Material Matters: Nickel, Platinum, Gold and Malt

This story features IGO LIMITED, and other companies. For more info SHARE ANALYSIS: IGO

By Chris Shaw

In coming years a number of new laterite nickel mines are expected to commence production, Credit Suisse noting these include the Goto, Onca Puma and Ramu projects. Given the expected boost to global nickel production from these projects, the broker remains bearish on the nickel price outlook.

As evidence of this, Credit Suisse points out its nickel price forecasts of US$8.25 per pound in 2011 and US$7 per pound in 2012 are 21% and 23% respectively below what it estimates are consensus price forecasts in the market.

The broker's forecasts for the second half of 2010 were also recently cut by 10% to reflect expectations of soft stainless steel demand and an end to the Vale Inco nickel strike. For 2010 Credit Suisse is forecasting an average nickel price of US$9.19 per pound.

This has implications for stocks in the sector, as shown by Credit Suisse downgrading Independence Group ((IGO)) to Underperform from Neutral following that company's June quarter production report.

Other stocks on the Australian market offering exposure to nickel include Mirabela Nickel ((MBN)), Metallica Minerals ((MLM)), Fox Resources ((FXR)), GME Resources ((GME)), Falcon Minerals ((FCN)), Segue Resources ((SEG)), Mincor Resources ((MCR)), Minara Resources ((MRE)), Panoramic Resources ((PAN)), Western Areas ((WSA)), Tectonic Resources ((TTR)), Heron Resources ((HRR)) and Poseidon Nickel ((POS)).

In the precious metals sector GSJB Were has for some time been very positive towards Aquarius Platinum ((AQP)), rating the stock as one of its conviction Buys. But this could be set to change following a site visit to the Everest mine.

While there is no change to the broker's view the Platinum group thematic is the strongest among the commodities, some issues at Everest such as fall of ground problems and the need for additional safety measures means cuts to the broker's earnings estimates.

According to GSJB Were this means sentiment towards Aquarius may take some time to recover, so while the broker retains its Buy recommendation it is now reviewing its conviction view on the stock.. The FNArena database shows Aquarius is rated as Buy by all four brokers to cover the company.

RBS Australia has also made some changes to its precious metal estimates, the broker lifting its gold price forecasts to US$1,170 per ounce in 2010 and US$1,200 per ounce in 2011. While the changes are a positive for earnings for the Australian gold producers such as Lihir ((LGL)), where the broker lifted forecasts following the group's quarterly production report, it hasn't resulted in any change in order of preference among the commodity sectors.

RBS continues to prefer the bulk commodity and copper exposures such as BHP Billiton ((BHP)), Rio Tinto ((RIO)), Fortescue ((FMG)) and Oz Minerals ((OZL)) to the larger gold producers. All four stocks are rated as Buys by RBS.

Elsewhere in gold, Standard Bank suggests that technically the metal remains in bearish territory, so short-term it would look to sell into rallies. The bank suggests prices could test US$1,140 per ounce and could possibly extend to US$1,125 per ounce.

On a 6-month view the bank remains more positive, reflecting both physical market conditions and continued growth in global liquidity.

With malt supply in the northern hemisphere tightening in recent weeks thanks to unfavourable weather, malt prices have risen. Credit Suisse notes theoretical prices for the 2010 crop have gained 10% in Australian dollar terms since the start of April.

This has implications for Graincorp ((GNC)), as Credit Suisse notes bookings for export capacity through the company's ports in Australia have risen for both August and September. This implies a strong finish to the year.

As well, Credit Suisse notes Graincorp has sold forward 67% of its FY11 malting capacity and 45% of its FY12 malting capacity as it moves to take advantage of strong market conditions. This supports the broker's expectation of above consensus earnings in FY11, which underpins its Outperform rating on the stock.

Overall the FNArena database shows Graincorp is rated Buy five times and Accumulate once with an average price target of $7.77. This compare to the Credit Suisse price target of $8.50.

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