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Ground Breakers: Lithium, gold and … er … cobalt lead the way as miners look to close week on top

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Lithium and gold stocks were in buying territory this morning, leading the ASX materials sector to a slight lift despite some familiar headwinds for iron ore and base metals plays.

China’s floor space data, a key indicator for the strength of its property construction industry and downstream steel demand again disappointed, down 28% YoY in May and calming a rabid run iron ore has been on amid rumblings of Chinese government stimulus and property market support.

But gold prices rebounded from yesterday’s funk, prompted by some hawkish US Fed commentary, and battery metals stocks bounded forward to lead the resources large caps.

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Pilbara Minerals (ASX:PLS) gained 3.86%, with Liontown Resources (ASX:LTR) hitting a fresh high of $3.02 — around the price it has routinely been rumoured to be looking for if Albemarle lifts its rejected $2.50 takeover offer from March — Northern Star (ASX:NST) up 2.58%, De Grey (ASX:DEG) up 6.67% and a host of other gold miners in fine form.

Coal stocks meanwhile rallied as gas prices in Europe surged on potential supply disruptions. Coal is a switching fuel for gas, benefitting when gas prices lift. Whitehaven (ASX:WHC), New Hope (ASX:NHC) and Stanmore (ASX:SMR) all saw big gains.

Rising far higher was $200 million cobalt stock Jervois (ASX:JRV), which surged higher for the second time in recent months after confirming an agreement for the US Department of Defense to fund US$15 million of drilling and feasibility work to support the construction of a cobalt refinery alongside its Idaho cobalt mine.

A ~32% gain, JRV remains down over 80% over the past year, having suspended construction in Idaho in March after cobalt prices nosedived.

However, it has since secured support from the US DoD, highlighting the stock’s strategic importance to the US as it tries to ramp up its domestic battery supply chain.

Allkem boosts Mt Cattlin life

Allkem (ASX:AKE) last month announced plans to merge with Livent, creating the third largest global lithium producer.

The synergies are obvious in Argentina and Canada, where Livent’s DLE technology and the proximity of the companies’ operations make for easy knitting.

The Mt Cattlin mine in WA was more of an outlier, though the word is Allkem is not planning to shift the old Galaxy asset given it gives the company a toehold in the key West Australian spodumene market.

While most of the mines online in Australia are big chunky beasts, Mt Cattlin is smaller and more difficult, with a history of poor recoveries.

With lithium prices where they have been there have been few concerns, but its does run a shorter life than operations like Pilgangoora, Greenbushes and Wodgina.

To that end a new mining reserve has confirmed a life extension which should keep the mine in operation over the next five years to 2028, while Allkem begins a study on shifting to underground mining once a two-step stage 4 cutback of the open pit at the Ravensthorpe mine is exhausted.

A mining proposal has been submitted, with the first part of the Stage 4 cutback approved, keeping spod flowing through nearby Esperance port until 2026. The proposal is expected to be signed off by WA’s mines department by the end of 2023.

The new ore reserve of 7.8Mt at 1.2% li2O and 130ppm Ta2O5 at a cut off of 0.4% Li2O is 34% higher than the previously posted ore reserve, giving a 4-5 year mine life extension on open pit tonnes.

The underground study will begin in Q1 FY24, with Allkem saying it could unlock greater orebody extension potential to prolong the life of the Mt Cattlin mine.

There’s also a little nugget in the news for observers of the broader lithium market. The pit shell used in Allkem’s reserve classification has been increased from US$650/t to US$1500/t.

Given reserve shells are typically conservative, that gives a sense the market’s big players see spodumene prices staying higher for longer.

Having run to over US$8000/t last year amid a massive lithium shortage and major EV demand growth, the 6% pure lithium concentrate peddled by Aussie producers is now fetching US$3750/t on spot according to price monitors Fastmarkets.

That remains 3-5 times the cost base of West Australian producers — Mt Cattlin, a smaller and higher cost mine than its peers, is expected to hit cash costs of US$950/dmt FOB this financial year — portending massive profit margins.

 

Source: Stockhead

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