How the mainstream news shapes the macro themes we invest in
Published 28-JAN-2023 15:00 P.M.
11 minute read
A key driver in overall sentiment is what investors read in the mainstream media.
As we have seen from the positive start to 2023, sentiment and momentum are important factors in small cap stock performance.
While it’s widely accepted that most news media has gone downhill in the last 10 years, it still plays a key role in shaping and accentuating investor sentiment in the financial markets.
We think it’s important to stay across what the mainstream financial news is reporting, not only about the broader market conditions, but specifically around the macro themes we are Invested in.
Over the past two weeks, we’ve summarised our Investment outlook across a whole host of macro themes for the 2023 calendar year.
In our outlooks we detail:
- What we like about each theme for 2023
- What other analysts say about the macro theme
- Present the bear case against, or what could actually go wrong
If you missed it, you can find it here:
- Part 1 - Our investment outlook for 2023 part 1 (commodities supercycle, energy transition materials, development stage companies, oil & gas, gold, helium, cannabis, biotechs and tech)
- Part 2 - Our investment outlook for 2023 part 2 (lithium, cobalt, graphite, manganese, nickel, copper, rare earths, US based battery materials, clean energy, hydrogen, renewables, uranium, food security, iron ore and growth stocks)
We are planning to track how well our predictions come through, and part of this tracking process is to collate key mainstream financial news reports about what’s happening across each theme.
We will aim to share an update every few months on how each theme is progressing, including what has been happening in the news.
To start things off, here are some key developments.
Tech stocks roaring back? (ONE, WHK)
Ok - we didn’t expect such a strong rebound in the broader tech sector, but will it last?
After a painful 2022 for tech stocks, the new year has so far marked a sharp recovery for the sector. New rounds of layoffs by tech industry behemoths have been seen as welcome belt-tightening to investors, while the worst of the Fed’s interest rate rises appear to be behind us.
After each forming a new low at the turn of the year, the share prices of Apple, Amazon, Microsoft, and Meta have rallied through January. Although a spate of earnings reports due in coming weeks may test the recent bounce in such tech and other mega-cap stocks.
What we're interested in now is whether that recovery is sustained and, more importantly, whether it carries through to the smaller end of the tech market.
It’s quarterly reporting season on the ASX, and by Tuesday 31st of January we will see quarterly reports from our two tech Investments ONE and WHK, where we will get an update on revenue, costs and cash on hand, plus management commentary and outlook.
Green shoots in biotech (ALA, DXB, BOD)
We saw widespread pain in the biotech sector in 2022 as the cost of capital increased and investors rotated away from risky stocks with longer timelines to reach profitability.
SG Hiscock portfolio manager Rory Hunter told the AFR that while the market has bottomed out and green shoots were now visible in the sector, speculative biotech companies would take at least another 12 months to return to favour with investors.
Merchant Group’s Andrew Chapman also thinks we’ve seen the bottom of the cycle, saying while there is now money for deals, it’s specific — there needs to be “a good board and product that’s going well”. Chapman sees opportunities for investors this year, but you have to be targeted and willing to ride the volatility.
More biotech reading:
Fierce Biotech: Biotech may soon be defined by the 'haves and have-nots' as investors look for less risky bets
Lithium just keeps on rolling (VUL, TYX, LRS, PUR, RAS, EMH)
As reported in the AFR, UBS has upgraded its spodumene price forecasts by up to 50%, expecting lithium to remain in a physical deficit for the near and medium term.
UBS refreshed its lithium outlook after China’s rapid reopening and growing expectations for a sales rebound post Lunar New Year, saying “we believe lithium markets will remain in deficit for the near and medium term before moving to structural deficit long term”.
“This needs a demand rationing price, for which we have seen no evidence in the past 12 months despite record-high prices that are orders of magnitude above costs.”
Bloomberg also reported on the lithium supply/demand imbalance commenting on the planned build out of supply and how likely it is to fall short of demand forecasts.
