Lithium Surges While Gold Treads Water
Gold continues its recent pattern of tantalizing investors, only to disappoint—a pattern that was on full display last week.
After creeping steadily higher from its late-September low of $1,720 an ounce and reaching a six-week high of $1,810 earlier last week, the yellow metal reversed course at the week’s end. A resurgent dollar and higher Treasury yields were blamed for the sharp drop in the December gold futures contract on Friday.
Gold’s failure to follow through with its short-term rising trend was discouraging, yet gold still managed to provide a glimmer of hope by refusing to close under its key 50-day moving average on a weekly basis. So, despite the latest setback, gold’s intermediate-term (3-6 month) lateral trend remains intact for now as prices continue to tread water on an intermediate basis.
The sideways trend in gold could be challenged, however, by the FOMC’s policy meeting in the next couple of days. Two Fed governors recently said the central bank’s timing for raising the benchmark fed funds rate could be moved forward in the face of rising inflation. Aside from briefly roiling the gold market, the statement also gave equity investors pause to consider that the days of easy gains in the stock market could be numbered.
According to reports, Fed tapering could start as soon as mid-November or December. CNBC observed that when the tapering begins, “The Fed would reduce the $120 billion a month in bond buys slowly,” adding that the minutes indicated “the central bank probably [could] start by cutting $10 billion a month in Treasuries and $5 billion a month in mortgage-backed securities.” At the present time, the Fed is purchasing at least $80 billion in Treasuries and $40 billion in mortgage-backed securities.
But while certain Fed members have sounded a decidedly hawkish tone lately, neither the stock market nor the corporate bond market appear to be concerned about the prospect for higher rates. Gold investors, by contrast, are hyper-sensitive when it comes to Fed policy and appear to be holding their collective breath for this Wednesday’s policy announcement before placing any new big bets on the metal. Until then, the waiting game continues.
While gold languishes in a trading range, lithium has once again taken a commanding lead over other the metals covered in this report. Lithium carbonate prices have rallied to fresh record highs, thanks to growing demand for electric vehicles (EVs) and tightening supplies.
A recent research report from metals analysts at Bank of America revealed that the global EV industry faces an “imminent threat” that lithium-ion battery supplies could run out as soon as 2025. The report provided an additional element of urgency to the market and sparked a notable rally in the stocks of several major lithium producers, boosting our holding in Livent (LTHM, see portfolio section below).
So while we wait for the directionless trend in gold to resolve itself, we can at least console ourselves that the silvery battery metal is providing us with some worthwhile action.
Updates
Alliance Resource Partners (ARLP) is a metallurgical coal mining complex operator with approximately 1.7 billion tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia, making it the second-largest coal producer in the eastern U.S. Alliance produces a diverse range of metallurgical coal with varying sulfur and heat contents, enabling the company to satisfy the broad range of specifications required by steelmaking and thermal customers. The company also generates royalty income from mineral interests in premier oil and gas producing regions in the U.S., primarily the Anadarko, Permian, Williston and Appalachian basins. Last week, the company released third-quarter results which saw revenue increase 17% while earnings more than doubled to 44 cents per share, beating estimates by 8 cents. Coal volumes rose 10%, and management pointed to “extremely strong” U.S. coal demand. (On a related note, Bloomberg reported last week that U.S. coal stockpiles at utilities fell to their lowest level since 1997.) Soaring natural gas prices have also helped boost coal’s demand profile as an alternate fuel source. I recommend using a level slightly under 10.50 (closing basis) as the initial stop loss for this recently initiated trading position. BUY A HALF
