Index Inclusion: A Small Cap’s Big Leap

• Commentary: CAY, ONE, ALA and DXB enter the All Ords index. What are Market Indexes and how does entering one impact a stock? Weekly gold comments.
• Quick Takes: 88E, TG1, PFE, GTR, SGQ, PUR, TTM, MNB
• This week in our Portfolios: MTH, JBY, EIQ, CAY

A strong sign that a small company is graduating to a medium sized company is inclusion in a market “index”.

Last night it was announced that CAY, ONE, ALA and DXB were added to the ASX All Ordinaries index.

The “All Ords” (as seen on the mainstream TV news ever since you were a kid) represents the top 500 companies on the ASX by market cap.

And with it comes more market attention, media coverage, analyst coverage and institutional fund buying.

Every year we adapt our Investment strategy and plan to optimise for the market conditions.

One of our new strategies for 2025 was to identify and Invest in undervalued, later stage companies that had a strong potential to be included in an “index”.

(Source - Weekend Note, 11th Jan 2025)

Think of a market index like a basket of companies that fit a certain criteria, and represent that portion of the market.

This could be gold stocks, tech stocks, biotech stocks, stocks that meet a certain size criteria etc...

These indexes are used as a benchmark to measure how that particular segment of the market is performing.

Indexes (namely the stocks within an index) are generally bought by big institutional funds that just want leverage to a specifically themed basket...

The broader the basket, the more access to new capital.

The best basket for small to medium sized ASX listed companies to enter in their growth journey is the S&P All Ordinaries Index.

This is a group of 500 of the largest ASX listed companies by market cap, that meet the strict requirements for entry.

There are over 2,200 companies listed on the ASX fighting to deliver enough positive results growth to enter (or stay in) an index.

For anyone that follows the English Premier League, a small company moving into the All Ordinaries index is sort of like a team being promoted from League TWO up to to League ONE.

(Source)

With promotion comes more attention, bigger crowds, comparison against better teams, more media and pundit coverage... and more money.

And the ultimate goal is to eventually be promoted to the top tier Premier League.

(The equivalent here would be the ASX top 20 - where you would be up against the biggest and best companies like BHP, CBA, RIO, WES etc)

Don’t expect to see any sub $10M market cap speculative companies in the All Ords, it’s generally reserved for developed companies.

Index inclusion (and exclusion) is calculated every quarter.

In these quarterly Index rebalances, some companies are promoted in... and others are relegated out.

Depending on how well they have performed.

This quarter, FOUR of our Portfolio companies were added to the S&P All Ordinaries Index.

• Canyon Resources (ASX:CAY) - Development stage bauxite project in Cameroon (read our latest CAY update)
• Oneview Healthcare (ASX:ONE) - Hospital bedside technology that improves the patient and nursing experience. (read our latest ONE update)
• Arovella Therapeutics (ASX:ALA) - Cancer cell therapy technology that is approaching a Phase 1 clinical trial. (read our latest ALA update)
• Dimerix (ASX:DXB) - Phase 3 treatment for a rare kidney disease (big results readout in August this year).

This is a big milestone for each of them and congratulations to all four.

(we also note one of our favourites IVZ dropped out of the All Ordinaries index... we are still holding and hoping to see a flow test or some drilling this year that will get them back in... the Manchester United of the ASX?)

We will be interested to see the trading volumes for CAY, ONE, ALA and DXB over the next month as the value of indexation washes over the stock.

We have seen it happen before with a few of our stocks that made it into a coveted “index”...

What happens when a company enters into an index?

As we said above, going into the S&P All Ords Index is like entering the “bigger leagues”.

Generally a company recently added into an index will see:

• Increased liquidity in their stock
• Buying from index funds to manage the balances.
• More doors open to a different class of institutional investor - ones that can only invest in stocks that meet a certain criteria.

Last quarter EIQ was added to the S&P All Technology Index.

(not quite the All Ords, but we are hoping that will come soon for EIQ).

Since then, EIQ has seen increased volume in its stock, and its share price recently reached an all time high of 31.5c.

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.

