Happy New Financial Year

Commentary: Happy new financial year. Advanced stage companies undervalued during bear market conditions in small cap land? How our strategy has adapted.

Quick Takes: LYN, SS1, MNB, KNI, VN8, NTI

This week in our Portfolios: PUR, MTH, AL3

Goodbye (and good riddance) to tax loss selling June.

This coming Monday ushers in July 1st.

A new financial year, last year’s tax losses now crystallised for many.

And new hope for long suffering small cap investors?

Now the only thing left for the financial year just gone is to briefly relive the horrors in your portfolio activity while collating information for your tax submission.

(a bit like that “ghosts of Christmas past” movie)

But on Monday the new financial year will be upon us.

And with it brings the hope to once again be the hero of the household when walking into the living room announcing a 5 bagger to the family.

(on paper of course: “I haven't sold any yet honey, it's going to keep going up”)

The new financial year is a fresh, clean slate for the small cap market to test where it wants to go next...

We predict (maybe it's hope?) that there will be a strong rebound in the small cap space.

Maybe from July 1st...

Or maybe from mid July when brokers and fund managers get back to their desks and start hitting the phones again after school holidays finishes.

(or they return from their European summer jaunts)

Maybe it will start after the first Tuesday in August IF a rate rise doesn't happen...

Maybe it will be “sputtery” with a bullish month here and there but otherwise business as usual?

(like the flash of bullishness we saw during May)

Or it might not happen for many months or even at all until 2025 - it’s impossible to predict.

(it’s our job to to try though)

During the last two years of frankly terrible small cap market conditions we have been busy looking at “cheap” (in our opinion) entries into new companies for our Portfolio.

Pure “exploration” stocks have been hit really hard, because they are generally valued on blue sky potential, which people just aren't getting excited about lately in this “risk-off” environment.

But we have also observed that more advanced stage companies have been trading at depressed valuations too.

These are companies that have invested capital advancing their projects or products but are now trading at lower valuations due to the broader risk-off mood in the small cap space and stale, exhausted shareholders throwing in the towel and exiting the company.

During long periods of poor small cap market conditions, nearly all small cap stock share prices will suffer, including those with genuinely valuable underlying projects or businesses that would be valued higher in “normal to good” market conditions.

Especially if the company manages to accelerate its execution into improving market conditions.

Today we will provide a summary list of the companies we have Invested in over the last 2 years that fit this category - starting with our most recent Portfolio addition:

This week we announced our Investment in AML3D (ASX:AL3).

AL3 is a technology company that specialises in robotic, automated 3D printing of complex industrial parts for large organisations like the US Navy.

AL3 has been listed since 2020 and now has proven technology, established revenue and a blue chip client base.

And we believe the share price is not currently reflecting AL3’s recent increase in revenue momentum (hence product traction) that we are seeing.

AL3 sells its modular 3D printing systems directly to customers so that organisations like the US Navy can manufacture parts at the point-of-need.

The products of AL3’s technology are made stronger, faster and more efficiently than conventional manufacturing processes.

Catch our first AL3 note by clicking on the link below:

AML3D (ASX: AL3) - Our Tech Pick of the Year for 2024

It’s been a while since we have added a new tech Investment.

We have looked at a lot of tech stocks over the last couple of years...

Our last Tech Pick of the Year was in 2021, and it was Oneview Healthcare (ASX: ONE) ...

(and we haven’t seen a tech company we like enough since then).

ONE is currently up over 575% (at Fridays close) from our Initial Entry Price and has been one of our strongest constant performers.

(and due to this growth is currently our largest position).

Obviously we want to try to repeat this success with our next tech Investment.

... but remember that the past performance of Oneview is not an indicator that AL3 will do the same.

AL3 and other more advanced stage small caps we have added to our Portfolio is part of a slight adjustment to our approach over the last 24 months which we hope will yield rewards over the next few years.

During the poor small cap market conditions of tha last two years we have tried identifying high-potential, more advanced stage companies that have delivered real value or assets but are trading lower due to current poor small cap sentiment, but could turn back positive in the medium term.

