement came out on Friday so I could only assume the DUN board thought I would be well entrenched at Cigar Social with a Plasencia Alma Fuerte and a 14-year hold Balvenie Scotch and miss this little chestnut.

However, one of the learned geologists (and fellow climate change sceptics) sitting opposite me brought me up to date with the news.

Figure 8: Location of drill holes at Central Exploration Target (completed, in progress and planned). (Source: DUN ASX Announcement, 2 December 2022).

For a moment there I could see paradise before the lab sent the share price down the “S” bend.

Not to worry, the company is still listed, has cash in the bank and no one died. A few punters who filled their boots at 40 cents in the recent placement have a temporary number one blade hair cut which I am sure will grow back in time.

And I take comfort from the calming words (DUN, ASX Announcement, 2/12/2022) of managing director Shane “the Dunny” Volk;

“…there are many positives that we see at Central: the >12km EM conductivity trend; coincident gravity and magnetic anomalies; sulphides, alteration and brecciation in drill core; and from the first diamond drill hole gold and silver lithogeochemical anomalism. All of this is encouraging and supports the initial interpretation of a potential hydrothermal system”.

The good news is that Greg Chappell fought back with a Test century the following summer. What could possibly go wrong….

 

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.

The post Guy on Rocks: Gold fires up, iron ore continues recovery — but lithium remains the standout appeared first on Stockhead.

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