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And will it Continue...?

Published 13-JUL-2024 09:45 A.M.

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13 minute read

  • Commentary: Second positive week in a row for small caps. How global news impacts small cap stocks - two examples. Who has been busy this month...
  • Quick Takes: CND, 88E, GGE, LYN, NTI, MNB, PUR, WHK, TEE
  • This week in our Portfolios: 88E, SLM, TRI, NTI, LYN

We’ll try not to jinx it.

But this was the second week in a row where our Portfolio and watchlist was more green than red...

Nearly every day of the week.

(except Thursday).

Now this is just across the ~150 or so small cap stocks we are watching, so it's just anecdotal across a sample set.

But...

It is certainly a lot better than week after week of the red and grey we unfortunately became accustomed to over the last ~18 months.

The big end of the market is still trading near all time highs - money has to eventually find its way into small caps as risk taking appetite increases.

And it looks like it's (FINALLY) happening... maybe.

Out of the US, below-expected inflation data has the US punters thinking that a rate cut could come before the election in November.

Here is what happened to the gold and silver price on the announcement:

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Both gold and silver have been hitting record numbers, DESPITE the world being in a higher interest rate environment.

Generally, when interest rates are high, money is more “valuable” and more attractive to investors, hence precious metals are expected to trade lower.

So it’s interesting that gold and silver managed to trend upwards so much during this higher rates era...

This week’s spikes in gold and silver show signs they could continue to go even higher if rates do start coming down.

The silver price spiked to US $31.70 on this week's US inflation news before coming back to around US $31, adding to the new uptrend it started 4 weeks ago.

Here’s what the 10 years silver price looks like:

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Gold is at all time highs:

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Having the “planets align” is a big part of investing in small cap resources and exploration stocks.

Global events that nobody can control create tailwinds for companies to build up momentum.

The strong rallies in the gold and silver price are a good example of this, and companies that can deliver material news into this momentum can deliver nice share price rerates..

Hopefully our pair of silver/gold Investments, SS1 and MTH, will publish strong drill results at a time where silver prices are hopefully above US$36/ounce (this number has been plucked by us out of thin air), and gold is still sitting at all-time highs (like it already is now).

Both companies should be putting drilling resultsout over the coming weeks/months:

Another commodity where unexpected world events are creating tailwinds is uranium...

This week, news broke that the government of Kazakhstan introduced a new Mineral Extraction Tax (MET) for uranium, replacing the existing 6% flat rate MET introduced in 2023.

Basically the higher the uranium price, the more tax Kazakhstan uranium producers will need to pay.

Some think the new tax regime in Kazakhstan will hamper uranium supply over the long run, putting further upwards pressure on the uranium price.

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(Source)

The ramifications were that Kazatomprom, which is responsible for 43% of the global uranium supply, will have a higher cost of production.

This moved all of the other (non Kazakhstan) major uranium projects down the cost curve and may have changed the future supply outlook for the commodity.

While the uranium spot price barely budged and still sits at US$86/lb, the real story was in the big moves made by non-Kazakhstan uranium producers on the news.

(This image might be tiny on mobile phones, basically their share prices all spiked upwards)

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Interestingly, Kazakhstan's new scaling tax system contemplates a +US$110/lb scenario:

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(Source)

We think the fact that the Kazakhstan government is planning for a world in which uranium prices are ~30% higher than they are now points to the possibility that prices may actually reach that level.

Remember over a decade ago when Australia slapped on a “mining super profits tax” (it was called the Mineral Resources Rent Tax) which we recall came in DURING the last mining boom.

(remember all the advertising by the government arguing for it and the advertising by big resource companies arguing against it?)

At least the Kazakhstan government is launching their new tax in advance of the next uranium boom, not during it.

An interesting development in the uranium space - we think uranium is going for a third bull run as the world looks to switch to clean and secure energy, and source energy supply from non-adversary countries.

We’ve got three uranium Investments, two in the US and one in Senegal:

1. GTI Energy (ASX:GTR) ~7Mlb uranium JORC resource in the uranium capital of the USA, Wyoming. GTR is gearing up for a drill program on its ground in a few weeks time.

Read our GTR Investment Memo

2. Global Uranium and Enrichment (ASX:GUE) US based, with an advanced project that has a 50Mlb uranium JORC resource + other exploration assets across North America. GUE also gives us exposure to uranium enrichment.

Read our GUE Investment Memo

3. Haranga Resources (ASX:HAR) HA has a ~16Mlb uranium JORC resource in Senegal and is currently working towards resource upgrades.

Read our HAR Investment Memo

Meanwhile in the outback here in Australia, something big is happening...

Do exploration success stories still exist?

Yes.

