ASX Today — Live ASX News | XJO Recovers, Gold Jumps, US Stocks Rally

What a time to release a DFS!

On Friday after market close, lithium developer Sayona Mining (ASX:SYA) released its definitive feasibility study for the combined North American Lithium (NAL) operation and the nearby Authier Lithium project in Quebec.

The after-tax net present value came in at around $1.6 billion. Sayona currently trades at a market cap of about $1.7 billion.

The life of the mine shrank to 20 years. A prefeasibility study released in 2022 pinned the life of mine at 27 years.

Total cash costs also rose from C$609/t to C$817/t.

$SYA $SYA.AX released a DFS for its Quebec NAL operation and the nearby Authier #lithium project.

The DFS pins NAL and Authier's pre-tax NPV at A$2.2b (8% discount rate) and an after-tax NPV of ~A$1.6b. $SYA trades at a market cap of A$1.7b. #ASX #Sayona pic.twitter.com/B2aIplAH4m

— Fat Tail Daily (@FatTailDaily) April 14, 2023

Singapore has joined the likes of Australia and Canada in pausing monetary tightening.

The Monetary Authority of Singapore (MAS) unexpectedly left its policy unchanged after five consecutive tightening moves since October 2021, arguing the tightening underway already is enough to slow inflation.

Unlike most of its peers, Singapore’s central bank uses the exchange rate to stabilise price, rather than interest rates.

The decision coincided with the release of Singapore’s latest quarterly GDP data, which showed feeble growth of 0.1%, well down on the 2.1% growth in the previous quarter.

On a quarter-on-quarter seasonally-adjusted basis, Singapore’s economy contracted 0.7%.

Source: MAS

In a statement, the MAS said:

‘There are both upside and downside risks to inflation. Fresh shocks to global commodity prices could impart additional inflationary pressures. However, a sharper-than-expected downturn in the advanced economies could induce a general easing of inflationary pressures.

‘Singapore’s GDP growth is projected to be below trend this year. With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated. While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’ monetary policy tightening are still working through the economy and should dampen inflation further.

‘With imported inflation turning more negative and core inflation expected to ease materially by end-2023, MAS has assessed that the current appreciating path of the S$NEER policy band is sufficiently tight and appropriate for securing medium-term price stability.’

Bloomberg Economics’s Tamara Mast Henderson thinks MAS is bracing for a ‘sharp global slowdown’:

‘MAS’s hold on policy suggests it’s bracing for a sharp global slowdown. If growth and core inflation in the city state slow significantly in the second half of the year — as the central bank forecasts — the conditions may be in place for it to ease at its next meeting in October.’

‘US stocks jump as investors bet on slowing interest rates’.

‘Stocks gain, gold jumps as Fed rate hike pause seen’.

‘Nasdaq jumps 2% after signs of easing inflation’.

That’s some of the headlines from the holy trinity — WSJ, FT, and Bloomberg.

Source: Financial Times

But do these headlines make sense?

Why are stocks rallying on bets interest rates will slow or even fall in 2023? Surely the reason why interest rates are set to slow or fall later this year aren’t positive for earnings — and stock prices.

Our editorial director Greg Canavan thinks the rally is shortsighted, writing in the Insider:

‘So, I’m not reading anything into this latest rally, other than to say it’s just another attempt by investors to see the end of the rate cutting cycle as a reason to buy stocks.

‘On the other side of the same coin, it’s just the latest swing in sentiment from bearish (following last month’s banking issues) back to bullish. You can see that in the CNN Fear and Greed Index, which is now back in ‘greed’.

‘But the bigger point here is that this rally is built on flimsy expectations of lower rates ahead, without considering the ‘why’ or the low likelihood of those expectations playing out.

‘The safest way to insulate yourself from these short-term investor whims is to focus on companies that represent good value no matter the short-term outlook. But the reality is that these values become compelling when investor sentiment is at its worst.

‘Conversely, they are less attractive when sentiment is bullish, like now. However, if you look hard enough, you can usually find good value somewhere.’

Last week, I talked about how rumours of a Chinese export ban may spur a rare earths boom.

Well, in the span of just eight days, it seems as though the boom is already underway…

Despite no confirmation from China regarding the potential ban just yet, investors aren’t waiting around to find out the hard way. They’re already piling into a handful of local explorers in the hopes of building out a rare earths supply chain free from China’s whims.

As our own resources minister, Madeline King, confirmed yesterday:

‘“China enjoys an unchallenged position across many aspects of the global critical minerals market, having invested in its sector for decades,” she said.

‘King said “likeminded partners” can work together to build sustainable supply chains and hedge against such concentration.

‘She also acknowledged “the leadership and foresight” of the US and Japan, with both countries becoming key investors in Lynas Rare Earths, which is the only major rare earths producer outside China.’

As I explained last week, Lynas was one of the lucky rare earth players to survive the last bubble…now they’re one of the most important mining companies in the world, thanks to these geopolitical games.

But the real winners this week have been the up-and-coming rare earth explorers…

Arafura Rare Earths [ASX:ARU] and Australian Rare Earths [ASX:AR3] are two standout stocks this week. Because while everyone else is worrying about inflation, these two rare earth explorers have been making major moves.

The bigger of the two, Arafura, is, in fact, well on its way to challenging Lynas’s title as the sole producer outside of China. Just more than two weeks ago, it received a conditional loan of US$600 million from German insurer Euler Hermes Aktiengesellschaft.

That money will help the company bring its Nolans project online and help supply the world with more rare earth materials. The only catch is that Arafura had to enter some off-take agreements with German companies in desperate need of these critical minerals.