Looking further back, our best ever performers at some point found their ways into the indexes prior to delivering some strong performance.

In March 2021, Vulcan Energy Resources (ASX:VUL) was added to the All Ordinaries index:

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.

Also Latin Resources (ASX:LRS), which went from our Initial Entry Price of 1.8c to a high of ~42c.

Here is where LRS got included in the All Ordinaries index:

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.

Both of those companies started run ups off the back of index inclusion.

And have subsequently held their value.

VUL is still trading at ~$860M market cap and LRS was recently acquired for $560M.

Index inclusion alone didn’t spark these rallies nor does it guarantee sustained price increases, but it played a part in adding “fuel to fire” as larger pools of capital become unlocked.

It’s going to be interesting to see how the new index entrants in our Portfolio go over the coming weeks and months...

Who else could be next included in the index?

With CAY, ONE, ALA and DXB all added to the All Ordinaries Index last night we think it is a great start to the calendar year for our Portfolio.

And as per our updated 2025 strategy we want to see more of our Portfolio companies enter (and stay in) an Index.

There are a few other stocks in our Portfolio that we think “narrowly” missed out, that may enter the index at a future index rebalancing.

Contender #1: AML3D (ASX:AL3)

AL3’s technology “3D prints” complex industrial parts for the defence, oil & gas and aerospace industries.

AL3 has an undiluted market cap of $67M and last year raised $30M to fund its US expansion strategy.

We think the first re-rate is currently playing out.

As AL3’s US push gathers steam and more major contracts are secured, this could spark AL3’s market cap to a level where it starts threatening index inclusion.

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.

AL3 just opened its facility in Ohio with the aim of doubling capacity. AL3 is well advanced in looking for a site for an additional facility already.

We think the push into the US definitely seems like the right move for AL3.

(it just needs a bit more time to chew through that $30M cap raise)

Read our note on AL3 here

Contender #2: Sun Silver (ASX:SS1)

SS1 has the biggest silver resource on the ASX with a 423 million ounce silver equivalent JORC resource.

(The silver price is currently ~US $32.5 per ounce)

SS1 is located in the one of the best mining jurisdictions in the world - Nevada, USA - which was #1 on the Fraser Institute’s mining jurisdiction rankings in 2022.

(precious metals in the USA is one of our top themes for near to medium term)

SS1 went from a 20c IPO to a high of $1.18, and is now pretty happily trading in the 60c to 70c range.

We think that was the company’s first re-rate.

With some positive newsflow and continued rise of the silver price we think SS1 could find a new base in its valuation that is supportive of index inclusion.

SS1 keeps hitting more silver outside of its current resource footprint, so there is scope for SS1’s resources to grow.

SS1 is also looking for antimony - a critical mineral which has recently had export restrictions placed on it by China, and which is also used in a range of defense applications.

We are hoping SS1 can prove out an antimony resource on its project which was the primary reason a US company (Perpetua Resources) got (US$1.8BN in loans from the Department of Defence).

SS1 could have valuable US based antimony but more importantly could be the preferred way of getting leveraged silver exposure on the ASX at scale.

For every $1 increase in the price of an ounce of silver, SS1’s 423 million silver ounce equivalent resource becomes significantly more valuable from a “what’s in the ground” perspective.

IF SS1 gets into an index, passive funds that need to have some silver exposure will likely need exposure to SS1.

Read our latest SS1 update here

Some weekly gold commentary.

It’s been a busy week in the markets with more Trump policy chaos creating jarring market and commodity movements around the world.

Trump’s 25% tariffs on Canada and Mexico kicked in again...

...and then walked back.

It can be tricky to predict what is going to happen in the short term, but we are still liking our leverage to gold.

Gold loves uncertainty.

We said in a previous weekend note that gold’s run could somewhat be attributed to the unpredictability over the Trump Administration's trade policy.

Last week we wrote about the large amounts of physical gold moving out of London to New York

(physically... in aeroplanes).

The media speculated it was to avoid being stuck on the wrong side of the "tariff trade”.

That whole narrative was that traders in New York were stuck with gold trades where they couldn't deliver with physical bullion because the gold was in a vault outside of the US.