There are two companies exploring in West Arunta, WA that have shown all small cap exploration investors that discoveries can be rewarded by the market.

WA1 just raised $60M and hit a market cap of ~$1.2BN after being capped at just $9M in 2022.

Here is what the chart looks like since it made its first niobium discovery:

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The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Another West Arunta explorer, Encounter Resources is also up almost 300% over the last few weeks off of a second niobium discovery in the region.

Our exposure to West Arunta exploration is Lycaon Resources (ASX:LYN) which is planning its first drill program in the coming months.

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We wrote a note on LYN on Friday which you can check out here: LYN set to drill near West Arunta niobium runners WA1 and Encounter .

We do love a big oil & gas drilling event...

So what drilling events in the “pipeline” ?

(...get it?)

This week, our 2023 Energy Pick of the Year Condor Energy (ASX: CND) completed fieldwork on its oil & gas targets in Peru... just as energy supermajor TotalEnergies swooped in next door.

CND is up 20% in the last two weeks, and you can read our commentary about TotalEnergies moving in next door and CND’s fieldwork here .

We’ve also been closely watching what $362M capped ReconAfrica is up to in Namibia...

ReconAfrica is drilling near 88 Energy’s (ASX:88E) new “swing for the fence” project in Namibia...

Namibia is the current “hot spot” for making new oil & gas discoveries.

ReconAfrica started their drilling last week, and 88E started their 2D seismic this week to generate their own drill targets.

If ReconAfrica makes a discovery it will be good for 88E - read our commentary on 88E here .

Watching ReconAfrica drilling is like watching England in the finals of the Euro’s this week.

We’re sort of happy for them to be there... but it also makes us miss cheering for our own team when they are on the big stage...

Back in Queensland, Elixir Energy (ASX:EXR) is restarting its delayed flow test that began in April.

The market seems to like it with EXR touching 13c on Friday, closing at 12.5c

Also in the Northern Territory, Top End Energy (ASX: TEE) has just finalised a transaction with a subsidiary of Gina Rinehart’s Hancock Prospecting for what we think is a very promising asset in the Beetaloo Basin.

Meanwhile another gas play Grand Gulf Energy (ASX: GGE) has just locked in helium offtake in Utah.

...and we are waiting for Invictus Energy (ASX:IVZ) to announce their drilling plans.

In other news from our portfolio...

Pursuit Minerals (ASX:PUR) has just kicked off drilling its second hole chasing more lithium brine in Argentina.

In Angola, Minbos Resources (ASX: MNB) just gave us an update on its financing efforts to build their phosphate mine... and become our first ever producer.

It outlined all of the wheeling and dealing that needs to be done in the next few months to pull together the financing for its phosphate project in Angola (only around US$24M left) .

There are quite a few moving pieces for MNB and we see this as “crunch time” for the company.

It's been a great couple of weeks for our tech Investments.

Our cybersecurity Investment Whitehawk (ASX:WHK), just locked up a ASX-100 deal with Tabcorp.

More material contracts is the name of the game for WHK, so this is a good step.

WHK has developed its technology for years and has successfully sold to a number of blue chip clients, but delays in new, big US contracts have seen the share price drift down and down.

We are big believers in WHK and think they will nail it... eventually.

The current WHK story reminds us of Oneview Healthcare (ASX: ONE) back in 2020.

ONE was unloved by the market due to delays in landing contracts (kind of like WHK is now)...

But after delivering a few major progress milestones over the next few years, ONE is now trading 8x higher and closed on Friday at 42c - its highest price since October 2021.

Our latest Investment AML3D (ASX: AML) is also in tech, also has years of development and blue chip clients but was unloved by the market... even though they are about to deliver a record year of revenue.

After a run up to 26c AL3’s share price appears to have entered into consolidation phase at ~18c as we await what management has to say in the upcoming quarterly report, and get a peek at AL3’s full year revenues.

(finding these types of advanced yet “unloved by the market” tech companies like ONE and AL3 seems to work for us - just need WHK to get it done now).

Over to our biotechs...

This week Neurotech International (ASX:NTI) published data from its Phase II/III trial for Autism Spectrum Disorder.

The data was extremely positive demonstrating that children who took the treatment with autism had symptoms that were “barely noticeable” at the 12 week mark.

The application for orphan drug designation for NTI is also in for other drug designations.

NTI is up ~55% since June lows, we sense a bit of momentum building here and there’s plenty to look forward to in terms of newsflow.

Arovella Therapeutics (ASX:ALA) is also on a nice uptrend since June lows, spending some time at 16c this week, possibly looking to test its all time highs of 18c again after digesting the 10c capital raise from March this year.

So a it's been a second positive week in a row for small caps.

Will there be a third?

Surely not.

Right...?

Do we dare to hope?

