Market Wraps

Weekend Wrap: Commodity catalysts, p-values and a stock that's yielding 100%

Sun 07 Jul 24, 9:00am (AEST)

Hi there! This article is an excerpt from our weekend newsletter – which talks all things markets plus some interesting data insights and memes

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1. Two Types of Commodity Catalysts

When analysing extreme volatility events in resource markets, I consider two categories of catalysts that typically yield distinctly different outcomes:

#1 Breaking News – These events trigger knee-jerk reactions but generally lack substance or lasting fundamental impact on supply and demand. A recent example is Iran's unprecedented direct military assault on Israel on April 12, 2024, launching over 300 drones and missiles. This news sparked concerns about a wider regional conflict, causing gold prices to spike sharply from US$2,340 to US$2,430 (+3.8%) within hours. However, by the following day, gold had returned to pre-attack price levels. 

GOLD 2024-07-05 12-15-12
Gold intraday price chart on 12 April 2024 (Source: TradingView)

#2 Supply shocks – These catalysts alter supply and demand dynamics over the short-to-medium term. While they also provoke initial knee-jerk reactions, the resulting price movements tend to persist for days or even weeks. For instance:

  • On March 20, South 32 suspended its GEMCO operations (responsible for about 10% of global manganese supply) after Tropical Cyclone Megan destroyed key infrastructure. Consequently, Jupiter Mines, another top manganese producer, saw its stock rally 13% the next day and gain up to 110% over the following weeks until GEMCO announced its phased return on May 21.

  • Coal stocks surged this week following two incidents: The suspension of Anglo America's Grosvenor met coal mine in Queensland (accounting for roughly 1% of global met coal exports) and a collision on the Blackwater rail line (a major route for Australian met coal exports). The rail incident alone could reduce Queensland's weekly shipments by 24%, equivalent to about 12% of global seaborne exports.

Bottom line – While chasing trades based on breaking news can be risky due to quick reversals, supply shocks—depending on their duration and magnitude—can lead to sustained rallies for affected stocks. 

2. Seasonality Check In

2024-06-06 10 o58 19-Window
ASX 200 return seasonality in the past decade (Source: Macquarie)

July has historically been the best-performing month of the year for the ASX 200 – Up an average 3.0% in the past 10 years.

Since 2014, the ASX 200 finished July positive nine out of ten times (the only letdown was in 2017 when the Index finished breakeven).

2024-06-06 11 04 26-Window
Source: Macquarie

3. Just Look for <0.05

Last week, we highlighted two crucial red flags in biotech stocks, with the ‘p-value’ being one. In scientific studies, a p-value of 0.05 or less typically indicates statistical significance, meaning there's a 5% or lower chance the results are coincidental.

While biotech trial announcements can be jargon-heavy and confusing, focusing on the p-value offers a quick insight. As a rule of thumb, a p-value <0.05 is generally positive news for the trial's outcome.

The trial results below, translated into Spanish (to get rid of the noise ... I mean I don't understand the jargon anyway so it might as well be in Spanish), evaluate afamelanotide's potential to repair UV-induced DNA damage in skin. With our newly acquired skills – can you guess how the market reacted to this news?

“Con afamelanotida, los DEG entre piel irradiada y no irradiada se redujeron a 183, un factor 3,4 menos DEG (p<0.05). Los genes evaluados resultan cruciales en la regulación de la reparación del ADN y las reacciones inflamatorias tras la exposición solar y a los rayos UV.”

The stock is Clinuvel Pharmaceuticals (ASX: CUV) and interestingly, it opened flat on Friday but quickly rallied as much as 16% within minutes of opening. 

4. Livewire Live is Back

We’re stoked to announce that Livewire Live 2024, our sister website flagship annual investor event, is locked in for Tuesday, 17 September at the Art Gallery of NSW.

This event brings together over 15 of Australia's most celebrated investors to tackle the topics that matter most to you. It's a unique opportunity for hundreds of financial advisors, family offices, and high net-worth investors to gain invaluable insights and network with industry leaders.

