Rising Precious Metals Prices Fuel Optimism in Small Cap Markets

• Commentary: Gold and silver on a tear... so are gold and silver small caps. Finally some life back in one section of the small cap markets, will it flow to other sections? What do we actually want our Investments to achieve during a commodity bull run?
• Quick Takes: SLM, 88E, BPM, SS1
• This week in our Portfolios: LYN, MTH, TTM, SS1, GTR

What a week for precious metals.

Both silver and gold clocking in yet ANOTHER price rise overnight.

And the market clearly has a growing appetite for precious metals stocks.

Which is FINALLY trickling into small cap silver and gold stocks this week.

In January 2023 we predicted a gold price run and a run in small cap gold stocks...

The gold price started falling pretty much straight after.

We were wrong.

But ultimately the prediction has played out with gold continuing its constant upwards grind over the last year...

Turns out our prediction was ~18 months early.

In early 2024 we predicted silver would start playing catchup to a running gold price

We built positions in a couple of silver stocks.

This prediction went a bit better.

After a strong run starting in March, silver went through a bit of a lull for a couple of months but has roared back over the last two weeks, and tickling a new decade high last night.

...and looks about to reach new decade highs.

10 year silver price chart:

And gold keeps hitting new all time highs every week.

10 year gold price chart:

Capital markets (raises) seem to finally be catching up to surging stock prices too.

We’ve seen cap raises in the market recently where the stock actually keeps moving up immediately after coming out of halt.

(instead of almost instantly trading back under the cap raise price like we have grown used to in small cap stocks for the last 18 months)

We have also seen large, overseas managed funds coming into small cap gold and silver stocks at premiums to the last traded price.

This week our 2024 Small Cap Pick of The Year, Sun Silver (ASX:SS1) raised $8M at 62c and another $5M at 80c in the same deal.

Instead of trading back down to the cap raise price, SS1’s share price rallied after the raise - touching ~92c earlier in the week, closing the week at 77.5c.

We also saw SS1 welcome a new cornerstone investor, US based fund Nokomis capital, who invested $9M for around ~9% of SS1, at a premium.

Point is, we don’t think we’ve seen this type of market enthusiasm for what feels like a very long 2-3 years.

Small cap stocks are putting out good gold and silver results, and finally getting rewarded for the effort with share price appreciation.

This week Mithril Silver and Gold (ASX:MTH) lobbed in an impressive, ultra high grade drill hit that pushed the share price up 80% on $5M of stock traded.

(Source - Friday MTH Ann)

And they’ve already completed another hole along strike to see if the high grade mineralisation extends... with assays on the crucial next result expected very soon...

Back in June, London based, $1BN Jupiter gold and silver fund invested in MTH at a 29% premium to the last traded price at the time, and now own 10% of MTH.

And finally, to cap off our big “precious metals week” BPM Minerals (ASX:BPM) announced a new high grade gold discovery that sent the share price up almost 200% on nearly $2M of stock traded.

(Source Tuesday BPM Ann)

Share prices responding to good news?

Global funds investing at a premium?

After being starved of attention for 2-3 years, it’s almost like a switch has been flicked.

For precious metals small caps at least.

Will it spread to other parts of the small cap market?

Time will tell, but the early signals are getting stronger.

Here’s a little jog down memory lane, back to the last precious metals “leg up” in 2020...

Around 2020, gold ran from ~$1,300 to ~$2,000.

That move dragged a large number of small ASX gold stocks up with it - some going on enormous runs.

(Think companies like De Grey Mining and Predictive Discovery during this period - more in a moment)

Even as the gold price cooled, small gold stocks remained high on the charts until the heat started to come out of the small cap market in late 2021- early 2022.

But BEFORE that, for two years starting in August 2020, the gold price was stuck in what was more or less a slide down to a low point of ~US$1600/oz in October 2022.

(Stock prices and commodity prices don’t move in lockstep)

In October 2022 though, in what could prove to be one of the more memorable gold price pivots - things started to look northwards once more.

The big gold stocks (think Newmont, Barrick etc) were pulled back to life first, with mid tier junior producers playing catch up.

Meanwhile, in small cap land, it was nothing but tumbleweeds and crickets still.

A smaller slide in the gold price plays out in the second half of 2023.

And then, like a starting gun, 2024 kicks in and the gold price tacks on +US$500/oz or ~25% in the first 9 months of this year.

