Weekly review: roller coaster week ends in a dip

Roller coaster ASX dip stock market
WEEKLY MARKET REPORT

The Australian share market went through a roller coaster week with a terrific climb in the first few days, followed up by a quick down dip right back to where we began.

By the end of trade on Friday we had fallen from seven-month highs back to familiar territory below the 6,200-point level, with a 51.5-point fall to 6,181.3 points.

The falls came despite a largely positive lead from the US after signs that the US-China trade deal is in the final stages and a final resolution could be imminent.

Reports from China said that Vice Premier Liu He had reached a consensus on the wording of an economic and trade agreement.

There are still points of conflict around intellectual property and theft along with some arguments over precise tariffs.

Australia could be a loser in US-China trade deal

Mind you, a deal could be great news for China and the US, but Australia might miss out in the wake of direct deals between the world’s two largest economies.

The reasons for the index fall weren’t too hard to find with the big four banks all weaker, with National Australia Bank (ASX: NAB) leading the downturn with a 1.3% slide.

Even the normal safe havens of healthcare and consumer staples were down along with all sectors, with heavyweight blood products company CSL (ASX: CSL) dipping 1.19%.

One bright point was some players in the mining sector with Rio Tinto (ASX: RIO), Fortescue Metals (ASX: FMG) and Newcrest Mining (ASX: NCM) all swimming against the tide and firming a little.

Automotive takeover boosts share prices

There was even some takeover action to keep the punters interested as automotive group AP Eagers (ASX: APE) made a $1.8 billion takeover offer for Automotive Holdings (ASX: AHG), offering 1 AP Eagers share per 3.8 Automotive Holdings shares held.

AP Eagers already has a head start in the bid, owning close to 29% of Automotive Holdings.

The takeover news sent shares in both companies higher with Automotive Holdings jumping 20.79% and AP Eagers up 5.63%.

With new car sales on the wane, the market liked the idea of bringing together two big players to increase the economies of scale across 229 new-car dealership sites in Australia, 13 in New Zealand and 68 new truck and bus dealerships.

The one consolation in the falling market is that in US dollar terms we wouldn’t have done quite as badly, with the Australian dollar firming slightly to US71.18c as the more positive trade outlook was factored in.

Small cap stock action

The Small Ords index managed to buck the trend of the overall market and post a 0.17% gain, closing out the week on 2,764.5 points.

ASX 200 vs Small Ords April 2019 chart
ASX 200 vs Small Ords

Among the companies making headlines this week were:

Atrum Coal (ASX: ATU)

The Elan South coking coal project in Canada is looking even more promising for Atrum Coal after recent tests on composite samples confirmed the asset’s tier-one coal quality.

Samples were taken from the 2018 coring program, with coking properties including an average of 71% in coke strength after reaction, with coke yield of 77%.

Atrum said its hard coking coal from Elan South will be comparable and competitive with premium hard coking coal currently exported from Canada and Australia.

“We are very pleased with the latest test results, which reinforce the tier one quality of the hard-coking coal at Elan South,” Atrum non-executive director George Edwards said.

Jervois Mining (ASX: JRV)

Jervois Mining is set to become the world’s third largest cobalt company after announcing a friendly, at-market, merger with TSX-listed e-Cobalt Solutions Inc.

Under the merger, Jervois will acquire all of the issued and outstanding shares in eCobalt, which owns a global assets pipeline including North America’s highest-grade cobalt project in the Idaho cobalt belt.

The deal values eCobalt at C$0.36 per share, and once it goes through, the joined entity is expected to be worth around $100 million.

In a separate and unrelated transaction, Jervois is merging with US-based M2 Cobalt, which gives it exposure M2’s assets in Uganda as well as its strong government links and established relationships.

Walkabout Resources (ASX: WKT)

Advanced graphite explorer Walkabout Resources is another step closer to development after announcing it has locked in its first binding offtake agreement for its flagship Lindi jumbo graphite project in Tanzania.

China-based Inner Mongolia Qianxin Graphite will purchase up to 50% (20,000tpa) of the planned output from Lindi over the first three years.

The full agreement terms remain undisclosed but Inner Mongolia has committed to a minimum purchase of 10,000tpa.

Walkabout’s executive chairman Trevor Benson said the deal confirmed the project’s premium graphite product and reduced financing risk. He added that discussions were underway with other offtake parties and potential financiers.

Lithium Australia (ASX: LIT)

Lithium Australia has surged into the battery recycling sector after announcing it had joined forces with Envirostream Australia Pty Ltd to develop methods of extracting critical metals from spent batteries.

Envirostream is currently Australia’s only facility that shreds lithium-ion batteries. From the spent batteries, it generates a powder containing the critical battery minerals which is then exported for refining.

Lithium Australia is working on a flowsheet to liberate the nickel, cobalt, manganese and lithium chemicals from this powder so the chemicals can be reused in new batteries – keeping the minerals in Australia.

As part of the collaboration, Lithium Australia will acquire an 18.9% interest in Envirostream through four tranches with the acquisition to total $600,000.

Winchester Energy (ASX: WEL)

Wireline logs have verified Winchester Energy has hit 28 feet of net oil pay within the Strawn sand of its White Hat 20#3 well in Texas’ Permian Basin.

Wireline log interpretation of the Strawn sand has revealed the 28ft of net oil pay from a 52ft oil-bearing interval – exceeding the 20ft of oil pay found in the company’s White Hat 20#2 well about 510m away.

White Hat 20#2 initially produced 200 barrels of oil per day two years ago when its was brought into production after mild frack stimulation.

Additionally, within the White Hat 20#3 Strawn lime, Wolfcamp D shale and other secondary targets, wireline logs have confirmed cumulative net oil pay of 71ft.

The week ahead

It is slim pickings for local economic releases in the coming week with only consumer confidence outcomes, owner occupied home loans and the Reserve Bank’s twice a year Financial Stability Review on Friday to look forward to.

There is a bit more happening offshore with US inflation numbers and the minutes of the last Federal Reserve meeting being released and over in China, inflation and trade data is due to be released.

This week’s top stocks

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.