Any volatility in the markets can be unnerving at the very best of times, so I asked HotCopper contributor, investment expert, educator, and economic author Andrew Baxter how to read current market conditions.

“We’ve had the talk of tariffs, we’ve had interest rate moves, we’ve had a lot of social programs going on – the dispute between Russia and Ukraine and the very public spat in the White House – it’s been a lot for people to digest,” Baxter said while speaking to HotCopper in the Expert Exchange series.

“Part and parcel of that is why we’ve seen the savage level of sell-off we have over the last week or so, as people come to grips with the news flow and try to make sense of it.

“Maybe we’re on the other side of it.”

“We’ve been in an incredibly strong bull market,” Baxter said.

“Since 2022, we’ve seen the market in the bottom left to top right trend.

“So seeing a pullback of 10% or 15%, I guess it’s like running up a hill: [When] you get to the top of it you’ve got to stop and pause for breath.

“We’ve seen that pull back [before].

“When you look at the underlying earnings, we’ve come out of an earnings season which has been largely solid, about 40% up on expectations… so the underlying machinery that’s driving markets remains intact.

“It’s the newsflow and the chaos around that, I think, which has really seen us on the back foot – so to speak.”

Andrew Baxter called it a “buying opportunity” – as long as the buying horizon isn’t too short. In this interview, he shares thoughts on what some of those buying opportunities could be.

You can hear more from Andrew on the Money And Investing podcast, right here on Hot Copper as well as Apple Podcasts, Spotify and YouTube.

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On January 6, Firetail announced Picha was included in BHP’s Xplor 2025 Program, meaning it will receive a one-off, non-dilutive grant of up to US$500,000. The company is also able to access in-kind services, mentorship, and networking opportunities with the mining giant and other industry experts and investors.

The project – which Firetail is progressing through a 70% earn-in (with Thunderbird Resources holding 30%) – is in southern Peru, 17 kilometres northeast of Compania de Minas Buenaventura S.A.A’s San Gabriel gold-copper-silver project, which holds reserves of 14.9 million tonnes with 4.04 grams per tonne (g/t) of gold and 6.43g/t silver, for 1.94 million ounces of gold.

Following the discovery of the high-priority target at Pichu, Firetail will be launching several activities to define it, including a property-wide gravity survey, porphyry alteration mapping, maiden soil sampling and geochronology and geochemistry mapping.

Managing director Glenn Poole said the company’s focus on Pichu had been influenced by the recent funding and support boost.

“The recent inclusion of Firetail and the Picha Project in the BHP Xplor program has led to a significant step change in the exploration approach and activities,” he said.

“The technical support that forms part of the Xplor program has provided us with new approaches to the mineral systems we are working in at Picha, leading to the definition of the new target area.

“This new area, previously identified as a spectral target, has now been reinforced with lithology, mineralisation and alteration mapping. In addition, the prospectivity justified increasing the surrounding landholding through direct licence application to encompass the prospective target in its entirety.”

Firetail shares have been trading flat at 7 cents.

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The disaster involved the collapse of the Fundão tailings dam connected to an iron ore mine operated by Samarco – a joint venture between BHP and Vale. The resulting mudslide killed 19 people and devastated the Rio Doce river.

The agreement is valued at R$170 billion (US$31.7 billion), and includes money already spent, plus future obligations and payments. It was brokered between the Federal Government of Brazil, State of Minas Gerais, State of Espirito Santo, public prosecutors and defenders, and Samarco Mineração S.A. (Samarco), BHP Billiton Brasil Ltda, and Vale S.A.

BHP said it had already spent R$38 billion up to September 30, 2024, on both remediation and compensation since 2016.

The future spendings will include R$100 billion (approximately US$18.0 billion) in instalments over 20 years to the public authorities, the relevant municipalities, and Indigenous peoples and traditional communities, and will include additional performance obligations for an estimated financial value of approximately R$32 billion (approximately US$5.8 billion) to be carried out by Samarco in accordance with the terms of the Agreement.

Key parts of the funding will be allocated to universal water sanitation, health programs, economic recovery programs, improvements to road and infrastructure, flood response, aid to fishing, and biodiversity as well as investment in education, among other areas.

Beyond this, BHP will still face additional legal actions, including a class action complaint in Australia, a group action in the United Kingdom, group action claims brought against Vale and Samarco in the Netherlands, criminal charges against Samarco, BHP Brasil, and specific individuals, and various actions taken by other groups.

The civil claims now total 41.

BHP CEO Mike Henry said the dam failure was a terrible tragedy.

“It should never have happened and must never be forgotten,” he said.

