Weekly review: big falls for miners drag the market lower

July 2022 market lower miners drag
WEEKLY MARKET REPORT

Chunky share price falls by the big miners forced the Australian share market down on Friday, helping the ASX 200 to a daily fall of 0.7% and a weekly crunch of 1.2%.

However, things could have been worse, with the market at one stage on Friday being down as much as 1.7% before a bit of a comeback by the banks dragged the ASX 200 back up to a fall of 45 points to 6605.6 points.

There was not as much evidence of a recovery for the big miners with BHP (ASX: BHP) closing down 3.8% after Goldman Sachs downgraded the stock to neutral amid a forest of earnings downgrades for the miners.

It was similar picture for the other miners with the materials index down 3.2% as Rio Tinto (ASX: RIO) fell 2.9%, Fortescue (ASX: FMG) fell 6.2%, IGO (ASX: IGO) was off 7.1% while Newcrest (ASX:NCM) lost 2.8% and South32 (ASX: S32) fell 3.7%.

Banks fall but then stage a comeback

The news was better on the other side of the barbell as the banks recovered much of their earlier losses to stage something of a fightback, despite the financials sector losing 0.39% for the day with NAB (ASX: NAB) up 0.53% to $28.45 and Commonwealth (ASX: CBA) also up a smidgeon or 0.05% to close at $93.27.

ANZ (ASX: ANZ) was in the naughty corner with investors with its plans to grow by buying small business software supplier MYOB not finding many fans as the shares fell 1.3% to $21.64.

Elsewhere on the market the search for safety saw rises for the consumer staples, health care, real estate, utilities and information technology sectors counteracting the falls in consumer discretionary, industrial, financial, energy, communications and materials sectors.

Weak Chinese growth doesn’t help miners

Not helping the iron ore miners was a particularly weak GDP result for China of just 0.4% in the June quarter – an unthinkably low rate considering the double-digit gains in recent years.

The only hope now for increases iron ore demand or prices lies with some Chinese stimulus measures.

In market specific share moves, fund manager Pendal (ASX: PDL) put in a shocker, with shares falling 7.8% to $3.76 after it reported an 11.1% fall in funds under management.

This has been something of a recurring theme for fund managers, with loss of market mandates being followed by hefty share market markdowns.

Rising rates, falling dividends pressuring markets

Once again, the fear of sharply rising interest rates as central banks fight inflation was behind a lot of downward pressure with the oft repeated mantra of TINA – there is no alternative to equities – no longer holding water in the US as bond yields become attractive.

Dividends in the US are under pressure as companies face inflation, supply issues and recession fears with the percentage of S&P 500 members with a dividend yield higher than the 10-year US Treasury rate having fallen to the lowest since 2007.

Small cap stock action

The Small Ords index fell 2.04% this week to close at 2711.2 points.

July 2022 XJO small ords
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Revolver Resources (ASX: RRR)

Recent geophysical surveys have identified a new electromagnetic (EM) anomaly below the existing high-grade copper orebody that was previously mined within Revolver Resources Dianne project in Queensland’s far north.

The anomaly is believed to have an identical conductive response to the Dianne copper lens which has been validated by drilling.

Revolver will carry out more ground-based geophysics at the orebody to gather further information about the anomaly’s depth and form.

The discovery of the EM anomaly followed Revolver announcing on Tuesday it had secured an option to purchase two exploration licences that are adjacent to Dianne from Great Southern Mining.

Zelira Therapeutics (ASX: ZLD)

Zelira Therapeutics’ share price rocketed this week after it announced its clinically validated cannabinoid-based drug Zenivol had received formal approval from the German regulatory authority BfArM.

Gaining approval was necessary for Zelira to enter the German market with Zenivol.

According to Zelira, Germany is the largest European market and one of the world’s largest for cannabinoid-based medications.

Zelira’s Germany-based commercialisation partner Adjupharm GmbH will work towards launching Zenivol in the country.

Zenivol is available in Australia and has been designed to treat chronic insomnia, in what Zelira managing director Dr Oludare Odumosu says is a safe and effective manner.

“With formal regulatory approval for Zenivol now received in Germany, we continue to progress activities to licence Zenivol into other global markets,” Dr Odumosu said.

New World Resources (ASX: NWC)

A scoping study has estimated New World Resources’ Antler copper project could generate US$2 billion (A$2.8 billion) in revenue over an initial 10-year mine life.

The study assumes capitate expenditure of US$201 million (A$293 million) would be required to develop the project, with this including US$36.5 million in contingency.

It is expected the mine would produce about 30,600tpa of copper equivalent concentrates, with about 15,350tpa of this pure copper-in-concentrate.

Over the 10-year mine life, about US$952 million in pre-tax free cash flow is forecast, which would equate to about US$135 million annually.

Drilling has continued at the project to build on the November 2021 resource of 7.7Mt at 2.2% copper, 5.3% zinc, 0.9% lead, 28.8 grams per tonne silver and 0.18g/t gold.

