How will the Restrictions Impact the Critical Metals Market?

• Commentary: Antimony, niobium, precious metals, planets aligning for SS1?
• Quick Takes: 88E, EXR, BPM, CND, EMN, MAN, SS1
• This week in our Portfolios: MTH, IIQ, SS1

Could China’s latest export restrictions on critical metal antimony be the reminder the market needs?

A reminder that new, domestic mines to supply “critical metals” need to be developed ASAP?

And for the critical metals theme to cycle back on?

The ASX small cap market lives on hopes and speculation - and after a rough couple of years, this week, antimony and antimony stocks delivered some.

The “securing critical metals supply” theme certainly cycled off and lost momentum over the last couple of years...

But now, it seems geopolitical tensions have ratcheted up a further notch, leaving many governments on edge.

And countries that control the global supply of important goods or critical materials may start to further restrict exports to put pressure on their rivals.

We are used to seeing energy supply become “weaponised” - as we saw with gas supply at the start of the war in Ukraine.

Since then, the USA has banned the export of advanced semiconductors to its rival China, in order to hobble its artificial intelligence efforts.

And from the opposite side, over the last few years China has put export controls on some critical materials and processing technology - to stifle the West's attempted energy transition away from fossil fuels.

So far, China restricted exports of battery materials such as rare earths, graphite and gallium.

A few days ago China announced export restrictions on a metal called antimony - which is used in military equipment, munitions, tanks and missiles.

Antimony has become increasingly strategic because of its use in military equipment.

It is used mostly as a hardening agent for bullets and tanks, and also in missiles, nuclear weapons and night vision goggles.

Applying geopolitical pressure by restricting battery materials or energy supply is one thing, but messing with the USA’s military supply chains is another level.

Due to its strategic use in the military, antimony is high on the US critical metals list.

History has a habit of repeating itself.

During World War II the Japanese deliberately cut off China’s antimony supply to the US. This sent the US scrambling to find and finance domestic antimony supply to support the war effort.

Right now several decades later, the US does not currently have any domestic supply of antimony.

This comes at a time when global tensions are high, and most countries are increasing military spending in anticipation of uncertainty and potential trouble ahead.

So, after the price of critical battery metals have retreated and investor interest waned, are the China antimony export restrictions (and surge in stocks with an antimony story) a reminder that new and locally based critical metals supply should become a priority?

We would never want war to break out.

However, the COVID supply chain crunch taught the world an important lesson about having ready access to commodities locally, or in friendly countries, and we have positioned our Portfolio to benefit from a range of trends in what we maintain is still the early stages of a commodity supercycle.

It’s anyone’s guess what ends up happening with market interest in antimony.

It could be like other commodities we have seen in the past - a flash in the pan - where interest comes in for a few weeks, share prices rally and then a few weeks later no one cares and the market has moved on from it.

OR it could do what lithium and niobium did and create some billion dollar companies out of a select few small caps.

Antimony is mostly found within gold/silver deposits, so we expect to see some of the juniors with assets in those commodities get a bit more market interest over the coming weeks if the antimony run turns out to be the real deal.

But gold and silver on their own have been on very strong runs, with gold hitting new all time highs (again and again) and silver pushing back towards the decade highs it hit a few months ago.

What is causing gold and silver prices to push to such highs?

Well, here is our take.

Slowing of supply, decline of the US dollar and central bank buying.

First, Supply.

New supply of gold and silver may be arriving on the market more slowly than in the past. For example, silver mining supply peaked in 2016, and gold mining supply peaked in 2017.

Meaning we need more new mines...

US Dollar decline.

Gold and silver prices tend to rise when the US dollar declines, and vice versa. In July 2024, the US dollar index fell by 1% as markets anticipated an earlier rate cut by the Fed.

Central bank buying.

Central banks may be buying gold as a way to diversify away from US Treasuries due to concerns about the US fiscal situation.

Other factors that may be contributing to the rise in gold and silver prices include: inflationary hedging and the fraying geopolitical landscape.

These are just our speculations, however we have placed bets in our Portfolio accordingly to be leveraged to the thematics of gold and silver.

Speaking of placing bets, there is one stock in our Portfolio where the planets appear to be aligning.

The last time this happened was with Vulcan Energy Resources.

The macro theme winds are blowing strong for Sun Silver (ASX:SS1).

Planets aligning for SS1? Could it do a Vulcan?

With gold and silver on the move upwards, and the antimony price doubling in the last 6 months, it appears that the planets are aligning for our 2024 Small Cap Pick of the Year SS1.

We are Invested in SS1 as our Small Cap Pick of the Year because they acquired a huge silver project in the USA while the silver price was low.