Well, as of this Tuesday, that’s exactly what they’ve done.

You can read about the details of the deal here. But the long and short of it is that Arafura has agreed to supply a global wind turbine manufacturer. And with this agreement in place, the Nolans project has now locked in roughly 53% of its targeted output in offtake deals.

A big win for a rare earths company on the rise.

But it wasn’t the only rare earths stock making moves this week.

The much smaller but no less exciting AR3 has had big news to share recently as well. Management announced some exciting updates to its Koppamurra project last week. And while the announcement didn’t make many waves initially, once the story was picked up and covered in The Australian over the Easter weekend, it sent the stock soaring on Tuesday’s market open.

From trading at just 26 cents per share at the close of last Thursday, AR3 shares are now sitting at 50 cents per share.

https://www.moneymorning.com.au/20230414/junior-rare-earth-miners-win-big-as-geopolitics-fuels-scarcity.html

Battery metals producer IGO (ASX:IGO) is up 4.5% at midday trade after securing land from the Western Australian government for its planned Integrated Battery Material Facility (IBM Facility).

In conjunction with Wyloo Metals, IGO is nearing a financial investment decision to develop the project.

With the IBM Facility, IGO aims to integrate a downstream nickel refinery with a plant producing nickel-dominant precursor cathode active material — or PCAM.

IGO said the IBM Facility would be the first commercial production of PCAM in Australia.

The secured land sits adjacent to the Kwinana lithium hydroxide refinery, a joint venture between IGO and Tianqi Lithium.

The cost of buying insurance against a US government default has jumped to its highest level in over a decade, a sign markets are wary about the impasse in Washington over the debt ceiling.

The question of raising the US federal borrowing limit is yet to find a resolution and the political stalemate is spilling into the financial markets.

The price of five-year credit default swaps hit its highest level since 2012 in April.

A default on US federal debt is unlikely, of course, but investors are protecting against this ‘black swan’ risk nonetheless.

JPMorgan’s head of interest rate strategy told FT concerns about a default are rising: “We think this is going to be a pretty protracted debt ceiling fight.”

Source: Financial Times

In a press conference back in February, Federal Reserve chairman Jerome Powell said ‘there’s only one way forward here and that’s for Congress to raise the debt ceiling so that the United States can pay all of its obligations when due.’

Our commodities expert James Cooper, a former geologist, recently shared details on how investors can capitalise on what he sees as a coming copper boom in a Livewire piece.

Here is an extract:

Turn your mind back to early 2023 and copper was a dominant theme in financial markets. China’s reopening sparked a flurry of interest. After a disappointing year, producers were setting up for a major surge as the global economy suddenly hit the panic button on supply.

Overnight, financial commentators had become expert copper analysts, giving their take on why the metal was set to hit new highs.

Headlines were suddenly hit with copper supply tightness and soaring demand outlooks. But as rapidly as these stories emerged, just as quickly, they evaporated from the mainstream press.

Revised growth forecasts in China to just 5% GDP, the lowest in a quarter of a century, meant copper interest faded to the background.

No doubt, a banking collapse in the US didn’t help either! But lack of mainstream interest should not dissuade you from the potential opportunity. In fact, it’s a key reason you should be looking at this critical metal.

As readers of my Diggers and Drillers publication would know, copper has been a longstanding theme. We remain on the hunt for quality opportunities and rare buying opportunities. The reason?

It all boils down to future SUPPLY.

As the Canadian billionaire mining magnate and CEO of the Ivanhoe Mines [TSE:IVN] puts it, the outlook for copper rests on one-third demand and two-thirds supply.

Supply (or lack of it) will be the primary driving force behind what I believe will be a new copper boom, one that could rival perhaps the largest ever recorded…

That was way back during the US Civil War, more than 160 years ago, when copper reached a staggering $8 a pound!

South America is the backbone of global production. However, threats continue to emerge, which are dampening the production outlook for key mines across the region. Neglect to invest in new projects, including exploration, means ageing mines are being pushed past their use-by date.

Large miners have focused more on shoving low-grade marginal ore and waste material through processing plants, rather than spending capital on finding new high-grade deposits.

The effects of the last commodity cycle — from extreme peak to low — continue to play on the minds of mining executives who remain averse to risk. But that will come at a major cost…mines are a depleting asset.

As commodity prices rise and decade-old mines finally expire, mining giants will be forced into a fierce bidding war to secure the next generation of deposits.

You can read the full piece here.

Overnight, the US producer price index for final demand fell 0.5% in March, the most since April 2020.

That follows the latest CPI print, which showed headline inflation cooled more than expected.

It seems the tide is turning in the battle against inflation — the economy is slowing down.

Source: Reuters

That’s stirred a rally in US stocks overnight, with the tech-heavy Nasdaq closing 2% higher.

But gold is surging, too.

Gold hit a 13-month high and is just US$30 shy of its record peak.

But if inflation is easing, why is gold spiking?

The Wall Street Journal reported that gold’s move suggests the market is betting on the Fed to cut rates well before it achieves its inflation target. That could lead to entrenched inflation, a boon for gold, often perceived as a hedge against rising prices:

‘The rising gold price shows investors are wagering that the Federal Reserve will pull back from its rate-hiking campaign even with inflation readings well above the central bank’s 2% target. That in turn is born from concerns that the economy might be weaker than it seems. Though the labor market remains strong, last month’s banking crisis jolted worries that the economy remains vulnerable to even short-term headwinds.

‘A reversal by the Fed could result in higher inflation becoming embedded in the economy in coming years, analysts say, creating an environment that favors higher gold prices.’

Source: WSJ