I attended last year’s event and as someone who is pretty sceptical about expert opinions at live events – I was genuinely impressed by how the insights have unraveled: Here are some of my favourite highlights:

  • Jeremy Grantham's Prescient Commentary: GMO's Jeremy Grantham, renowned for forecasting market bubbles, talked a lot about inequality. While it seemed like a billionaire grumbling, his insights proved prophetic. Just a month later, we witnessed a global strike movement, from US autoworkers to UK junior doctors.

  • AI and Megatrends Panel: Fund managers Mary Manning, Nick Griffin, and Jacob Mitchell addressed pressing questions about AI, expressing bullish views on mega-cap tech stocks … and we all know how that turned out

  • Six shocking predictions: The event closed with a rapid-fire session of six unconventional forecasts, delivered in a concise and humorous format. These included: The impending end of the international travel boom (still going strong but Boeing doors definitely busted), Australia becoming the world's wealthiest nation through superannuation, and the end of obesity

You can register your interest here to gain access to early bird pricing.

I’ll be attending again this year – So I hope to see you there!

5. A 100% Dividend Yield

Australian banknotes accumulated together
Source: Shutterstock

First of all – This is not a click bait or a scam. Wellard (ASX: WLD), a little-known cattle exporter and agribusiness, executed an unexpected asset sale this week. The company signed a binding contract to sell its oldest livestock vessel for US$11.8 million (A$17.8m) after fees, with intentions to return most proceeds to shareholders.

In the context of the company’s financials and market cap, this asset sale is massive:

  • Market cap: $9.0 million (pre-asset sale)

  • Net cash position: US$2.4 million (as of 31 December 2023)

  • Cash: US$6.5 million

  • Debt: US$4.1 million

The $17.8 million asset sale is almost double Wellard’s market cap. Even after debt repayment, the company would retain approximately $11.7 million cash. Wellard shares opened the session 94.1% higher – despite the large face value gap up, the company is still undervalued since it’s going to be more than 100% backed by cash. Wellard finished the session 117% higher, reaching a market cap of almost $22 million.

It will be interesting to see just how much capital will be returned to shareholders.

6. Classic ASX

marketsasx exchange
Source: Shutterstock

I think it’s fair to never rule out a capital raising – No matter what the company says.

West African Resources (ASX: WAF) is nearing completion of its Kiaka Gold Project in Burkina Faso, poised to become a 400,000ozpa mid-tier gold producer by 2025. Despite solid prospects, WAF remains undervalued due to its challenging jurisdiction.

Kiaka’s development has appeared pretty smooth:

  • June 29, 2023: WAF declares Kiaka "fully funded to first gold" via a US$265 million loan facility

  • June 2024: Final US$100 million drawn, project "on budget and schedule"

  • July 2024: A $150 million capital raise at 13.8% discount “support development activities at the Kiaka Gold Project.”

Despite the surprise, WAF shares are up almost 50% year-to-date – there is no better time to shore up the balance sheet than when the share price is at all-time highs.

7. China's Coal Push

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Source: Global Coal Plant Tracker

China added a record 301 GW of renewable power generation capacity including solar, wind and hydro in 2023, accounting for approximately 59% of the world’s total renewable capacity additions, according to S&P Global.

But they’re also aggressively adding new coal capacity – whereby new coal starting construction climbed to an eight-year high in 2023.

As for the rest of the world, new coal starting construction fell to a record low.

"Power prices will rise in Australia’s electricity grid as big coal power stations are shut down and the rollout of renewable and storage capacity slows," UBS said earlier this month.

So you’re telling me – We shut down coal power plants, sell coal to China and … buy solar panels off them? Nice.

8. Meme of the Week

Here’s a very simple and easy-to-follow family tree about global mining companies – In short, most have either merged or sold each other assets, at some point in time.

As @Bogan_Geologist said on Twitter – It makes European Royal Families look genetically diverse.

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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