“As shareholders in the Samarco non-operated joint venture, BHP Brasil and Vale have always been committed to supporting Samarco to do what’s right by the Brazilian people, communities, organisations, and environments affected by the dam failure.

“Today’s signing of a comprehensive agreement with the Brazilian government and public authorities is an important reflection of that commitment.

“It delivers expanded and additional programs for the environment and for the people, including designated funding for the health system, economic recovery, improved infrastructure and extensive compensation and income support measures, including for farmers, fisher people and Indigenous and Traditional communities.”

BHP shares have moved up this morning, and at 12:54 AEDT, they were trading at $42.88 – a rise of 1.16% since the market opened.

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Firstly, the Federal Reserve in the USA made a 50bps jumbo interest rate cut, which set off a risk on rally in many markets.

While there remains risk from the US slowdown, the loosening of rates has set off a great rotation in global markets to prepare for a weaker US dollar.

This signals a period where the US economy is slowing, but global liquidity is loosening. 

Rates are going down, Figure 1.

There are risks of a US recession.

However, emerging market economies that were squeezed by high interest rates, will now see looser conditions.

Secondly, the People’s Bank of China (PBOC) finally stepped up with a package of stimulus measures to support recovery.

The market reaction for China sensitive stocks was immediate.

Luxury stocks in Europe soared on a possible bling-led recovery on the China High Street and Australian iron ore miners shot the lights out, went through the ceiling, flew across the nation, and ruined a Sydney/Perth/Brisbane/Melbourne/Adelaide/Darwin day for those caught short!

Using our trusty unrealized profit and loss indicator, we can estimate which investors have been made whole on their positions, by the recent market move, and which investors are still nursing losses.

The picture for the top ASX-listed names, along with Brazil-listed major Vale is improving, Figure 3.

The steel makers Bluescope Steel (ASX:BSL) and Bisalloy (ASX:BIS) are doing well.

This is due to cheaper steelmaking input costs, and their largely Western market exposure.

Note that Fortescue (ASX:FMG) and Mineral Resources (ASX:MIN) are still in mild bear territory, with investors nursing unrealized losses of -5.5% and -9.9% respectively.

Look for a test of confidence at $21.26 for FMG and $54.51 for MIN.

Investors still seem to be favouring BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO).

The cash costs for BHP are the best, followed by Fortescue and Rio, Figure 4.

Expect the smaller names to perform in line with their breakeven costs once the iron price rallies out of the danger zone below $US100/mt.

We have just been through a major market panic over the iron ore price falling back towards the Australian Treasury forecast of $US60/mt.

Never say never, but our recent research suggests that this price is too low.

The key reason is that China is perhaps more dependent on imported iron ore than may have been previously thought.

Furthermore, our estimates of the average grade of crude ore in China have been revised down from a former 30% to a figure more like 15%.

The reason for this change lies in a reporting anomaly buried in the National Bureau of Statistics (NBS) data from China.

The two steep lines below show the raw data from Chinese domestic iron ore production from the NBS, and the World Steel Association (WSA).

The lower lines restate this to a useable ore grade (62% Fe). This adjustment was first carried about by UN agency UNCTAD, and later refined by the WSA, Figure 5.

Don’t be giving up on China yet, because of the stimulus, and don’t be giving up on the lucky country trading partner from which it buys the bulk of its iron ore requirement.

You see, because of the above data anomaly the official market share of Chinese ore for world use looks like 40%.

Once you adjust properly for the lower grade it is more like 10%. The Chinese need our ore, and we could do with the cash if we are sensible enough to put the stuff on a boat and sell it to them.

The global Australian iron ore market share is considerably more robust when you make these adjustments, Figure 6.

We continue to like the majors BHP Group and Rio Tinto. The first for lower costs, and the second for its superior growth exposure and the geopolitical hedging provided by their Simandou project.

The geopolitics today is fraught. The USA is clearly pressuring Australia to not sell minerals to China, which is fine for them, but bad for us.

Rio Tinto, in Guinea, West Africa, and Vale, in Brazil, provide natural hedges to the risk that Australia loses its greatest and most valuable export market.

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Mining titan BHP emphasised a better-than-expected underlying profit figure of US$13.7 billion for the 2024 fiscal year, representing an increase of 2% from FY23, while underlying EBITDA rose 4% to US$29 billion.

Higher prices in both iron ore and copper accounted for a 3% rise (or US$1.8 billion) in revenue to US$55.7 billion, with sales volumes increasing 3% for the red metal and 5% for iron ore.

However, more sobering was the company’s general reading for net profit after tax, which showed a fall by 39% to US$7.9 billion.