What we wrote about this week 🧬 🦉 🏹

88 Energy (ASX:88E)

88E kicked off 2D seismic surveys at its onshore Namibian farm-in Joint Venture.

The next day, ReconAfrica - 88E’s onshore Namibian peer - kicked off its drill program, which it expects to involve up to four wells.

With Recon drilling and 88E running 2D seismic surveys, we look forward to receiving news from 88E’s Namibian asset over the next few weeks/months.

Read: ⛏️ 88E starts 2D seismic, neighbour $438M ReconAfrica's spud is any day now...

Solis Minerals (ASX:SLM)

SLM put out rock chip samples from its copper project in Peru.

SLM announced grades up to 7.14% copper grades & confirmed that permitting was ongoing for a drill program planned for later this year.

With the copper price threatening to breakout to all-time highs, it's a good time for SLM to put some work into its copper assets.

Read: ⛏️ Microcap explorer Solis Minerals (SLM) setting stage for Peru copper drilling

TrivarX (ASX:TRI)

TRI completed its phase 2 clinical trial’s and expects to have results out soon...

TRI’s tech screens for mental health disorders like depression by analysing a patient’s sleep data using artificial intelligence (AI).

This Phase 2 trial is testing across sleep data for 400 patients to see if TRI’s AI algorithm can screen for current major depressive episodes at a better accuracy than other methods.

Read: 🧬 Screening for mental health issues from sleep data using AI - TRI Phase 2 trial results imminent

Neurotech International (ASX:NTI)

NTI put out updated Phase II/III trial results from its Autism Spectrum Disorder (ASD) treatment.

Autism affects 1 in 100 children worldwide, with significant social and behavioural challenges and no approved treatments.

NTI developing treatments for ASD AND other rare neurological disorders, including Rett Syndrome, PANDAS/PANS, Cerebral Palsy and ASD.

Next, we are looking forward to more data from NTI’s trials as well as an update on orphan drug designation applications in the USA and Europe.

Read: 🧬 NTI’s trial of Autism treatment in children shows further patient improvement after 12 weeks.

Lycaon Resources (ASX:LYN)

The West Arunta is Australia’s exploration hotspot right now.

WA1 is rallying and just locked in a $60M cap raise and Encounter Resources is up ~300% off the back of its own niobium discovery

This success highlights the area's potential, where our investment, Lycaon Resources (ASX:LYN), is preparing to drill soon.

Read: ⛏️ LYN set to drill near West Arunta niobium runners WA1 and Encounter

Quick Takes 🗣️

CND completes fieldwork on oil and gas targets

88E’s regional peer Recon Africa now drilling

GGE Secures Helium Offtake Agreement

LYN’s West Arunta peer trading up by almost 200%

A potential fast-track to market for NTI's drug candidate

MNB project financing update

PUR kicks off 2nd drillhole at lithium project

WHK gets foothold in Australian cybersecurity market

NTI Autism results get even better out to 12 weeks

TEE completes acquisition from Hancock subsidiary

Bite sized summaries of the latest mainstream news in battery metals, biotechs, uranium etc:

🎈 The Future Money: https://future-money.co/

Macro News - What we are reading 📰

Lithium:

What we learned at the Lithium Supply and Battery Raw Materials conference 2024 (FastMarkets)

  • The lithium market is bearish due to oversupply and weak demand, with high shipments from Chile, Australia, and increasing African spodumene.
  • Rising African spodumene supply is worsening the oversupply, putting downward pressure on Australian lithium prices.

Tech:

UniSuper returns 9.2 per cent for financial year by cashing in on tech boom but hits pause on further investment (AFR)

  • UniSuper's retirement savings rose 9.2%, fueled by tech and ESG investments, but the fund's chief warns tech is currently overpriced.
  • Infrastructure grew 8%, property returns were flat, and office sector struggles continue, though retail might see some recovery.

Uranium:

Who Will Pay for Eastern Europe's Nuclear Power Plants? (Bloomberg)

  • Eastern European countries plan to build a dozen new nuclear units costing nearly €130 billion, but financing remains a major hurdle, with heavy reliance on EU subsidies and government funding.
  • The region faces challenges including lack of engineering expertise, competition for EU funds, and construction delays, while current projects are primarily in Slovakia and Hungary, with Russian involvement now limited due to the Ukraine war.

Gold:

Gold tops US$2,400 as easing inflation bolsters rate-cut optimism (Bloomberg)

  • Gold prices surged above $2,400 an ounce after U.S. consumer prices unexpectedly fell, increasing expectations for Federal Reserve rate cuts.
  • The decline in inflation and easing economic activity, coupled with strong central bank buying and investor demand, has driven gold close to its all-time high.

Have a great weekend,

Next Investors



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