With tin remaining in a position of strength, I recently placed Alphamin Resources (AFMJF) on a buy. Mauritius-based Alphamin explores and develops mineral properties and is a low-cost producer of tin concentrate from its high-grade deposit, Mpama North, part of the Bisie Tin Project in the Democratic Republic of Congo. (Mpama North is the world’s highest-grade tin resource—about four times higher than most other operating tin mines in the world—allowing Alphamin to produce 3% of tin produced globally.) Alphamin also mines and sells tin from its North Kivu mine, producing nearly 10,000 tons of tin annually. While Alphamin is recognized as a promising tin producer, it flies largely under the radar among mining stock analysts right now. Total revenues for 2021 are projected to be around $310 million, up 66% from a year ago. Participants purchased conservative position in AFMJF on October 7 using a level slightly under 58 cents as the initial stop-loss. I suggested taking a bit of profit last week after the stock’s 12% rally and raising the stop to slightly under 65 cents. I now suggest further raising the stop to slightly under 70 cents (around the 25-day line). HOLD
One uranium player showing promise from an intermediate-term standpoint is Denison Mines (DNN), a Canada-based uranium exploration, development and production company. Denison’s flagship project at Wheeler River, which has two high-grade uranium deposits, Phoenix and Gryphon. Phoenix is believed to possess the lowest production costs of any undeveloped uranium deposit, with all-in sustaining costs of $8.90 per pound (compared with current prices of around $32) and operating costs of just $3.33 per pound. All-in sustaining costs for Gryphon, meanwhile, are also a below-market $22.82 per pound, with a combined 109 pounds of probable reserves and a 14-year mine life. Additionally, Denison recently agreed to acquire a 50% stake in the JCU Exploration Company from UEX Corp. JCU holds a portfolio of 12 uranium project joint venture interests in Canada, and the acquisition is expected to allow Denison to not only increase its indirect ownership of its flagship Wheeler River project, but also to expand its asset base to include additional important Canadian uranium development projects such as Millennium and Kiggavik. Denison is admittedly speculative, but with physical uranium supplies getting tighter thanks to the recent decision of the world’s largest uranium producer, Kazatomprom, to limit production in 2022 and 2023—and with the Sprott Physical Uranium Trust gobbling up uranium on the spot market—the stock looks to be in a good position to continue a turnaround that began last year. Investors purchased a conservative position in DNN last month with a level around 1.40 as the initial stop-loss. After the recent 15% rally, I also advised taking some profit and raising the stop on the remaining position to slightly under 1.50 on a closing basis. Earnings are due out Thursday. HOLD
With our favorite gold-tracking ETF, the GraniteShares Gold Trust (BAR), showing signs of life last month, I recommended doing some nibbling in the event gold prices surge ahead in the coming weeks on mounting inflation fears. To that end, participants purchased a conservative position in BAR on October 13 using a level slightly under 17.35 as the initial stop-loss (intraday basis). Let’s stand pat for now. HOLD
I also placed the ADR for Glencore PLC (GLNCY) on a buy last week after its recent show of strength. Glencore is the well-known multinational commodity trading and producing firm, with exposure to oil and gas, minerals like coal, ag commodities and metals like copper, zinc and nickel. In other words, it’s an across-the-board natural resource play and, as such, allows investors to capitalize on broad commodity market strength. Recent strength in the energy sector is responsible for much of Glencore’s outperformance vis-à-vis more metal-focused stocks, but its industrial metals business is also doing well. (Glencore’s CEO recently told the Qatar Economic Forum that world copper supplies need to double by 2050 in order to meet the growing demand for renewable energy, and the firm is well positioned to benefit from this demand explosion.) Analysts anticipate 47% revenue growth for the full year. Participants bought a conservative position in GLNCY last week using a level slightly under 8.75 as the initial stop-loss. I suggest raising the stop-loss to slightly under 9.50 (closing basis) after the strong rally in the last few days. BUY A HALF
Livent Corp. (LTHM) is the largest U.S. lithium-only miner, providing a range of lithium-based products and serving the EV, chemical, aerospace and pharmaceutical industries. Revenue and earnings projections for Livent are strongly optimistic for the next several years, with analysts expecting top-line growth of 34% this year and around 20% next year, while earnings are projected to grow at an even faster pace. Participants on October 13 bought a conservative position in LTHM using a level slightly under 22.25 as the initial stop-loss. Earnings are due out on Thursday. BUY A HALF