If they left the gold in London, overnight it could have been hit with a 25% tariff and the traders would have had to eat that loss.

So they flew the physical gold over the Atlantic to avoid a big 25% tariff.

This was just the media's opinion - who knows if their explanation is correct or if it's something else entirely...

(Perhaps the US is rushing to re-stock “missing” gold in Fort Knox? The deadline for the Fort Knox inspection demanded by Senator Rand Paul is by March 19th, so we’ll find out soon)

Anyway, here are some of the gold mainstream media headlines from the last 48 hours:

(Source)

But we think there could be more to the gold story.

Over the years, Trump has been outspoken about wanting a weaker US Dollar.

A lower USD enhances the USA’s ability to produce and export stuff to the rest of the world.

It makes US made goods cheaper for the rest of the world (directly affecting US manufacturing).

(and help reduce the trade deficit)

In 2023, US Vice President JD Vance referred to the US dollar’s “reserve currency status” as “a massive tax on American producers.” It fueled, the then-senator said, “our mass consumption of mostly useless imports, on the one hand, and our hollowed-out industrial base on the other.” (Source)

A strong USD has negative impacts on US manufacturing because it makes US made products more expensive for the rest of the world...

Germany has been maintaining a weakened currency for years with the Euro.

In order for Germany to have a strong manufacturing sector AND a strong economy it uses the euro to artificially deflate its currency (this is because the euro includes a bunch of countries like Greece that depress the price).

In order for the US to have a strong economy and a strong manufacturing sector they are coming up against the challenge of a strong US dollar.

Because the US dollar is the global reserve currency, if it is strong, it will suck up the world’s capital.

Investors/institutions convert more and more of their assets into USD to avoid mismatches in trade accounts.

Think of it like a “would you rather” pair...

Would you rather USD or euros? Would you rather USD or Turkish lira? Would you rather USD or... gold?

These are the questions that financial institutions have to contend with - and generally the answer will be the global reserve currency, the US dollar.

The reserve currency effect is a blessing and a curse that the US has had to live with for decades.

Trump’s whole mantra is about America first, and the manufacturing sector was a big part of his presidential campaign.

Which we think is one of the reasons he may want a weaker USD... to improve the country's manufacturing competitiveness.

How does he plan to get there?

We’ll have to wait and see.

But in the meantime the gold price keeps going up every week.

We saw this tweet from a macro analyst we follow, which backs up the weaker USD theory too..

He shows in chart form the historical disconnect between the strength of the USD (Blue line) and the strength of the commodities sector relative to equities overall.

Based on the chart it looks like we are getting close to a narrowing of that gap:

A weaker USD is bullish for “hard assets” like commodities AND equities outside of the US.

A weak US dollar is very good for gold, as gold is the counterweight to currency.

To learn more about gold (and stocks that we have Invested in), read our ebook:

(Download the e-book)

What we wrote about this week 🧬 🦉 🏹

Mithril Silver and Gold (ASX:MTH)

Our Mexican gold & silver Investment Mithril Silver and Gold (ASX:MTH) announced some ultra high grade drill hits again.

A 4.95m drill intercept with 20.5g/t gold and 1,833g/t silver.

Which included a 0.55m section with grades of 110g/t gold and 7,530g/t silver.

A good time to do it too - gold and silver prices both just keep going up AND ahead of MTH’s targeted resource upgrade...

Read more: ⛏️ MTH: Major drill hit - 4.95m at 20.5g/t gold and 1,833g/t silver.

James Bay Minerals (ASX:JBY)

This week James Bay Minerals (ASX:JBY) announced a maiden JORC resource of ~1.37M ounces of gold.

JBY’s project is in Nevada, USA - next door to the N.G.M Mining complex which is owned in a Joint Venture by two of the world’s biggest gold producers, Barrick and Nemont.

JBY is weeks away from drilling its project again, where the company will be testing a geologic theory that could multiply the size of its JORC resource.

