Why did the Korab Resources (ASX:KOR) share price rocket 178% today?

Government policy out of China continues to wreak havoc on global commodity markets.

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rocket taking off indicating a share price rise

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The Korab Resources Limited (ASX: KOR) share price left little headroom during trading today as it finished Tuesday’s session up 177.78%.

Korab shares were are on the move today despite no major price-sensitive information out of the company’s camp.

However, there appeared to be underlying forces at play, which help explain the enormous spike in trading of Korab shares on Tuesday.

What’s fuelling the Korab Resources share price today?

In the absence of any price-sensitive information, we have to look to the underlying commodity markets Korab sells into in order to decipher what’s behind today’s gains.

The price of magnesium – the key alloy used in the metals production industry – has shot up by over 200% this year to date.

It has since cooled off as we left September, but not before jumping over 130% across the span of the month.

Consequently, magnesium has come off an all time high of $14,857.65/tonne on 23 September to now trade at $9,853/tonne.

What’s causing the massive run up in the price of magnesium?

It all boils down to recent government policy out of China, in its efforts to curb power production and noxious emissions.

The Shaanxi and Shanxi provinces, considered the premier magnesium hubs of the world, have seen 25 of their plants shut down this year, whereas the remaining facilities have slashed production by 50% in response to the policy.

Europe, which buys 95% of its magnesium from China, is expected to run out of magnesium stocks by the end of November, according to Trading Economics.

What does this mean for Korab?

It is on this backdrop that brings us back to Korab Resources. The mining company has previously stated in its last few earnings reports that it is working on the development of the “Winchester Magnesium Deposit” located near Darwin, NT.

According to an announcement today, Korab stated the “Winchester deposit is amenable to low cost open cut mining using blast and shovel method and has a high-grade magnesium mineral resource reported in accordance with the JORC Code”.

The company is in discussions with magnesium metal users and buyers – including carmakers Fiat and Daimler –regarding supply from the Winchester deposit.

It is adamant that no agreements have been made, and that all discussions “are at an early stage and are incomplete…details of these discussions would be premature and speculative”.

Given the scene that has been set, built from the urgency for magnesium users to replenish their stockpiles and Korab’s speculative Winchester deposit, a picture begins to form as to why investors are bidding up its share price today.

As a result of these gains, the Korab Resources share price has soared over 500% this year to date, having gained 260% in the last week.

Should you invest $1,000 in Korab Resources right now?

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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