We recently added Taseko Mines (TGB) after the stock broke above the 2 level. Canada-based Taseko is known mainly for being a mid-tier copper miner that operates the Gibraltar Mine, Canada’s second largest open-pit copper mine. Taseko produces more than just copper, though, and the Gibraltar mine boasts proven reserves of 53 million pounds of molybdenum. Located in south-central British Columbia, Gibraltar has an estimated 18-year mine life and is located in a mining-friendly, low-risk jurisdiction. When the company reports third-quarter results on November 3, analysts expect excellent production increases for both copper and molybdenum at the Gibraltar mine. Management said Gibraltar produced 36 million pounds of copper and 600,000 pounds of molybdenum in Q3, up 29% and 50%, respectively, on a sequential basis. Management added that Taseko is “well positioned for the year ahead as mining operations are smoothly transitioning into the Gibraltar pit, where grade is meeting expectations and the mills are efficiently processing the new ore.” After the recent 12% rally in TGB, I recommended taking some profit in TGB and raising the stop-loss to slightly under 2 (the original entry point) on an intraday basis. I suggest maintaining this stop for now. Earnings are due out on Wednesday. HOLD
Teck Resources (TECK) is one of the world’s largest copper producers and is also the second-largest seaborne exporter of coking coal, with four operations in Western Canada and significant high-quality steelmaking coal reserves. Going forward, Teck plans to double its copper production in the next two years, seeing demand for the metal dramatically increasing from the white-hot electric vehicle industry. A major Wall Street institution agrees, estimating Teck’s copper production will more than double from its “transformational” QB2 project (one of the world’s largest underdeveloped copper resources) in top producer Chile. In Q3, Teck handily beat analysts’ expectations for both earnings and revenue, driven by higher prices for metallurgical coal, with average realized coal prices more than doubling from a year ago. Copper prices jumped 43% and production for the red metal rose over 4%. Revenue of nearly C$4 billion was 73% higher from the year-ago quarter, while per-share earnings of $1.52 beat the consensus by 28%. Investors did some nibbling in the stock last month using a suggested initial stop-loss slightly under 24. Last week, I suggested raising the stop to slightly under 26 on a closing basis after the recent rally (maintain that stop for now). BUY A HALF
New Positions
Ryerson Holding (RYI) is a leading value-added distributor and processor of industrial metals, including stainless, aluminum, carbon and alloys. Most of its customers operate in the metals fabrication with exposure to electric vehicles, e-commerce logistics, automation and other industries. Aside from being an indirect play on the steel industry, Ryerson is also an infrastructure spending play. The company posted revenue of $1.4 billion in Q2, an 84% increase compared to the comparable 2020 quarter, while per-share earnings of $1.24 beat the consensus by 54 cents. When the firm releases Q3 results on November 4, analysts expect top-line growth of 85% with the bottom line anticipated to rise to $1.75 per share (up 41% sequentially). The company also recently announced the authorization of a $50 million, two-year share repurchase program and a quarterly cash dividend of 8 cents per share.
What to Do Now
Investors can purchase a conservative position in RYI here using a level slightly under 23 as the initial stop-loss on a closing basis. BUY A HALF
Portfolio
| Stock | Price Bought | Date Bought | Price 11/2/21 | Profit | Rating |
| Alliance Resource Partners (ARLP) | 12 | 10/13/21 | 11 | -4% | Buy a Half |
| Alphamin Resources (AFMJF) | 0.73 | 10/8/21 | 0.73 | 0% | Hold |
| Dennison Mines (DNN) | 1.65 | 10/19/21 | 1.74 | 5% | Hold |
| Glencore PLC ADR (GLNCY) | 9.64 | 10/8/21 | 10 | -1% | Buy a Half |
| GraniteShares Gold Trust (BAR) | 18 | 10/13/21 | 18 | 0% | Hold |
| Livent Corp. (LTHM) | 26 | 10/13/21 | 30 | 15% | Buy a Half |
| Ryerson Holding (RYI) | New Buy | - | - | - | Buy a Half |
| Taseko Mines (TGB) | 2.05 | 10/12/21 | 2.16 | 5% | Hold |
| Teck Resources (TECK) | 28 | 10/12/21 | 27.89 | 1% | Buy a Half |
Buy means purchase a position at or around current prices.
Buy a Quarter/Half means allocate less of your portfolio to a position than you normally would (due to risk factors).
Hold means maintain existing position; don’t add to it by buying more, but don’t sell.
Sell means to liquidate the entire (or remaining) position.
Sell a Quarter/Half means take partial profits, either 25% or 50%.