(We have mocked up a pretty good image of this theory and what JBY is trying to do in our note)

Read more: ⛏️ JBY announces 1.37M ounces of gold maiden JORC resource - more drilling starting in the coming weeks... and it’s in the USA

Echo IQ (ASX:EIQ)

Our health tech Investment Echo IQ (ASX:EIQ) put out a business update this week.

In that update we noticed EIQ mentioned it is conducting a fully funded device pilot trial with a “leading global structural heart innovation company”.

EIQ didn't identify who that partner was, but we went on a bit of a deep dive into one of the leaders in the space.

The $42BN capped Edward Lifesciences paid US$1.2BN for two companies working on therapeutics for Aortic Stenosis and Heart Failure.

Two heart diseases that EIQ’s technology can be used to detect.

We think the early detection of heart disease is something therapeutics companies would be interested in.

EIQ’s AI algorithm is already cleared by the FDA for detecting Aortic Stenosis, and FDA clearance for Heart Failure is expected to be approved later this year...

Read more: ⚕️ EIQ - who are they working with?

Canyon Resources (ASX:CAY)

Our 2025 Wise Owl Pick of The Year Canyon Resources (ASX:CAY) owns one of the world’s richest bauxite deposits.

This week CAY announced that it would be buying a 9.1% strategic stake in the national rail company in Cameroon.

Bulk commodities projects like CAY’s (1BN tonne JORC bauxite resource) require easy and cheap rail and road infrastructure access to go from the mine site to ports

In order to have more control over its destiny, this week CAY announced it is acquiring a 9.1% strategic stake in Camrail.

Camrail owns and operates the 800km railway linking CAY’s giant bauxite deposit to the port.

We think its yet another smart move by CAY on its pathway to first production.

Read more: ⛏️ Bauxite developer CAY to acquire 9.1% of Cameroon rail company, plus board seat

Quick Takes 🗣️

88E’s neighbour $1.5BN Pantheon Resources to kick off flow tests

TG1 ranks 19 new copper targets in WA.

PFE’s latest presentation outlines next steps for promising USA lithium project

GTR’s scoping study on track for Q2 2025

SGQ begins downstream Niobium and rare earths study

PUR’s lithium pilot plan now up and running

TTM finds gold at depth, resource upgrade and Gina copper update next

MNB receives 2nd tranche of Angolan Sovereign Wealth Fund’s investment

Macro News - What we are reading & listening to 📰

Defence:

BAE systems: ASX investors pile into war stocks as defence spending soars from Donald Trump’s Ukraine push (AFR)

• Australian investors are piling into global defence stocks, betting on a long-term supercycle in military spending.
• European and US defence companies are surging as NATO nations boost spending, with ETFs on the ASX delivering strong returns.

Copper:

Copper prices surge as Trump signals 25% tariff on imports (Mining.com)

• Copper prices surged over 5% after Trump suggested a 25% import tariff.
• Traders are scrambling to secure shipments before potential US tariffs take effect.

Gold:

Dalio Warns of US Debt Crisis ‘Heart Attack’ Within Three Years (Bloomberg)

• Ray Dalio warns of a major US debt crisis within three years if deficits aren't reduced.
• He suggests holding 10-15% gold in a portfolio as protection against economic instability.

Lithium:

SQM cuts spending amid drawn-out lithium price slump (Mining.com)

• SQM is cutting 2025 spending to $1.1B amid weak lithium prices, down from $1.6B last year.
• Despite a 41% drop in Q4 earnings, SQM expects lithium demand to grow 17% in 2025.

Rare Earths:

Why rare earths matter to Donald Trump and the west (FT)

• The US is pushing Ukraine to sign a deal granting access to its mineral resources, with a focus on rare earths.
• Despite Trump's interest, Ukraine has no commercial rare earth reserves, according to the US Geological Survey.

Silver:

Gold Steady Near Record High as Trump Tariff Threat Drives Haven Demand (Bloomerberg)

• Silver hit a one-week high as trade war concerns boosted haven demand and the dollar weakened.
• A surge in silver stockpiles in US warehouses may tighten availability in the London spot market.

What we are Watching:

Willem Middelkoop: Largest Geopolitical Shift Since WW2

Rick Rule - Global Trade War - Do This Now | Jimmy Connor

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