Weekly review: market overcomes gloom with a solid week of rises

The Australian share market surfed home on the top of gains on Wall Street and stronger mining shares overcame concerns about the war in Ukraine.

The ASX 200 rose by 0.3% or 19.14 points to close on 7406.20 points to finish the week 1.5% higher.

Other than the big miners, share in utilities and real estate stocks surged higher as CapVest won approval from the Foreign Investment Review Board (FIRB) to take over Virtus Health (ASX: VRT).

Online sales strong but CBD stores still struggling

In one of the more interesting results Premier Retail (ASX: PMV) chief executive Richard Murray announced some fairly mixed numbers from the owner of retail chains including Peter Alexander, Just Jeans and Smiggle.

As you might expect given substantial COVID-19 lockdowns, online sales were very strong, but sales from retail stores suffered.

With thousand of days of lost trade, profits were down by 13% to $163 million for the six months to December, but shareholders were still treated to a bumper interim dividend of $0.46 a share, up from $0.34 a year ago and payable on 27 July.

The higher pay-out was justified by strong growth in the company’s key brands although Mr Murray admitted trade in bricks and mortar stores remained uneven, with shopping in major CBD locations subdued as workers were slowly trickling back to offices.

Supply chain pressures were also being felt across the different brands and could result in price rises in some areas but work was continuing to avoid that outcome.

Big dividend payments set to boost market

Some of the market optimism reflects bumper dividend payments about to be made, with many expected to be ploughed back into the share market.

An estimated $36.3 billion of dividends are expected to be paid out in March and April, with the bulk of that happening next week when BHP (ASX: BHP) credits shareholder accounts with one of the world’s largest dividends.

There was a bit of an investor switch out of banks and into resources with the financials sector losing 0.5% and the materials and energy sectors up 1.3% and 0.9% respectively.

Small cap stock action

The Small Ords index climbed 1.5% for the week to close on 3330.4 points.

Small cap companies making headlines this week were:

Eclipse Metals (ASX: EPM)

The multi-commodity potential of Eclipse Metals’ Ivittuut project in Greenland has been highlighted further with anomalous lithium and rare earths identified in final assays from grab samples collected from the Ivigtut and Gronnedal-Ika prospects.

On Thursday, the company revealed final laboratory assays had returned up to 4.66% total rare earth oxide in carbonatite samples.

This followed the company announcing earlier in the week it had identified up to 430ppm lithium at the project.

Eclipse plans to chase up these rare earth and lithium results with more sampling and drilling.

Gateway Mining (ASX: GML)

A major 22,000m drilling program is underway at Gateway Mining’s Gidgee gold project in WA’s Murchison.

Of this, 16,000m of aircore drilling will be completed to extend the known strike at the Julias discovery and explore the Flametree target.

Once the 16,000m is complete, Gateway will undertake 6,000m of reverse circulation drilling at Julias to test along strike of recent results that included: 11m at 2.6g/t gold from 24m; 10m at 3g/t gold from 38m; 9m at 3.5g/t gold from 67m; and 9m at 3.4g/t gold from 55m.

Galan Lithium (ASX: GLN)

Soil and rock chip sampling at Galan Lithium’s 80%-owned Greenbushes South lithium project has provided “encouraging results”.

The company noted that tracing elements were found within the Donnybrook sheer zone, indicating it may host lithium pegmatites the same as those found at the neighbouring world renowned Greenbushes mine.

Galan is awaiting data and interpretation from a recently completed airborne geophysical survey over the project.

Over in Argentina, Galan’s flagship Hombre Muerto West and nearby Candelas projects have been given a lift with South Korean steel-giant Posco revealing it was investing US$4 billion into developing its nearby lithium brine asset.

Incannex Healthcare (ASX: IHL)

In a bid to establish itself as a leading entity in the fields of cannabinoid, psychedelic and combination pharmaceuticals, Incannex is acquiring APIRx Pharmaceuticals for US$93 million in scrip.