...and then silver price hit decade highs.

SS1’s silver project has ~200 historical drillholes and a 292Moz silver equivalent JORC resource.

This week we got the assays an SS1s first drill hole to extend beyond its current resource... and it delivered high grade silver... AND antimony.

According to SS1’s May 30th announcement - its ~200 historical drillholes were only tested for silver or gold... and nothing else...

So, many of them could potentially also contain antimony, we just don’t know at this stage.

We think adding antimony to SS1’s already giant silver resource would be a great addition to the SS1 value proposition, especially if domestic antimony supply becomes a US defence priority, given that SS1’s project is located in the USA.

Antimony is suddenly the topic of the moment, and the silver price has renewed its strong run from the first half of the year.

Investing in small cap resources stocks is a lot about getting the timing right, specifically the macro themes working in your favour.

Factors which management teams can’t control, so it’s about getting lucky with timing too.

During the COVID bull market the planets aligned for our Small Cap Pick of the Year Vulcan Energy Resources (ASX:VUL).

For Vulcan, all of the planets aligned and the company’s share price went to a high of ~$16 per share, 80x from our Initial Entry Price of 20c.

It picked up its Zero Carbon lithium project while lithium was HATED in 2019, right before the great 2021-2022 lithium bull market.

The management team then executed on the plan on time and on budget.

VUL secured five offtake agreements with key players and raised hundreds of millions of dollars from key backers like Goldman Sachs and Gina Rinehart.

VUL has been our best ever Investment... so far.

It was the culmination of the “planets” aligning for the macro theme, market, project and execution.

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.

These types of results are EXTREMELY rare, because so many things need to go “right” at once.

After a project has been acquired, good execution is the only thing in the company's control.

However, if market sentiment or the macro theme are not firing at the same time, then the elusive “100 bagger” becomes very difficult.

In general, the ingredients that DID work really well for us back in 2020 was to find a company that:

1. Acquired the project in a down cycle - Acquired a project in an “unloved” commodity, for a very good price.
2. Project size and scale is big - the project has to have genuine size/scale potential so that investors see it as the most leveraged exposure to any particular thematic. That way it captures the biggest audience if things go in its favour... including major funds and potential acquirers.
3. In a strong macro theme - macro theme matters, the future outlook demand for a product (or constrained supply) will determine how much capital flows into the particular sector.
4. In a country with demand for the end product - located in a region that is prioritising the particular initiative and directly needs a new, preferably local supply of the critical commodity (...hello government incentives and subsidies).
5. Be the first mover - First to go public with their project when the commodity sentiment isn’t in full swing... yet (all the “copycat companies” will come later once the first mover starts showing share price success)
6. Then wait for the market to run.... 100% NOT in our control - this is where a bit of luck with timing comes into play.

Here is how the VUL story played out during the 2020/2021 lithium bull market:

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.

Could the planets align for SS1? So far so good...

After its IPO in May of this year SS1 at 20c and hit a high of 75c - IPO’ing just as the silver price hit decade highs... great timing.

The silver price then came off a bit and SS1 has traded between 40c and 60c since then - still a great start given how tough the small cap markets are at the moment.

But we think there could be a new set of planets starting to align for SS1, which started a few weeks ago and has been building.

Here is an update on how SS1 fits in our “things that need to go right” list:

1. Acquire project in a down cycle - SS1 picked up its project in August 2023 when nobody was talking about or investing in silver. SS1 paid ~$4.8M in cash and 3.5M SS1 shares BEFORE the silver price started running hard.
2. Project with size and scale - To win big the project needs to be BIG. SS1 now stands as the biggest “early development” silver resource on ASX. The project has 292,000,000 ounces of silver equivalent JORC resource and it is currently looking to grow the size of the resource through a 7,500m drilling campaign right now... and the first hole SS1 drilled to extend the resource delivered high grades of silver AND antimony.
3. In a strong macro theme - Silver, gold (and now antimony) are all running strong. This week gold hit US$2,500, silver hit ~US$30 and antimony is all over the news as the next critical mineral on the US Government’s radar.
4. In a country with demand for the end product - this has strengthened with the potential new antimony story - the US is looking to fund local critical minerals projects. SS1’s project in Nevada, USA. In April this year the US Government spent US$1.8Bn to fund a gold-antimony project in Idaho for the antimony by-product. This was the largest single investment into a mine by the US government, highlighting the demand for the end project.
5. Be the first mover - Although SS1 is not the first mover on the ASX into silver, its major ASX peer called Silver Mines ltd just had its environmental licence blocked for its silver project in NSW this week. For investors (and funds) that are looking for direct exposure to silver, without the permitting risk that now hangs over Silver Mine’s project, they may turn to SS1. Right now SS1’s market cap is a fraction of Silver Mines...
6. Then wait for the market to run... - Yesterday, Fed Chairman Jerome Powell said that “the time has come” for the US central bank to cut interest rates. So far there have been 10 green days on the ASX in a row and global markets have shaken off correction fears. Could this be the start of a return to the bull market (or at least a normal market) in the small end?

