Fed Fuels Metals Rally: Gold, Silver & Critical Minerals in Focus

Commentary: US comments send markets to record highs last night. Gold and silver spike upwards. US critical metals getting hotter.

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Aside from just two red days early this week, the small end of the market is still feeling very good.

Those two down days were pretty much the only ones in the last 7 weeks, but the market bounced straight back after.

And it looks like it’s going to be a very good week next week.

Why?

At around midnight AEST last night the US Fed chairman Jerome Powell said what the market wanted to hear BUT wasn’t expecting, in a much anticipated speech...

US interest rate cuts are coming...

(source)

(US rate cuts were a key ingredient in our “6 things that need to happen for the ASX small cap bull market to come back” that we wrote about back in June)

The US markets loved it - you can see where everything spiked during the speech:

Gold and silver love a US interest rate cut too...

(more and cheaper money in the system = capital inflows into stores of value like precious metals)

Gold price during the speech:

Silver price during the speech:

Again, this all happened around midnight last night - and we expect the positive sentiment to flow into the Australian markets on Monday.

A silver price spike back to retesting new 14 year highs last night should make an interesting Monday open for our latest silver investment WCE...

On Friday WCE was already up as high ~30% after announcing a monster 10,049 g/t silver hit (read our commentary on it here).

Our two other silver stocks MTH and SS1 both have active drilling campaigns and will hopefully announce something very soon...

(MTH and SS1 are two of our biggest holdings, yes we are overweight silver and yes we think the silver price is going to go a lot higher... last night was a great leg up for silver, but we could be wrong though - anything can happen with commodities prices)

Our other favourite macro theme of the moment, US critical metals and mining kept getting stronger this week too...

This week there was more mainstream media coverage on how the US can plausibly solve its critical minerals supply chain...

Reuters reported that US President Trump was considering tapping the US$2BN CHIPS Act for critical minerals.

(Source)

And how’s this for an X post from the US Department of Energy last night:

(Source)

This was after they announced $1BN in funding for critical minerals and materials supply chains...

Most of which was going to go into critical minerals processing tech improvement.

(Source, US Department of Energy)

We also saw this news about the USA’s first “Strategic Minerals Reserve”, to be headquartered at Hawthorne Army Depot in Nevada.

(a relatively short drive from SS1’s potential giant antimony deposit... also a short drive from LKY’s antinomy and rare earths project...)

(Source)

So it's not just a strategic stockpile of the metals themselves... but also a hub for refining AND recycling...

The USA seems to have its eye firmly on critical metals processing and recycling in the $1BN of DoE funding announced too.

We covered that in our weekend email last week and said that we think one of the big winners in our Portfolio would be ION.

ION is our recycling tech Investment, looking to extract rare earths, gold, copper, silver and graphite from things like e-waste and black mass (battery scrap).

Now it looks like LKY is about to join the critical minerals processing space too... starting from Monday.

LKY has a rare earths and antimony project right next door to the USA’s rare earths and rare earths processing “national champion” MP Materials.

LKY went into a trading halt on Thursday pending the “finalisation of a material agreement covering a downstream critical minerals processing and technology partnership in the USA”.

(Source)

We will find out more on this news on Monday when LKY releases the full announcement...

While LKY has been in a trading halt on the ASX for the last 2 days, its shares were still trading on the US OTC market under the ticker LKYRF and are up nearly 100% on 5M shares traded in those two days.

LKY closed at ~US$0.29 per share - which implies a 45c AUD share price...

(We also noticed that at one point this morning it touched a high of ~US$0.44 per share which implies an ~A$0.68 share price)

We are tracking US OTC trading activity here:

(Source)

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance.

LKY has been teasing a move into downstream processing in its previous investor presentations.

And the fact that LKY was going to make a move downstream was a big part of the reason we Invested in the company in the first place (as well as its projects being next to US “national champion MP Materials).

LKY also appointed Tribeca Capital as a strategic advisor to:

“advice on downstream processing, technology collaborations, government engagement, funding programs and product development initiatives specifically related to critical minerals projects and advanced material application”.

LKY’s Monday news release and recommencement of trading should be interesting...

Especially with the US DoE making so much noise about critical metals processing tech - here is another X post from them in the last 24 hours:

(Source)

We have sat on the sidelines watching the epic re-rate of ASX listed Metallium, which has tested its tech on recovering a wide range of critical minerals.

(MTM is up over ~1,400% in just under two years since the technology was licenced).

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.

We also noticed this news in the FT on Friday, which underlines how securing US critical minerals supply chains isn't just about mining... but also processing...

(Source)

We are looking forward to seeing what LKY has been cooking up in critical minerals processing on Monday...

US OTC market trading coming alive?

Speaking of trading on the OTC...