(This strategy is not without risk. We outline the risks we have identified and accepted in our Investment Memo for each company, which you can find on our website)

Finding undervalued later stage companies

In these last two years we have added 16 new companies to our Portfolio.

In FY23 we added 6 new companies - four explorers and two later stage companies.

In FY24 we added 10 new companies - one explorer and nine later stage companies.

(the one explorer we added in FY24 was L1M - we’ll explain why in the coming weeks).

This trend towards “later stage” companies in a terrible market is driven (for us) by being able to “bargain hunt” companies that we think have material underlying value, and will be priced in when the small cap market sentiment eventually turns.

This “value” can be a post-discovery and JORC resource in the commodities space, later stage clinical trials in biotech, or already generating revenue in the tech or industrials.

Many pure play exploration companies are currently trading at near cash backing (if they even have any cash at all that is).

Today we’re talking about later stage companies that have more years of sweat equity and cold hard cash behind developing a specific business or project.

(compared to an earlier stage micro cap exploration company which needs to roll the dice for drilling glory... which we still love by the way).

But if the small cap market is as smashed up as it has been for the last couple of years, we thought we may as well pick up some potential bargains (in our opinion) where there has already been a lot of work done and money invested to progress an asset/project.

And then just wait for the market to turn back to positive...

As part of this strategy we recently launched our Emerge portfolio which focuses on companies that have recently undergone a recapitalisation raise.

But there are also quality companies out there that are just trading low due to market conditions and stale holders exiting.

And while we still love Investing in pure play explorers (it’s hard to beat the returns from getting lucky on an exploration discovery in bullish commodities conditions), over the last two years we have trended more towards companies that are not only doing some “swing for the fence” exploration drilling, but are underpinned with an existing JORC resource that the market may not be pricing in properly yet (more advanced stage).

Here are the new Investments we have made in the bear market conditions of the last two years that we consider to have later stage, advanced assets, as opposed to being overweight on the pure play explorers like in the bygone bull market days.

These are the companies where we hope the underlying value will be better reflected in the share price as small cap market conditions improve (or the individual companies macro theme goes for a sentiment run)

Genmin (ASX:GEN) currently +30% from Initial Entry Price

What does GEN do: GEN has a construction ready green iron ore project in Gabon.

Value in the assets: GEN has been working on this project for many years and says it will be producing green iron ore from a starter mine within 18 months. GEN already has four offtake MoUs - it's currently in the process of securing finance to build the mine.

⛏️Click here to read our GEN Investment Memo

TrivarX (ASX:TRI) currently +0% from Initial Entry Price

What does TRI do? TRI is an AI-driven mental health technology company seeking to commercialise objective measures to aid in the early detection and screening of mental health conditions, such as depression.

Value in the assets: TRI has been developing and investing in this technology for over 9 years and is now at Phase 2 clinical trials stages - we Invested after the company had been fixed, restructured and recapitalised at an $11M market cap with new board and management to take it forward.

🤖Read our TRI Investment Memo

Mithril Resources (ASX:MTH) currently +65% from Initial Entry Price

What does MTH do: MTH is looking to grow its silver and gold resource in Mexico.

Value in the assets: MTH already has a 11 million oz silver and 373,000 oz gold JORC resource and is looking to double the resource by the end of the year. This week Jupiter Asset Group made a cornerstone investment into MTH (at 20c - a premium to the market price) which will fund more than double the amount of planned drilling MTH will do this year.

⛏️Read our MTH Investment Memo

Inoviq (ASX:IIQ) currently +12% from Initial Entry Price

What does IIQ do: IIQ is developing an exosome technology platform to diagnose, monitor and potentially treat a range of cancers.

Value in the assets: IIQ has been developing its technology for over 10 years and already has an exosome product in the market that it sells to researchers to support drug development. Also, its monitoring tools for breast and ovarian cancer are in the later stages of clinical development and approaching commercialisation.

