24 February 2020
North America: the Australian miners are coming!
The Australian resources industry relationship with North America has gone through three stages.
First, in the 1990s, our juniors were dazzled by the Toronto Stock Exchange and the potential access to quantities of money that were just not available here. The TSX sent a roadshow to Sydney and Melbourne to drum up business, and soon companies were either dual-listing in Canada or moving their domicile there. It worked out well for some.
Then, at about the middle of the first decade of this century, the junior oil and gas stocks were galloping off to Texas, California, Oklahoma, South Dakota and elsewhere.
Typical was a start-up, Louisiana Petroleum; it took over some old wells and listed in 2005, announcing its first production that same year (156 barrels). It was one of many that did not last the distance, eventually becoming gold seeker Explaurum (which itself was taken over last year).
Pryme Oil & Gas declared in 2006 that it was building a world-class oil outfit based in Louisiana and Texas. It didn’t. Its shell now houses Hydrocarbons Dynamics (ASX:HCD) — which is not only still in the oil business but selling its oil extraction technology. On Friday HCD announced it will be working with an Alberta oil producer (30 wells, 2,500 barrels a day) to enhance output by liquefying wax and asphaltene in the oil.
Now we are seeing a third wave of Australians setting up shop in North America, and this time we have not only juniors but some heavy-hitters.
And why at this time? Because, as mentioned previously, the crypto and cannabis bubbles have sucked up all the money; the Toronto listed exploration and mining companies are facing it hard to raise new funds as a result, and the cashed-up Australians are able to pounce on projects that once would not have been available.
Matador Mining (ASX:MZZ) put out a presentation last week regarding its Newfoundland gold project, and also tried to explain the depth of Australian activity of late — in just 18 months, Australian resources companies have spent $3 billion getting set in North America, with $2.21 billion of that coming from just three players.
We’ve seen Northern Star (ASX:NST) outlay $347 million for the Pogo gold mine in Alaska, Newcrest Mining (ASX:NCM) $1.1 billion for 70% of the Red Chris mine in British Columbia, and St Barbara (ASX:SBM) $768 million for Atlantic Gold’s mine in Nova Scotia.
There’s also a queue of juniors picking up speed in North America.
Vital Metals (ASX:VML) last week reported what it described as ultra-high grades of rare earths at its Nechalacho rare earths project in Canada’s Northwest Territories. Managing director Geoff Atkins described the grades as exceptional, with up to 8.1% of battery elements neodymium/praseodymium. Remember, Washington is looking for potential rare earths sources outside China. Canada is comfortingly close to home for the Americans. We also have Broken Hill Prospecting (ASX:BPL) with the La Paz rare earth project — fortunately not in Bolivia but in the much safer Nevada.
Just a short drive from Mariposa near where gold was discovered in 1849 and which find set off the famed California rush, junior explorer Platina Resources (ASX:PGM) has struck wide zones of zinc, gold, and silver mineralisation. The most recent drilling produced some reasonably heady results, including 19.58 metres at 8.41% zinc, along with respectable grades of copper, gold and silver.
Measuring up the lithium challenge
Another North American player is Sayona Mining (ASX:SYA) with its Authier lithium project in Quebec.
Last week managing director Brett Lynch, who has been in the job now for six months, showed he had taken a good look at Authier — another sign that lithium players are now putting the disruptions to prices and investor enthusiasm behind them and finding a road ahead in the battery market.
First, the trend is clear. Britain has brought forward the phasing out of diesel and petrol cars, BMW has committed to a spend of $870 million to source lithium hydroxide from hard rock mines in Western Australia, and the Office of the Chief Economist in Canberra estimates lithium consumption is growing at 20% a year.
Lynch recognises that Quebec has seen poor management and high costs in the province’s lithium sector (witness the shuttering of the Nemaska and North American Lithium(NAL) mines), and he plans to change that. Sayona has entered a bid for NAL as part of a plan to establish a complete lithium value chain, from mining to downstream processing.
This would include a world-scale lithium hydroxide plant and developing markets in Europe and the US (the latter including Tesla’s battery Gigafactory.
What, copper too?
Investors have had to master one tech metal story after another — rare earths, graphite, cobalt, graphite, and most recently lithium.
Wait a moment, says Comet Resources (ASX:CRL). Having been working on its graphite project near Esperance, the junior (which closed Friday at 2.4c) now plans to acquire a copper target near Tamworth, NSW.
Comet’s pitch is that copper is a major beneficiary of the whole emissions reductions drive.
Battery-powered electric vehicles use more than four times as much copper as cars with internal combustion engines, the red metal being used in the motor windings of EVs; there will be 230 models of electric vehicles by 2021; wind and solar uses up to 37 more times copper than conventional power generation — and not enough copper is being discovered to meet the demand (with supply being enough to fill only 72% of demand by 2030, according to S&P Global Market Intelligence).
Uranium hopefuls lying low — for now
Liechtenstein — 301 years old last month — is Europe’s richest country with the highest per capita income and lowest corporate tax rate.
Incrementum is a wealth management company based there. They are noted for their annual In Gold We Trust report. Gold is one of their points of focus — and don’t get them started on the perfidies of the world’s central banks. Long story short, when the money printing bubble is pricked better have some gold tucked away somewhere (gold stocks, not so much).
Every so often the firm puts on a roundtable discussion looking at where and when the global financial system is likely to implode. In the latest one, this familiar topic was probed yet again, but there was an interesting aside from one of the experts, Christian Scharer.
His theory: many investors concerned with environmental and social issues avoid uranium because, in their view, running a nuclear power plant is a dangerous thing. But Scharer argues that nuclear power could be the technology to provide base load power to replace coal. In other words, nuclear would undermine the arguments of those who say that modern economies have to keep coal because they cannot yet rely on renewables; it also assuages the consciences of the anti-coal crowd.
He says India and China pressing ahead with nuclear actually paints a great future for uranium. Meanwhile, most of our uranium hopefuls are still waiting for the promised price rebound — that wait being nine years and counting.
Gold to fall to US$1400/oz? Really?
The prices of gold and silver rose 20% and 15% respectively in 2019. But Capital Economics argues that if (and, boy, is this a big “if”) the Covid-19 virus is subdued in the short term, industrial production will pick up — and that will lift silver prices more than gold ones, because more than 50% of silver goes into industrial uses and gold has few industrial applications. And, if the virus miracle cure happens, the demand for gold will drop. Well, we’ll see.
But Capital’s commodity economist Alexander Kozul-Wright has really stuck his neck out. He expects the gold price to fall to US$1,400/oz. This after that big leap on Friday with the spot market at the weekend closing at US$1,645/oz, a seven-year high. (And remember this is with the US dollar booming — normally, in that case you would expect the gold price to fall).
A few years ago I wrote a little book, Gold Always Wins, which detailed all the forecasts since the gold recovery began about 2003 that predicted an imminent gold bust. And here we are today at an Australian gold price a shade below $2,500/oz.
Meanwhile, Far East Capital in Sydney notes two more companies are knocking on the door of the million-ounce club. They are Apollo Consolidated (ASX:AOP), with its three deposits 150km from Kalgoorlie now holding 1.035 million ounces at an average grade of 1.2 grams a tonne, and Kin Mining (ASX:KIN) whose project near Leonora now holds 945,000oz at 1.4g/t. Far East’s Warwick Grigor adds the caveat that Kin’s resource is from six different locations; but, as the explorer did its pit development figures at a gold price of A$2,000/oz, it clearly has some wiggle room now.