And this time, small cap gold stocks look like they’re back on the menu, finally.

(silver is getting plenty of attention too)

We’ve summarised this jog down memory lane in a chart.

It’s a bit crude, but we think it tells an important story about what’s happening in the market:

It’s the old cliche of history repeating itself, and right now it feels like small cap precious metals stocks may be, at long last, back in vogue.

This week we saw a number of our precious metals Investments put out plenty of good news, which was remarkably well received.

So gold and silver prices have run enough to start attracting capital and on market buying into small cap projects.

Now what?

What do we want our gold and silver Portfolio companies to achieve during this current gold and silver upcycle?

We don't know if this price run cycle will last years or months, but here is what we want to see our gold and silver Portfolio stocks do during this window:

The goal of a mining junior, who finds themselves in a bull cycle for their commodity, is to make as much progress as fast as possible, while the going is good.

And have their share price rewarded for it in the buoyant conditions.

A mining hopeful trying to build a mine is gauged on how efficiently they move through these stages on the mining company lifecycle:

(and a bull cycle for their commodity is the time to accelerate progress, while capital is on offer to do so)

Progressing through each stage is expensive, especially development and production (actually building the mine).

Exploration - need money to drill drill and drill some more, in the hope of making a discovery.

Definition - if or after a discovery is made, need money to drill around the discovery to understand its size.

Feasibility studies - need money to commission economic and engineering studies on building a profitable mine from the deposit.

Development - need money to actually build the mine.

Production - need money to run the mine... and hopefully start making some profit.

The most efficient and least dilutive way for a company to raise money to progress through the mining company lifecycle stages is to raise capital during the “upcycle” for a particular commodity.

This is when everyone is interested in buying shares on-market AND participating in cap raises.

Positive sentiment creates capital flows into a sector/commodity.

Capital flows come in two different forms:

1. Capital flow into the company bank accounts - companies find it easier to raise capital because there is a wave of cash looking to invest in the sector
2. Capital flows via on-market buying of shares - Company share prices go up as investors look to get exposure to companies already operating in the sector.

Capital flows are highest into sectors that have macro tailwinds, positive sentiment, and some momentum.

Next step is for the company to use that cash to progress as quickly as possible through as many lifecycle stages as possible - while sentiment is high.

...and ideally ending up with a good chunk of cash in the bank when the down cycle eventually starts, in order to still make some progress during the down cycle.

...while waiting for the up cycle to return.

The basic goal is to raise lots of money and rapidly progress the project to end up at a materially higher share price after sentiment eventually cools and the capital tap is turned down.

An example from our Portfolio is VUL, that started at 16c before the lithium run, and is now trading at ~$4 during the current lithium winter.

16c to $4 bookending a commodity bull cycle is a great example of adding long term value during a commodity upcycle that lasts into a down cycle.

Here are two examples from the last gold run in 2020.

Two gold stocks that delivered during the last gold run.

Here are two examples of ASX companies that made it from explorer to later stage developers in the space of just two precious metals bull cycles.

The first is De Grey Mining and the second is Predictive Discovery.

De Grey Mining’s original discovery holes included an intercept measuring 49m at 3.7g/t gold on 6 February 2020.

Right before the Covid crash in March.

Off the back of that intercept and the subsequent drill holes, the De Grey share price went from 4.5 cents to ~$1.60 per share - over the next 8 months from discovery, De Grey delivered a share price rise of ~3,400%.

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.

So it is possible for a small cap to move into the big leagues off a discovery in the right macro environment.

(Even though this is very rare - small cap exploration stocks are high risk and most fail)

The second good example of the macro tailwinds aligning with a discovery is Predictive Discovery’s big run from early 2020 through until today.

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 have our bets placed and hope that one of our precious metals stocks replicate the success of De Grey and Predictive Discovery.

We Invest for those types of outcomes. They are rare, but they can happen.

If the precious metals bull run continues, maybe it can lead the charge for the wider small cap market in the coming months.

We’ll see.

Here's a quick rundown on what happened this week with our gold and silver Investments, and importantly how the market viewed the positive results...

Big news from our gold/silver stocks this week:

Sun Silver (ASX:SS1)

The “planets are continuing to align” around our Small Cap Pick of the Year for 2024 Sun Silver (ASX:SS1).

This week a new strategic, US based cornerstone investor has joined the SS1 share register...

SS1 Secures Cornerstone Investment from Strategic, US Based Fund... and some from us.