More reading on lithium:
Bloomberg - Biden Backs Nevada Lithium Mine With $700 Million Loan Offer
AFR: This $136m lithium deal may be just the start of something big
Copper, increasingly critical to the US (TG1, RAS, AKN)
Copper is a foundational metal for the energy transition, electrification, and global growth.
The World Bank found that over the next 23 years, the copper industry needs to produce as much copper as humanity has produced in the last 5,000 years to meet demand.
S&P say copper demand will double by 2035 and that “there will not be enough supply to meet the demand of Net-Zero-Emissions by 2050”.
Copper isn’t currently considered a “critical material” by the US Geological Survey because the country did have some domestic production, but is expected to be added to future critical minerals list given China controls much of the critical minerals supply chain.
Manganese faces imminent deficit (EMN, PFE)
Mining.com reports that the high-purity manganese market may face a deficit as early as 2024. Unlike many other battery materials, manganese is yet to see a price spike, with manganese sulphate priced at less than $1,000 per tonne in China.
However, as explained by Euro Manganese (ASX: EMN) CEO Matt James, we’re likely to see significant growth in both the European and North American battery industry that should support higher prices. These regions both have very small high-purity capacity but will each require their own supply chains — in North America because of the Inflation Reduction Act (IRA) and Europe because of geopolitics.
Uranium: Demand surges for nuclear power (GTR, AKN)
Many countries desperate to lower emissions and reach climate goals are now looking to nuclear power, which has no carbon emissions, to help relieve the mounting pressure to find ways to meet those targets.
For nuclear to be a solution, Bloomberg reports that with so few new nuclear plants in the pipeline, existing nuclear reactors must keep running for far longer than anyone ever expected. And that means the need for more uranium.
Read more from Bloomberg: Nuclear Power Plants Are Pushed to the Limit as Demand Surges.
Oil & Gas (IVZ, EXR, 88E, TEE)
WSJ: Chips Are the New Oil and America Is Spending Billions to Safeguard Its Supply
AFR: These market-beating fundies see boom times for oil and gas
Bloomberg: Qatar Says Natural Gas Markets Will Remain Volatile for Years
Gold (TMR, LCL, TTM)
AFR:When 11-year-olds question fiat currencies, it’s time to buy gold
Reuters: Gold prices seen rising towards record highs as rate rises near end
Forbes: Gold Stocks Are Rising In 2023 - Should You Add Precious Metals To Your Portfolio?
Hydrogen (PRL, EXR)
PwC: The green hydrogen economy
WSJ:Washington Bets on Green Hydrogen and Companies Line Up to Cash In
Bloomberg:China Has Set Its Sights on Cornering Another Green Energy Market:
Bloomberg NEF:Energy Transition in 2023: Into a New Era
AFR:How the marijuana ‘green rush’ fell apart
Food security (MNB)
Bloomberg: Africa Needs Up to $65 Billion in Loans Every Year to Curb Food Imports
This week’s Quick Takes 🗣️
GAL: December Quarterly report update
GGE: Locks in drilling contractor
IVZ: The latest drilling data & what’s next
IVZ: Pre-drill vs post-drill risks assessment
LCL: More developments at Colombian gold project
TEE: WA exploration ground now in the TEE portfolio
This week in our Portfolios 🧬 🦉 🏹
Pantera Minerals (ASX:PFE)
This week Pantera Minerals (ASX:PFE) reported results from its maiden drilling program at its WA manganese project.
There were four key takeaways from the drilling results:
- Manganese mineralisation confirmed - manganese mineralisation in Area 1 continues along 600m of strike.
- Mineralisation is open in two directions - this suggests mineralisation could extend further.
- Strong grades - the grade for the semi-massive to massive manganese area fell within our “Base Case” scenario of 8-15%.
- Shallow mineralisation - manganese was found near the surface. This makes it cheaper and easier to mine if PFE moves into production.
We also like that European auto giant Stellantis just signed a $30M deal to get its hands on high purity manganese from PFE’s regional peer, Element 25.
PFE’s project is roughly 45km south of Element 25’s resource of 263Mt of manganese ore grading ~10% Mn.
