EDITOR: | June 16th, 2014

Signs of interest stirring in strategic metals as smart money places bets

| June 16, 2014 | No Comments

Connecting-the-DotsBig money is clearly looking beyond the current commodities malaise to long term supply needs. Perhaps they, like Copenhagen-based Danske Bank, are joining the dots.

For “Connecting the Dots” is the title of the bank’s latest note in which they see tail risks in the global economy and financial markets generally having come down a lot and — note this — may be the lowest in a very long time. (My italics)

As Danske said, the several bouts of emerging markets turmoil have been replaced by positive stories of Chinese recovery, reform optimism in India, and a reduction in imbalances in india and Indonesia as a result of weaker currencies and restraint on domestic demand. Danske says the moderate Chinese recovery has lessened the chances of a hard landing there.

I am not saying I buy this argument (certainly in terms of the degree of optimism) but it may be that a number of fund managers and commodity traders have bought the argument, and combined that with the knowledge of supply constraints in coming years. After all, you would have to be looking very long term at present given the negative indicators: the weakening price of iron ore, gold sluggish, and base metals looking very patch indeed.

Yet the examples below suggest that interest is picking up within the niche sectors covered by Investor Intel.

The rare earths sector is seen by some commentators (not us!) as dead on its feet. Yet today we see sophisticated investors and institutions pumping another A$10.4 million in Alkane Resources for for its Dubbo zirconium-niobium-rare earths projects. Three Quebec institutions have signed off on convertible debentures worth $4.15 million for Mason Graphite. Potash developer, the Australia-based Highfield Resources, is to bank A$32 million more toward its Spanish efforts.

Last week Chinese investors paid A$11 million for new shares in Cauldron Energy (ASX:CXU) which has the Yanrey uranium project in Western Australia and a uranium-copper-silver target in Argentina (a country, as I have previously pointed out, is committed to developing nuclear power). In another development during the week, an arm of Boston-based Denham Capital, which has $7.9 billion invested in energy and mining projects, decided to part with A$20 million to take a 50% stake in the Panda niobium project in Tanzania in partnership with Cradle Resources (ASX:CXX). Meanwhile, Vietnam-based ferrotungsten producer Hazelwood Resources (ASX:HAZ) last month secured a $US4m loan facility with a resource investment fund. Last week a foreign-owned Vietnam country fund injected another $500,000 into HAZ to help the company buy tungsten feedstock.

But here’s the most extraordinary case which lends some credence that excitement is coming back into the commodities sector. Four weeks ago a new company, Fifth Element Resources (ASX:FTH) listed on the Australian stock exchange after raising a modest A$3.7 million through its initial public offering. There has been no announcement of note since then (other than those satisfying listing requirements) yet the the stock has gone from A20c four weeks ago to A$1.36 today (Monday). Normally in such a situation we would see those who bought low now walking away, counting their winnings and having a quiet smile. But in this case all the sell orders have disappeared. You certainly do not associate this type of event with a market in the doldrums.

Yes, the instances above of sophisticated may be nothing other than moves that have their own rationale and are nothing to do with smart money getting set before the market moves.

And it may be that Danske Bank’s chief analyst Allan von Mehren and his team have grasped the wrong end of the economic stick..

However, it might be wise to keep these developments in the back of the mind as the market reshapes itself. Time to sniff the wind.


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