🦠Read our IIQ Investment Memo

Emyria (ASX:EMD) currently -45% from Initial Entry Price

What does EMD do: EMD is an integrated clinical drug development and care delivery company whose primary area of focus is on psychedelic assisted therapies.

Value in the assets: EMD owns and operates brick and mortar clinical facilities which it is already generating revenues from. These facilities provide a base of operations to develop and optimise and deliver assisted therapy treatments - including recently treating its first patient using psychedelics for mental health issues in a private clinic, which we believe was the first in the world.

🍄Read our EMD Investment Memo

Heavy Minerals (ASX:HVY) currently -40% from Initial Entry price

What does HVY do: HVY is a mineral sands developer with a flagship garnet project in WA.

Value in the assets: HVY is at the “feasibility” stage of the mining company lifecycle. It has published a scoping study with a headline NPV of $253M and CAPEX of $110M. The company has an offtake MoU for 15,000tpa of garnet and will be looking to complete a Pre-Feasibility Study over the project to get a more accurate estimate of the opportunity and the cost before securing finance to build the mine.

⛏️Read our HVY Investment Memo

Global Uranium and Enrichment (ASX:GUE) currently -46% from Initial Entry price

What does GUE do: GUE is a uranium explorer and developer with projects across four uranium districts in the USA & Canada.

GUE has also acquired a cornerstone stake in a uranium enrichment technology company.

Value in the assets: GUE has one of the largest undeveloped uranium resources in the US and it just completed “metwork” drilling at the project which turned up some grades that were well above the existing JORC resource. We’re looking forward to the scoping study at this project in Q3 of this year. In addition, GUE’s material stake in a uranium enrichment technology is what drew our attention to this as a more “advanced stage” Investment.

☢️Read our GUE Investment Memo

Sun Silver (ASX:SS1) currently +258% from Initial Entry Price

What does SS1 do: SS1 is looking to grow its silver resources in Nevada, USA. SS1 is also developing a “silver paste” technology for use in solar panels.

Value in the assets: SS1 already has a 292 million oz silver equivalent JORC resource. This resource was built from 200 drill holes and 60,000 metres of drilling. SS1 is also developing a downstream silver paste product, which will hopefully improve the project economics on the revenue side as the company moves towards feasibility studies.

⛏️Read our SS1 Investment Memo

Haranga Resources (ASX:HAR) currently -25% from initial Entry Price

What does HAR do: Definition stage uranium project in Senegal, Africa.

Value in the Assets: HAR’s project has a 16M lb uranium JORC resource and has been around for decades. The project was owned (twice) in the past by French uranium giant Orana (formerly AREVA) during the last two uranium bull runs. HAR is currently doing exploration to extend this resource.

☢️Read our HAR Investment Memo

What’s Next?

So it’s a mix of post exploration stage resource companies, biotechs and tech companies.

Some are up a bit, some are down a bit.

Now we wait for the small cap market sentiment to turn positive.

...and hopefully combine that with successful strategy execution by these companies.

Now with the financial year coming to a close, we look forward to what the next financial year will bring.

Currently, money is likely still tight for many usual small cap market participants to deploy on small cap stocks - which would typically fall in the “nice to have” bucket.

And other Investors are choosing to sit their cash on the sidelines or even pull it out of the small cap markets.

Hence why small cap share prices are and have been generally down across the board.

However, we see this as an opportunity to pick up “bottom of the market” bargains that have real asset value but are trading at what we think is a low valuation.

This was the idea behind our new Emerge Portfolio, which includes three of the stocks that we have mentioned today (MTH, GEN and TRI).

It’s been a long rocky road for small caps, and we are hoping for a positive six months coming up.

Happy new financial year, we hope it’s a successful one.

What we wrote about this week 🧬 🦉 🏹

Pursuit Minerals (ASX:PUR)

Pursuit Minerals (ASX:PUR) completed its first deep drill hole on its lithium brine project in Argentina, revealing high-grade lithium averaging 600 mg/L from 115m to 555m.

This surpasses their existing JORC resource estimate of 251.3 kt @ 351 mg/L from shallower depths, confirming higher grade lithium at greater depths.