📰 Read our full Note: PFE Hit Manganese Mineralisation in Maiden Drilling
Evolution Energy Minerals (ASX:EV1)
The share price of our 2021 Wise Owl Pick of the Year Evolution Energy Minerals (ASX:EV1) reversed course to gain 35% this week on no news.EV1 is fast approaching production stage at its advanced, development ready graphite project in southeast Tanzania.We think that investors are now back after taking a holiday break and the market is starting to show an interest in EV1 because of its near term catalysts:
- 🔄 Updated Definitive Feasibility Study (DFS) - EV1 will be looking to improve on its already very strong $323M net present value from its 2020 DFS. EV1 expected the updated DFS in “early 2023” so we suspect that the market’s anticipation is building given January is almost over.
- 🔄 Framework Agreement - a key milestone that provides regulatory certainty to EV1 from the Tanzanian government.
- 🔄 Drill results - looking to find shallow high grade graphite to add to its already strong resource estimate. These results should feed the updated DFS.
📰 Read our full Note from yesterday: Why is the EV1 share price running?
FYI Resources (ASX: FYI)
Our Wise-Owl critical metals Investment, FYI Resources (ASX:FYI) is now approaching the “funding decision” stage for a demonstration plant for its innovative high purity alumina (HPA) project.
What separates FYI from other hopeful producers is that it has the $13.3BN-capped Alcoa as a project financing partner. We now await a final investment decision by Alcoa to provide US$50M for the construction of a demonstration plant.
FYI’s project has an NPV of over US$1BN, with FYI taking 35% and project partner taking 65% - however to start generating cash, a capital cost of US$250M is required.
Of this, Alcoa is to contribute 97% of the project cost, or US$243M, over 3 stages. The first stage has already been completed and now the decision regarding the US$50M payment required for the second stage is looming.
📰 Read our full Note: Big funding decision looming: The catalyst FYI is looking for?
Catalyst Hunter 🏹
Latin Resources (ASX:LRS)
Latin Resources (ASX:LRS) this week announced drill hits from drilling outside of its existing JORC lithium resource defined last year at the Colina deposit at its Salinas Lithium Project in Brazil.
LRS says that this Colina West Prospect presents an exceptional resource growth opportunity that could be just as good or better than the original Colina discovery.
These new intercepts are up to ~20.17m thick with lithium grades of up to 1.96% — well above our bull case expectation and the 1% lithium grade that is typically considered economically viable.
We now await LRS’s Preliminary Economic Assessment (PEA) that will set out a first pass set of financial metrics for the lithium project and give investors an idea of the potential value of LRS’s resources.
LRS’s 65,000m mineral resource expansion drill program continues, now with a total of eight rigs on site to complete the drill program. Ultimately, LRS is looking to expand its existing JORC resource and deliver further recourse upgrades before the end of this year.
📰 Read our full Note: LRS now drilling west of its lithium JORC resource
⏲️ Upcoming potential share price catalysts
Updates this week:
- PFE: Awaiting assay results for its manganese (Weelarrana) project.
- This week PFE put out the assay results from its drill program. We covered the news in a deep dive which you can read here.
- GGE: Preparing to drill its US helium project looking for a commercially viable flow rate.
- This week GGE appointed a drill contractor for its upcoming Jesse-2 well. See our Quick Take on the news here.
- EV1: Updated DFS looking to improve on the already relatively strong US$323M NPV; Framework Agreement with the Government of Tanzania.
- We covered what’s next for EV1 in a note late in the week, to see what we are looking out for next check out the full note here.
No material news this week:
- KNI: Drilling the first of its three Norwegian battery metals projects inside the EU.
- GAL: Is undertaking a second round of drilling at its Callisto PGE discovery in WA.
- 88E: Drilling for oil in the North Slope of Alaska next to UK listed Pantheon Resources.
- TTM: Drilling its copper porphyry target in Ecuador.
- PRL: Awaiting final execution of a joint development agreement with Total Eren.
- TMR: Maiden JORC resource estimate for its Canadian gold project.
- TYX: Awaiting start of next drilling campaign
Have a great weekend,
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