APIRx has 22 active clinical and pre-clinical research and development projects, as well as an extensive IP portfolio of 19 granted patents and a further 23 pending.

The projects are progressing therapeutics for a range of conditions such as pain, dementia, gastrointestinal disease, periodontitis and addiction disorders.

Incannex managing director Joel Latham said the acquisition would bolster the company’s position in the medicinal cannabis sector.

Riversgold (ASX: RGL)

High-grade lithium has been identified at Riversgold’s Tambourah project in Western Australia’s Pilbara.

Riversgold has received assays from a recent rock chip sampling program at the project with results returning between 1.5% lithium and 2% lithium.

Chief executive officer Julian Ford said the rock chip results were “highly encouraging” especially as they were only collected from a 200m section of what is potentially a 26km-long mineralised corridor within the project.

“More material news flow is expected as the company builds out its lithium strategy and I look forward to updating shareholders,” he added.

iCandy Interactive (ASX: ICI)

iCandy Interactive and tech start-up Froyo Venture Lab have agreed to work together on developing and commercialising Web3.0 metaverse games, intellectual property and game arts.

Froyo Venture is the company behind Web3.0 gaming platform Froyo.Games and is backed by global institutional investors including Animoca Brands, Spartan Group, GBV, Mirana and BTC12 Capital.

Under the initial seven year partnership, iCandy will develop game concepts and metaverse games that Froyo Games will commercialise and publish.

iCandy will also create IP and game arts for Froyo Games to commercialise as non fungible tokens (NFTs).

In return, Froyo will provide a revenue share, which will be determined on a project-by-project basis. As part of this, for the first project The Misfits, Froyo has guaranteed $4 million in gross revenue to iCandy.

The week ahead

Naturally one of the biggest events for the coming week is the arrival of the Australian federal budget on Tuesday night.

This year due to the looming election the budget is much earlier in the year than usual and being a pre-election budget, we can expect more big spending and less scrimping and saving than we might usually see.

Some of the big chunks of spending have already come into focus – the massive $5.4 billion Hell’s Gate dam on the Burdekin River in north Queensland has been promised and will try to bolster the LNP’s chances in Queensland being the most obvious one.

It is not an encouraging sign either, with no business case yet finalised and environmental doubts about producing an extra 50,000 hectares of farmland near the Great Barrier Reef.

History of big cost blowouts

The history of such projects is not a particularly happy one – the best example probably being the current inland rail project which was announced by the Turnbull Government way back in 2017 at a cost of $8.4 billion.

While construction of the 1700-kilometre project has already started, it was subject to a $5 billion “extension” to the Gladstone port as part of a deal to get the National Party support for net zero greenhouse gas emissions by 2050.

The latest cost estimate has ballooned to $14.3 billion and could rise further as the final route through Brisbane is arrived at.

Deficit should have slimmed down to around $67 billion

The real measure of the budget, though, will be the usual metrics of debt and deficits and on that front, it appears the improving economy has delivered a bit of a bonus in the form of better-than-expected company and individual tax collections with the expected deficit now expected to shrink to about $67 billion – possibly higher depending on new spending promises.

However, the debt side of the budget is looking intractable for the next decade as gross government debt powers towards a net figure of $1 trillion and whoever wins the federal election has a serious task of reducing that debt load, which will increasingly hamstring the Government as interest rates rise.

Government debt continues to climb

Higher debt limits the flexibility of the government to react to crises and acts as an anchor on economic growth over time, with debt repayments alone set to reach $30 billion a year.

Other than the budget, the big local economic releases to look forward to include consumer confidence figures, construction, private sector credit, building approvals, job vacancies, household wealth, home prices and manufacturing.

Overseas Chinese industrial profits and purchasing manager indexes are out along with a welter of US numbers including trade balance, manufacturing, house prices, consumer confidence, job vacancies and GDP growth, which is expected to come in around 7.1% annualised.

For the US labour force figures, there is tipped to be a lift of 450,000 jobs in March with the jobless rate falling to around 3.7%.

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