For VUL all of the planets aligned, the market, the project, the commodity and the execution.

This is extremely rare... but it is why we invest in the small cap market.

We are hoping that SS1 can follow this trajectory, but we will have to wait and see if all the planets continue to align for our 2024 Small Cap Pick of the Year SS1.

Is the antimony move “real”? It reminds us a bit of niobium...

We have spoken a bit about antimony today, and it’s too early to tell if it is just a “flash in the pan” commodity or if a genuine ‘antimony thematic’ will emerge.

Every time the market gets excited about something overnight, the cynics come out and give 100 different reasons why the interest isn't real and why it will die down in a few days/weeks.

(and rightly so)

We did see this happen in the lithium space back in 2015-2017 and with niobium immediately after the WA1 discovery hole in 2022.

We distinctly remember people talking about how the niobium market was tiny and a discovery wouldn't be that valuable...

WA1’s intercepts were huge, but everyone commented on the niobium market being small, highly concentrated and unlikely to grow.

Most would have been selling into that initial ~5x re-rate with the expectation that WA1’s share price comes straight back down to where it was pre-discovery.

At its peak WA1 was up over 200x from its pre-discovery share price...

And now niobium is one of the hottest commodities in the market.

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.

Turns out the niobium interest was real and it changed the fortunes of a few small cap companies...

That’s why we invested in St George Mining (ASX:SGQ).

SGQ has a niobium/rare earths project next to the world's biggest niobium producer CBMM in Brazil.

In the long run we think the world will need more niobium supply to come to market, and from a diverse range of companies (not just one company CBMM being responsible 80% of global supply).

With SGQ’s project sitting next to existing infrastructure and in a region that knows niobium inside and out (they are right next door toCBMM’s mine that supplies 80% of the worlds niobium) we think SGQ has one of the strongest cases on the ASX to make it to market first.

Click here to read our initiation note on SGQ: Our New Investment is St George Mining Ltd (ASX: SGQ).

So niobium was the real deal - now coming back to antimony...

Right now, some cynics may say the same things for antimony: “the market is small”, “interest will die in a few weeks”, “the move isn't real” etc..

We think that no one really knows what the world will look like in 12-24 months.

It might be nothing...

OR it could be the start of a structural change in the antimony market which mints a few multi baggers from the small caps brave enough to pour capital into antimony projects.

We will be watching antimony and antimony stocks over the coming weeks to see if the momentum continues.

Another antimony stock in our Portfolio?

Antimony export restrictions announced by China, we have learnt a lot about the antimony market, who the big players are, what it is used for and why it is so critical to the US Government.

We went through the archives of some of our exploration stocks to see if any other companies in our Portfolio, in addition to SS1, had some antimony in its back pocket, ideally before antimony became the talk of the town.

We did find one...TechGen Metals (ASX:TG1).

TG1 is a micro cap explorer capped at just $4.1M with various projects around Australia.

In the TG1 IPO Prospectus we found that the company reported rock chip samples with ~7% antimony grades at its Station Creek project.

While it’s only rock chips at this stage, 7% is very high grade for antimony.

For context, Perpetua Resources (the Idaho based gold-antimony company that is receiving $1.8BN in financing from the US government ) has antimony resources with a grade of 0.06%.

There is still a lot of work to do to evaluate the technical merits of the antimony on the project, but if antimony prices keep running and investor interest remains strong, we think TG1 may revisit this project for antimony.

It's also worth noting the antimony grades from rock chip samples don’t mean too much on their own, but are more a pathfinder on where to drill.

If there is merit for the project, TG1 will need to work up some drill targets and actually drill the project to see if there is any mineralisation beyond the rock chips.

Ultimately, we don't mind a few of our companies dusting off the core logs and checking to see if there is some antimony potential in their assets.

Because in small cap land... anything can happen.

What we wrote about this week 🧬 🦉 🏹

Mithril Resources (ASX:MTH)

Gold is at a new all time high, silver also looks ready to run...

Nice timing for gold-silver explorer Mithril Resources (ASX:MTH) who is drilling for those precious metals right now in Mexico.