Mithril Gold and Silver (ASX:MTH)

MTH had two big announcements.

First, results of a Lidar survey which is a bit like a tech driven “treasure map” that reveals many historical workings all over MTH’s projects - good leads on future drill targets:

MTH now has Mexican “treasure map” to go after lost silver and gold

The second announcement was a quite extraordinary 33m intercept from SURFACE at average grades of 31.8g/t gold and 274g/t silver (assays pending nearby along strike):

MTH announces giant gold-silver hit - assays pending on new hole to test it along strike

BPM Minerals (ASX:BPM)

BPM hit 30m at 1.8g/t of gold at its Claw project - which borders $2.4BN Capricorn Metals Mount Gibson mine.

AND the intercept starts from a depth of just 25m.

BPM hits 30m of gold at 1.8g/t next to $2.4BN Capricorn Metals

Titan Minerals (ASX:TTM)

Hanrine (one of Gina Rinehart’s Investment vehicles) executed a BINDING Joint Venture agreement to earn up to 80% in TTM’s copper project in return for spending US$120M on exploration and development.

TTM retains 100% of its gold and silver project has a 3.1 million oz gold and 22 million oz silver JORC resource, with drilling to come aiming to upgrade that resource:

TTM and Hancock subsidiary seal US$120M JV deal

What else we wrote about this week

Lycaon Resources (ASX:LYN)

Two years in the making.

And we are almost there.

This week our WA exploration Investment Lycaon Resources (ASX:LYN) received its long awaited heritage clearance...

... the final step that clears the pathway to drilling in the West Arunta.

Read: LYN about to drop holes in West Arunta

GTI Energy (ASX:GTR)

Remember when silver and gold stocks suddenly started running a few weeks ago?

After a lull for a couple of months where nobody cared?

This can happen when underlying strong macro themes are met with renewed “risk-on” appetite for small cap stocks in general.

And the 50 basis point cut in US interest rate has brought some interest back into small cap land.

Meanwhile, the macro tailwinds are getting stronger by the day for uranium, especially in the USA.

Which is why we are participating in the GTI Energy (ASX:GTR) rights issue.

Read: We are participating in GTR’s rights issue - here’s why

Quick Takes 🗣️

SLM getting ready to drill

88E upgrades contingent resources in the USA

BPM hits 30m of gold at 1.8g/t next to $2.4BN Capricorn Metals

SS1 completes $13M raise - cornerstone fund invests at a premium

Macro News - What we are reading & listening to 📰

Copper:

Frenzy to Buy Copper Mines Hides Supply Problem For Green Energy Transition (Bloomberg)

• BHP’s Oak Dam aims to meet rising copper demand but faces deep, complex challenges.
• Miners like BHP prefer buying over building new projects due to high costs and delays.

Gold:

Interest rates: Gold and silver prices surge ahead of Federal Reserve interest rate cut (AFR)

• Gold and silver prices are surging as investors anticipate US Federal Reserve rate cuts, with gold hitting record highs and silver up 25% this year.
• Citi forecasts silver to outperform gold, driven by strong industrial demand and supply deficits, predicting silver could hit $45 per ounce by 2025.

Rare Earths:

China’s Dominance of Rare Earth Minerals Key to High Tech Undercuts US Projects (Bloomberg)

• The U.S. is investing billions in rare earth production, but China still controls 70% of output and over 90% of refining, making competition difficult.
• Falling prices and delays, like those faced by Lynas Rare Earths and MP Materials, challenge the viability of U.S. and allied rare earth projects.

Uranium:

Nuclear Power at Risk: Russia and Kazakhstan Threaten to Cut Uranium Exports (the deep dive)

• Russia and Kazakhstan are signalling potential disruptions to uranium exports, which could significantly impact U.S. and European nuclear energy utilities that rely heavily on these supplies.
• Kazakhstan, the world’s largest uranium producer, is considering redirecting exports to China and Russia, raising concerns about the availability of uranium for Western markets amidst growing geopolitical tensions.

China pushes back on US probe of uranium exports (Mining.com)

• The U.S. is probing whether China helps Russia bypass a uranium ban by exporting Chinese uranium while using Russian uranium domestically.
• China criticised the sanctions, defending its cooperation with Russia as an independent, sovereign choice.

What we are Listening to:

Is $85/lb the new Uranium Floor? - Money of Mine

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