Latest assays have revealed more wide and high-grade copper has been intercepted with New World managing director Mike Haynes saying it should have a “materially positive impact” on the mineral resource base and project economics.

Gascoyne Resources (ASX: GCY)

Drilling at Gascoyne Resources’ Dalgaranga gold operation in WA has continued to generate “standout” new intercepts at the Gilbey’s North prospect.

Infill holes have delineated at least two consistent wide zones of high-grade mineralisation up-dip of a hole that hit 54m at 6.55g/t gold.

Notable results were 53m at 3.59g/t gold from 71m, including 9m at 6.8g/t gold; 1m at 72.8g/t gold; and 33m at 2.89g/t gold from 21m, including 6m at 8.3g/t gold.

The mineralisation was encountered at the edge of the main pit within Dalgaranga.

“Recent drilling is starting to show signs that the regional potential could be much bigger than even we could have imagined,” Gascoyne managing director and chief executive officer Simon Lawson said.

Mr Lawson said assays were pending from number of other holes completed at Gilbey’s North.

Taruga Minerals (ASX: TAR)

More “exceptional” REE recoveries have been reported at Taruga Minerals’ Morgan Creek prospect which is part of the Mt Craig project in South Australia.

Ionic adsorption clay-style REE was first confirmed in May at the prospect following metallurgical assessment of 2021 drill samples.

Analysis of a second batch of REE samples increased the average recoveries across both the weathered and fresh ore zones.

During analysis of the second batch total rare earth element oxides increased from 68% TREO in the May scenario to 72% TREO.

Additionally, high value magnetic rare earth element oxides (MREO) were also higher rising from 70% to 75% MREO.

Heavy rare earth element oxides rose from 53% to 62%.

“Our ongoing metallurgical assessment continues to provide strong encouragement for the potential of the REEs at Morgan’s Creek to be susceptible to a simple, low-cost process flow sheet,” Taruga chief executive officer Thomas Line said.

Shekel Brainweigh (ASX: SBW)

Shekel Brainweigh continued its growth trajectory for the half year ended June (H1 FY2022) – posting a 23% rise on H1 FY2021 levels to US$13.1 million (A$19.48 million).

Shekel chairman Arik Schor said the half year result was “really pleasing”, with all sectors of the business seeing growth.

The company’s Healthcare and Retail divisions both recorded double-digit growth figures.

Healthcare rose 33% to US$5.47 million in H1 FY2022, while Retail was up 27% at US$4.89 million.

Shekel general manager Nir Leshem said the company was “especially excited” about the Retail Innovation division’s performance over the period.

This segment expanded 165% on H1 FY2021 levels as demand for the products continues to increase, with orders for Shekel’s smart fridges and autonomous stores rising from US$382,000 in H1 FY2021 to US$1.01 million in H1 FY2022.

Blue Energy (ASX: BLU)

After spudding the Sapphire 5V well on Wednesday, Blue Energy revealed a 98% increase to 2C gas resources to 213.9PJ within its Sapphire Block, which is part of the wider ATP 814 acreage in Queensland’s North Bowen Basin.

Other contingent resources were 1C 154.3PJ gas (up 134%) and 3C 214.4PJ (a rise of 15.2%).

Reserves also increased, with 2P up 13% to 66.5PJ and 3P 17% higher at 253.2PJ.

Additionally, 3P-plus-2C aggregate resources rose 47% to 467.1PJ of recoverable gas.

Spudding of Sapphire 5V is part of Blue’s pilot well drilling campaign at the Sapphire Block that aims to convert existing contingent gas resources to reserves.

The week ahead

That theme of central banks raising interest rates sharply won’t go away, particularly after the Bank of Canada added a full percentage point to its official interest rate.

That move has continued to pile the pressure on the US Federal Reserve, which is now tipped to follow with its own 1% rise in a couple of weeks after a shocking inflation print of 9.1% in June.

CME Group says traders are now betting on an 83% chance of a full point hike for the next Fed meeting – up from zero a month ago.

That same speculation will continue in Australia and this week will be boosted by RBA Governor Dr Philip Lowe in a panel discussion on digital currencies in Bali.

RBA minutes out as officials speak

The minutes of the July 5 RBA board meeting will also be released, adding some detail to the decision to add 0.5% to official rates, taking them to 1.35%.

Then there is an appearance by RBA deputy governor Michelle Bullock who is speaking on how households are placed for interest rate increases, followed by another speech from Dr Lowe in Melbourne.

Other economic events to look out for in Australia include consumer confidence figures, skilled vacancies, labour force figures and purchasing manager indices.

Overseas, things are a bit quieter on the official side in the US and China but there will be a market focus on profit results which are starting to roll out in the US.

That includes results for Citi and Wells Fargo, as well as US retail sales, industrial production and consumer confidence numbers.

From China, the main event will be the setting of loan prime rates, although no change is expected.

This week’s top stocks

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