Additionally, BHP chair Ken MacKenzie warned that geopolitical headwinds would continue to impact the global economy and create volatility in the 2025 fiscal year.

BHP’s final dividend came in at US 74 cents a share, or a 53 per cent payout ratio.

Over in retail sector, supermarket behemoth Coles said its profit after tax had increased 8.3% to $1.13 billion in FY24, from $1.04 billion the previous year.

Earnings before interest and tax were also trending upwards, at $2.04 billion from $1.97 billion, representing an increase of 3.4%.

Coles’ final dividend was 32 cents, for a total dividend of 68 cents, this being a change from 30 cents and 66 cents respectively in FY23.

The company’s supermarket sales revenue grew by 6.2% to $39.0 billion compared to the 2023 fiscal year, and this was underpinned by customer responses to Coles’ initiatives such as the ‘Great Value, Hands Down’ seasonal value campaigns, continuity and collectibles programs and trade events such as Christmas, Easter and Mother’s Day, as well as strong growth in eCommerce and improvements in availability.

Meanwhile, in the energy sector, Woodside said its net profit after tax had risen 11% in the first half of FY24 to US$1.94 billion, from US$1.74 billion in the prior comparable period.

However, earnings (EBIT) also came in weaker, with a 15% fall to US$2.36 billion (from US$2.79 in the first half of FY23).

Woodside’s interim dividend was 69 US cents, compared to 80 cents in the first half of 2023.

The company said its production volumes were 4% lower when it came to gas, but 2% higher when it came to liquids.

The market responded positively to all three sets of results on Tuesday. At 13:28 AEST, Woodside shares had risen 4.76% to $27.64, BHP shares were up 1.93% at $41.63, and Coles shares were up 2.28% at $18.88.

The list contains 26 materials deemed essential for the clean energy transition, future technologies, the economy and national security.

A question about nickel’s current exclusion was asked of BHP’s Nickel West Asset President Jessica Farrell, who was guest speaker at today’s WA Mining Club luncheon at Optus Stadium in Perth.

The mining stalwart, who has a career spanning domestic and overseas operations, is BHP’s first female employee in this role for Nickel West, a leading supplier of nickel to the battery metals market.

In her two years with Nickel West, Ms Farrell has already seen significant industry evolution – in 2016 less than 10 per cent of the company’s nickel was sold into the electric vehicle (EV) battery market, now that’s topped 85 per cent. Nickel West is selling material to manufacturers including Tesla. Still, nickel is not on the critical minerals list.

“Things are moving rapidly as the supply/demand picture adjusts,” Ms Farrell said.

“We see it as a commodity that’s absolutely needed for the future.

“Australia is well placed for this transition.”

A challenge, she noted, was the need to see supply continuously emerge whilst remaining competitive.

Ms Farrell said by 2030, 60 per cent of cars sold will be electric and by 2040, that’ll be around 90 per cent.

The world’s automotive industry is increasing the pressure on suppliers to ensure they’re managing CO2 emissions and there’s more scrutiny around processing methods and community relationships.

The update to the critical minerals list is underway, with a consultation paper released today. Submissions will be accepted until August 17.

With a view to sustainability, Ms Farrell said Nickel West would soon switch on power from two solar farms with 70,000 panels spread across 90 hectares in the northern goldfields of Western Australia. The projects include a battery energy storage facility to help power the company’s mines and concentrators in the region.

Nickel West also has a power purchase agreement with Merredin Solar Farm and Flat Rocks Wind Farm and has trialled electric vehicles in its underground operations.

Nickel West sits within BHP’s Australian minerals operations, with Mt Keith open-cut pit and Cliffs and Leinster underground mining operations. It has a concentrator in Kambalda which processes ore and concentrates from other miners too.

The company smelter at Kalgoorlie – now celebrating its 50th year – produces nickel matte. From there, it can go to Nickel West Kwinana for refining into premium-grade nickel powder and briquettes (compressed blocks) which at this stage are 99.8 per cent nickel.

While the majority of nickel produced is sold as powder and briquettes, nickel powder can be further processed at Kwinana Nickel Refinery to produce nickel sulphate for electric vehicle lithium-ion batteries.   

Under Ms Farrell’s leadership, women now make up nearly half the senior leadership team of Nickel West.

She’s driven security upgrades at the Mt Keith and Leinster mining villages and has encouraged flexible working arrangements, including part-time and job sharing within the senior leadership team.

She participated in the WA Parliamentary Inquiry into sexual harassment against women in the FIFO mining industry and has been a strong advocate for the LGBTQI+ community and Indigenous leaders at BHP.