MTH is almost halfway through drilling a 9,000m campaign, and is on track to double its half a million ounce gold equivalent resource by early next year.

With a TSX-V dual listing on the horizon, find out what we’re looking for next from MTH.

Read: ⛏️ MTH first gold + silver assays in, more to come - on track to double its resource

Also watch: Our CEO John Skeet takes a deep-dive into our latest drill results in Copalquin, Mexico ⛏️

Inoviq (ASX:IIQ)

A “fingerprint” for the early detection of Parkinson’s?

Our biotech Investment, Inoviq (ASX:IIQ) has validated its NEURO-NET technology for early detection of Parkinson's disease, expanding its application from Alzheimer's disease.

This development shows that IIQ’s technology is expanding to new neurodegenerative diseases - and it's not too far-fetched to think the tech could soon be put to use on other conditions of the brain.

It’s potentially really important science...and it seems to be working.

Read: 🧬 A “fingerprint” for the early detection of Parkinson’s? IIQ builds on previous Alzheimer’s validation

Sun Silver (ASX:SS1)

A 1,466 ppm (0.146%) sniff of antimony?

Antimony is front and centre of investors' minds as China recently announced export restrictions on the critical mineral.

It’s used in stuff like infrared missiles, nuclear weapons and night vision goggles, and mostly as a hardening agent for bullets and tanks.

We’re hoping that our US silver Investment Sun Silver (ASX:SS1) can turn up some more antimony on its project, in addition to the high grade silver hits that step out drilling has already delivered...

Read: ⛏️ SS1 announced antimony potential... weeks before antimony became “cool”.

Quick Takes 🗣️

88E project update on the North Slope of Alaska

EXR adds to QLD gas project - contingent resource now ~14% higher

BPM starts phase 2 drilling next to $2.2BN Capricorn Metals

New seismic data incoming for CND’s offshore prospect in Peru

EMN signs non-binding offtake agreement for high purity manganese

Mandrake inks supply agreement, gets free pilot plant

EXR about to kick off second phase of flow test

SS1 hits large extension to silver mineralisation

EXR flow rate to increase?

Macro News - What we are reading & listening to 📰

Antimony:

China’s Antimony Export Restrictions: The Impact on U.S. National Security (CSIS)

• China is imposing export restrictions on antimony starting September 15, affecting six products related to this critical mineral used in defence and electronics.
• The U.S. relies heavily on Chinese antimony imports and faces potential supply disruptions, leading to higher prices and a need for alternative sources.

Silver:

Bowdens Silver mine project in NSW deemed void after appeal upheld (ABC News)

• The NSW Supreme Court voided the Bowdens Silver mine approval due to overlooked environmental impacts of the transmission line.
• Construction is halted, and there are calls for planning process reforms, with local communities celebrating the court’s decision.

Battery Metals:

EU Plans 9% Tariff on Tesla Cars as China EV Probe Advances (Bloomberg)

• The EU plans a 9% tariff on Teslas from China, citing subsidies, with higher duties for other Chinese automakers.
• Tesla's tariff is lower due to fewer subsidies; the EU will finalize the decision by November, while China considers retaliatory measures.

Energy:

Choke in gas supply makes imports, once unthinkable, almost inevitable (AFR)

• Australia faces a potential LNG import need due to falling local gas production and lower reserves.
• High import costs and cautious commitment remain, but companies and the government are considering solutions, with Port Kembla as a key project.

(hello EXR)

Gold:

Interest rates: Gold poised to test $US2,600 this year as Fed rate cuts near (AFR)

• Gold prices have hit a record high of ~$US2500 and are expected to rise to $US2600 this year, driven by anticipated US interest rate cuts, a weakening dollar, and increased central bank buying.
• Gold's rally has boosted ASX gold producers, with significant stock gains, as investors bet on further price increases amid weakening economic conditions and high central bank demand.

Uranium:

China Approves Record 11 New Nuclear Power Reactors to Cut Emissions (Bloomberg)

• China approved 11 new nuclear reactors, investing $31 billion to expand its atomic energy capacity.
• The country aims to lead global nuclear power by 2030, with ongoing rapid reactor approvals.

Biotech:

Novartis, Versant hope to repeat Chinook’s success by arming kidney biotech Borealis with $150M (Fierce Biotech)

• Novartis and Versant Ventures have launched Borealis Biosciences with $150 million in Series A funding, aiming to develop RNA-based therapies for kidney diseases.
• This follows the success of Novartis’ $3.2Bn acquisition of Chinook Therapeutics in 2023 to treat and target rare kidney diseases.

(hello DXB)

Have a great weekend,

Next Investors