With more drilling planned and a lithium carbonate extraction plant in place, PUR anticipates an upgraded resource by year-end. Recent funding supports these efforts, positioning PUR for potential growth compared to higher-valued regional projects.

Read: ⛏️ PUR hits higher grades, deeper below existing resource

Mithril Resources (ASX:MTH)

The Jupiter Gold & Silver Fund, a London-based fund with over $1BN in assets, recently invested $2M in Mithril Resources (ASX:MTH). This investment, done at a 29% premium to MTH’s previous trade (and it's still at a premium now), gives Jupiter a ~10% stake in MTH, which now has a market cap of $21M.

In total, MTH just raised a total of $3.7M to expand its drilling program to 9,000m, aiming to double its current JORC resource of 11 million oz silver and 373,000 oz gold by Q1 2025.

So with drilling happening right now, and drilling for the rest of the year, we are looking out for a stream of assay results from MTH which will hopefully deliver some nice high grade intercepts.

Read: ⛏️ $1 Billion Jupiter Gold & Silver Fund acquires ~10% of MTH at a 29% premium to last close

ALM3D (ASX:AL3)

This week we announced our 2024 Tech Pick of the Year: AML3D (ASX:AL3).

It's been a while since we added a new tech investment, and AL3 fits our investment criteria well. AL3’s technology enables the 3D printing of complex industrial parts for the defence, oil & gas, and aerospace industries, offering significant advantages over traditional methods.

With revenue on track to increase tenfold this financial year, strategic expansion into the US market, and partnerships with major clients like the US Navy, Austal, and Boeing, we see substantial growth potential. We believe in AL3’s robust business model, significant market opportunity, and blue-chip client base, making it a promising addition to our portfolio.

Read: 🤖 AML3D (ASX: AL3) - Our Tech Pick of the Year for 2024 (nextinvestors.com)

Quick Takes 🗣️

Encounter Resources share price moving, LYN drilling soon?

SS1 Submits US$60M Silver Paste Funding Application

MNB Green Ammonia Progress

KNI First Hole Nickel Results, EM follow up to come

VN8 announces buyout offer

NTI sets up expert panel after TGA meeting

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 📰

Copper:

Why Copper Fever Is Breaking (WSJ)

• Copper prices hit a record high in May due to speculation but have since fallen over 14%.
• Supply concerns from mining issues and scrap supply increases, particularly from China, could mitigate the predicted shortage.
• Long-term demand for renewable energy exists, but high prices often reveal new supply sources, potentially pushing prices down to $9,000 per metric ton by year-end.

Energy:

Will nuclear lead to cheaper energy prices? Experts weigh in (SBS News)

• The Coalition's plan to build nuclear reactors at old coal sites by 2035 lacks detailed cost estimates but is predicted to be more expensive than solar and wind energy.
• Nuclear energy has high initial costs and long build times, with past projects significantly over budget, but could lower prices in the long term.
• Experts emphasise the need for a diverse energy mix, including both nuclear and renewables, to meet future demands and reduce emissions.

Graphite:

California Startup Creates Key Electric Vehicle Battery Material From Methane (Bloomberg)

• Molten Industries, backed by Breakthrough Energy Ventures, is pioneering a US graphite supply chain using methane to produce graphite and hydrogen via pyrolysis.
• This effort aims to reduce dependence on China for graphite and meet domestic demand from automakers seeking reliable and low-cost materials.
• Despite progress with a pilot reactor, future demand for Molten’s products, including battery-grade graphite and hydrogen, faces uncertainties amid competitive materials and high production costs.

Hydrogen:

Pure Hydrogen reaches garbage truck deal in Newcastle (Business News Australia)

• Pure Hydrogen secures fifth Australian order for hydrogen fuel cell waste collection vehicles, starting a trial with Newcastle City.
• The company expands partnerships with major waste management firms and councils, eyeing growth in its hydrogen vehicle fleet.
• Pure Hydrogen remains a leader in hydrogen fuel cell technology, attracting interest from investors amid its strategic expansions.

Have a great weekend,

Next Investors