Spumante makes way for Bollinger as resources sector celebrates bumper 2017

Barry FitzGerald

Like all good years, 2017 will go down as the year when much-tipped bad things didn’t happen. Iron ore prices didn’t collapse and gold prices held up despite US rate rises. At the same time, commodity prices rose across the board, with battery materials leading the way.

Compared with the hard slog that followed the 2011-2012 commodity price collapse, 2017 was as upbeat as they come for junior miners and explorers.

A near-clean sweep of commodity price rises during the year made sure of that, with battery materials leading the way on the back of the electric vehicle revolution.

So it’s no wonder that some Bollinger is being splashed at this year’s festive bashes rather than the Asti Spumante of recent years. And rightly so too.

Like all good years, 2017 will also go down as the year when much tipped bad things didn’t happen. Iron ore didn’t collapse (not for the 62% producers anyway) in response to China’s slowdown and increased supply, and gold prices held together despite US interest rate rises.

Iron ore actually finishes the year ahead of last year’s annual average, while gold in Aussie dollars continues to hold at levels of the past two years of more than $A1600 an ounce (it’s currently $A1650).

For the junior sector, the gold price holding together was of particular importance. While lithium and other battery minerals chasers now number 100 or so on the ASX, gold remains the metal of choice for the junior end.

A feature of 2017 – and one expected to continue in 2018 – was investors embracing the gold juniors as leveraged exposure to the thematic that a half decent mine in Australia produces its gold for $A1000-$A1200 an ounce, giving it a fat margin on year-end prices for gold of $1650 an ounce.

Juniors with rated exploration projects, or advanced exploration projects, found during 2017 that sentiment had swung their way. The phones were ringing, the fundies became interested and the market responded to “good’’ news with a share price reward.

What’s more, the increasingly cashed-up producers became more conscious of their future growth needs, prompting a dive down in to the juniors where a number of strategic equity/joint venture footholds were secured.

Names like St Barbara and Northern Star have been busy in the space. In essence, they have analysed which of the juniors and projects held by juniors have the most upside for them. It could pay to follow them into the junior postions in 2018.

The improved sentiment towards gold exploration equities was why a stock like Draig (DRG) could have been bought back in May when it was mentioned in Resources Rising Stars for 5c. It’s now 24.5c.

Oklo (OKU) was run up the flag pole in May as well when it was 24c. It’s now 42c. And further up the scale, the fatigue evident in Dacian (DCN) in April when it was $1.84 has since been replaced with enthusiasm for first production in 2018. It is now $2.61.

The year also produced some buzz – or amusement depending on one’s view of these things – around the prospect that the Pilbara’s extensive conglomerates beds are an Aussie proxy for South Africa’s Witwatersrand.

The videos, pictures and reports of melon-seed sized nuggets being plucked from the conglomerates after some metal detecting work – all released on the ASX platform, if you don’t mind – fuelled a Pilbara gold boomlet.

The boomlet has run out of puff in recent weeks. The leader of the pack, Canada’s Novo, is down a thumping 38% on its year high. The year ahead will be a critical test of whether the Pilbara nuggets yarn has got legs or not.

Here’s hoping something does come of it as the rush that it triggered has given a big bunch of ASX explorers a point of interest they did not have before.

While the closing months of the year have become a bit of struggle for the Pilbara nugget players – they continue to sport big gains on their 2017 opening prices –that has not been the case for the battery materials space.

But it has been a non-linear year for them. A major disconnect between the ASX valuation of the lithium, graphite and cobalt stocks, and that by the rest of the world, opened up in March-August.

The rest of the world had no doubt that the EV revolution was indeed one of the biggest disruptive industrial events since Henry Ford rolled out his Model T in 1908 and that battery materials would enjoy unprecedented demand growth in the years ahead.

Maybe the disconnect was because Australia doesn’t have a car industry anymore. Whatever the reason, local true believers in the lithium-ion battery fuelled revolution had a picnic between March-August.

Kidman (KDR) was trading at 43c in March as mentioned here. It is now $1.86. Pilbara (PLS) got as low as 38c in August. It is now $1.14. Gains by the established lithium producers have been equally impressive.

And in the graphite space, the king of the ASX graphite stocks, Syrah (SYR), overcame its disconnect, rising from $3 when mentioned here in late February to $4.55 this week.

No doubt there will be some weakness in the knees again in 2018 for the battery materials. But on most assumptions, the supply channels to the battery makers are expected to remain tight for the next couple of years at least.

That augurs well for battery materials’ prices to remain at elevated levels for 2018, with nickel and copper with some catching up to do if the demand requirements for the battery sector for them is to be met.

As it is, nickel is set to close the year 10% higher. Copper – the bellwether metal on the macro factors underpinning mineral commodity prices - is headed for a 27% gain, with the prospect of cohesive global economic growth a bigger factor than the helpful but yet-to-be fully formed demand from the EV revolution.

Elsewhere in the base metals sector, zinc blew everyone’s socks off with its 50%-plus gain on last year’s annual average. The gain was in response to Glencore’s production cutbacks, the retirement of some big name mines and rising consumption.

Glencore has announced the re-start of some of the shuttered production but as would be expected from a commodity trader par excellence, it is being done in a way that has not damaged the zinc price. That’s been good news for the crop of new zinc producers and zinc explorers on the ASX.

Talking about explorers, there is good reason to think that 2018 will deliver a bigger future for the quality explorers out there. And by that, we’re talking about quality projects, backed up by quality people. Some things never change.

The Fraser Range will be in the spotlight in 2018 with the stepped up exploration effort there for the next Nova, as will the Paterson Range for the next Telfer. Sulphide nickel on WA’s nickel belts is set to heat up, and watch out for results from those companies chasing big copper-gold porphyry systems in NSW and in western Victoria.


Barry FitzGerald

One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.

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