Our other US critical minerals Investment Resolution Minerals (ASX:RML) completed its dual listing on the OTC markets under the ticker code ‘RLMLF’ on Thursday US time, announcing it Friday on the ASX..

RML closed at US$0.046 which is a ~7c per share implied price when converted to AUD - RML is currently trading at 6.0c on the ASX.

RML started drilling its project on Monday, so we could get material news from them inside the next few weeks/months.

At the moment, RML’s neighbour Perpetua Resources is trading with a market cap of $3.0BN and RML is just at $74.2M.

So the risk/reward into drilling is relatively strong here... if RML can deliver some excellent initial drill results.

(which is no guarantee, exploration is risky)

See our deep dive on the drilling earlier here: RML now drilling - next door to ~$2.9BN capped USA antimony leader

Australia staking its claim as a key partner for US critical minerals

This week we watched an interview with US Ambassador Kevin Rudd talk about the role Australian mining companies can play in securing US critical mineral supply chains.

“We have the best and biggest mining companies in the world” Rudd said in the interview.

“Our mining companies are hugely active in the US” and “there are some 20-25 other projects in which the Australian mining industry is actively invested here in the USA, in the critical minerals space”.

Watch the full interview here:

It says a lot about Australia’s position in the mining industry when the three CEOs pictured with the US President in the Oval Office are from Australian mining companies (two from Rio Tinto and one from BHP):

(Source)

Australia and the ASX have always been obsessed with metals and mining.

The Australian capital markets have always been open and ready to fund entrepreneurs in the metals and mining space.

(“entreprenuers” = resource exploration speccy stocks, junior minors and prospectors)

While most US capital flowed into the tech space over the last two decades, the ASX became the #1 source of capital for mining companies.

A good illustration is the following table which shows just how far ahead the ASX is compared to the other global public markets:

(Source)

The ASX has had ~US$28BN in follow-on capital raised by mining companies, which is ~2.25 times the New York Stock Exchange (which is much larger and has a deeper capital pool).

This means that ASX-listed companies have had the jump on small cap critical minerals projects, picking up some of the best exploration ground in most parts of the world.

Before the rest of the US and the rest of the world was suddenly interested in critical metals supply.

We have written about how US capital is flowing into ASX names before here: ASX Miners Catching US Attention

The US investor pool appears to be only just catching on to metals and mining, and we think that a wave of capital coming out of the US will trigger the next bull run in ASX metals and mining stocks.

US capital markets are giant - big tech stocks are capped in the trillions, Nvidia alone is bigger than all of the ASX stocks combined on the ASX.

(Source, Mining.com October 28, 2024)

Even just a small % of that capital could make big waves in the valuations of ASX mining names.

And beyond the big tech names... other potential sources of capital could include:

• Large fund managers & pension funds (Blackrock just published its half year review backing US-based projects as the next “Megaforce”)
• Major defence suppliers (think Lockheed Martin, Honeywell, RTX Corporation, etc...)
• Global resource companies through activity (M&A)
• Major banking groups (lending)

Our Portfolio exposures to the US critical minerals thematic

Our current Investments in the US critical metals theme and reshoring US strategic industries are LKY, RML, SS1, ION, and AL3.

We also have PFE, MAN for direct lithium extraction in the USA and GTR, GUE for uranium in the USA.

One company that is tangentially related is St George Mining (ASX:SGQ), which is developing a serious rare earths project in Brazil.

SGQ was quoted in a New York Times article about US-Brazil relationships and the role of rare earths in trade negotiations:

(Source)

The article spells out the ups and downs in the Brazil-US trade tensions BUT it's nice to see our Portfolio stock front and centre of a public debate about minerals between two countries...

Here was the quote in the article from SGQ’s executive Chair John Prineas:

(Source - New York Time article)

SGQ’s project ranks closely to the two biggest ex-China mines in the world - MP’s project in California and Lynas’ project in WA because:

1. It sits on the same type of geology (hard rock carbonatite-hosted rare earth deposit)
2. It has similar grades to Lynas’s project, and
3. It is similar in terms of size to MP Material’s project.

It may be a stretch to think the US government would invest in SGQ’s project directly...

But we think there is a real chance US rare earths “national champion” MP Materials could at the very least be interested in assets like SGQ’s for feedstock if it started looking for a big ex-China rare earths asset.

Which is something MP will need to do once its rare earth magnet facility is expanded (again this was reported in the US media - this time in the Wall Street Journal):

(Source)

That’s where we think a winner could be a company like SGQ - even though its rare earths project is in Brazil and not inside the USA.

So all in a lot of positive developments across our three favourite macro investment themes this week - gold, silver and USA critical metals.

And a nice finish last night with the door opened for a US rate cut in September that should sprinkle some more positive sentiment into ASX small caps next week.

Have a great weekend,

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