Selling Picks and Shovels in a Gold Rush

Commentary: “Selling picks and shovels in a gold rush”. When do “investment booms” happen? Silver price surged overnight, big monday.

Disclosure: This information is general in nature about speculative investments and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

The biggest winner out of the current Artificial Intelligence (AI) boom is NOT an AI company.

It’s NVIDIA - the company that supplies the hardware needed by all the aspiring AI companies rushing (and spending), scrambling to beat each other to win the AI race.

NVIDIA is capped at nearly $US4 Trillion, making it the most valuable company in the world right now (valued higher than any AI company).

During the “ecommerce” boom, when every bricks and mortar shop was rushing to offer online shopping - a company called Shopify grew to a US$150 Billion valuation by selling the online shopping technology to shops.

Remember when everyone had an idea for a “killer app” after iPhones first came out?

While some apps did go viral, millions of “killer app ideas” were paid for, built and sat in the app store collecting dust.

It was the app development companies that made the money...

The common theme here is the business strategy of "selling picks and shovels in a gold rush".

Instead of joining a speculative rush (like trying to find gold), a company profits by supplying the essential tools, services, or infrastructure needed by all participants in that rush.

This concept originated from the 1840’s California gold rush.

We saw an exhibit about it in a gold rush museum in Sacramento a few weeks ago:

Turns out the first millionaire in the great California gold rush was not a lucky gold prospector...

It was the guy selling gold exploration supplies to everyone trying to strike it rich by finding gold.

One rush that looks to us to be in its early stages is major drinks companies creating THC (marijuana/cannabis) infused drinks as consumers abandon alcohol.

The “sell picks and shovels in a gold rush” theory is behind our latest Investment - Althea Group Holdings (ASX:AGH).

AGH has a patent pending, tasteless, THC formula that can be added to ANY drink to give it a psychoactive infusion similar to the effects of smoking marijuana.

(AGH is already used by 70% of THC drinks brands in Canada)

As alcohol use drops and adoption of THC drinks rises in the USA, we are predicting that drinks makers (large and small) will race to start offering non alcoholic, THC infused versions of their most popular drinks.

(Of course, it’s early days in this emerging market - like any speculative investment, we could be wrong with our prediction.)

AGH has spent years developing its patent pending “THC infusion into any drink” product.

Much like AI companies don’t try to build their own NVIDIA processing chips, we don’t think big drinks companies will want to take on the risk of making their own THC infusions.

Instead, we want to see drinks companies contract AGH’s mature, tried and tested THC infusion product, which is:

• Stable: Prevents separation, ensuring consistent taste and appearance.
• Food-safe and approved: Meets regulatory standards for beverages.
• Neutral taste and appearance: Doesn’t affect flavor or clarity unless desired.
• Versatile: Works with various flavors and beverage types.
• Easy to process: Suitable for high-volume manufacturing with consistent quality.
• Cost-effective and reliable: Offers competitive performance to industry standards.

AGH’s THC infusion is already proven in Canada (13 million cans produced, used by 70% of THC drinks brands) and they have recently opened up a production facility in Florida, USA.

Now we are watching for the rapid growth of THC drinks in the USA and for AGH to partner with US drinks producers.

AGH infuses the drinks with THC (their specialty), the drinks company takes care of branding, marketing, sales and distribution (their specialty).

(AGH already has a partnership with $3.34BN Boston Beer Co to produce a non alcoholic, THC-infused version of their market leading alcoholic tea, Twisted Tea).

Now we wait to see if any other drinks producers want to make THC-infused versions of their most popular drinks with AGH.

THC drinks have been rapidly gaining in popularity in the USA, especially in the last couple of years.

These headlines are all from just the last 8 weeks:

(Sources)

And here is a video on the ABC (in the USA) that came out on Friday - it already had 31,000 views in under 17 hours:

(Watch it here)

The THC drinks space in the USA is expected to grow into an A$30BN industry by 2028...

As we noted above, AGH is already the #1 manufacturer of THC drinks in Canada. 70% of brands sold in Canada have trusted AGH to infuse their drinks with their THC.

Our Big Bet for AGH is to see the company replicate that success in the US - a much bigger market relative to Canada.

(For context - Canada is expected to be a A$1.8BN industry by 2028)

Again - this is an early stage investment, AGH is a small cap stock with no guarantee of success - click the link below for our full deep dive on the company, plus some of the risks we see with our Investment.

We have been following AGH for over 12 months now, watching the company restructure its business and sell off non-core assets.

And most importantly, put the finishing touches on its US launch...

AGH is now in the US and in the March quarter manufactured ~550,000 units.

We Invested yesterday.

Read our initiation note here: Our New Portfolio Addition: Althea Group Holdings (ASX: AGH)

Another company that proved a model then expanded to the USA

Our entry into AGH is similar to our Initial Entry into another one of our Portfolio positions AL3.

Initially AL3 was selling metal 3D printing systems and 3D metal printed parts from its factory in Adelaide.

Then in 2023 AL3 made the switch to a US focused business model.

We Invested in AL3 because we liked the strategy of expanding their successful model in Australia to the giant US market...

... then in 2025 the Trump administration entered the White House, and started announcing pro-domestic manufacturing policies.

Especially in shipbuilding where AL3 had a strong track record in 3D printing complex metal ship and submarine parts.

On Monday AL3 received a Letter of Intent from THE US Navy.

The Letter of Intent outlines the US Navy’s forecasts of what it needs in the 3D printing space and basically tells AL3 to get ready to deliver it - because AL3 will play “a pivotal role in achieving these targeted needs”.

The US Navy letter says they anticipate they will need from AL3:

• 100 new additive manufacturing (3D printing) systems to be installed across the US marine industrial base
  
  (for context, over the last 18 months AL3 has announced a total 10 system sales for total revenue of $14.3M)
  
  
• A minimum of ~400 manufactured parts printed in FY26, growing each year until an estimated ~1,600 parts will need to be produced in FY30
  
  (for context, over the last 27 months AL3 has announced 4 custom parts contracts for a total of $3.35M revenue, noting that smaller parts contracts may not have been announced that aren’t in that total revenue number)

(read our full update on AL3’s news and the US NAVY letter to AL3 here)

AL3 is up over 300% from our Initial Entry Price and has been having a lot of success in the US - just this week AL3 got a LOI from the US Navy which we covered with a note on Monday.

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.

While it's in a completely different industry, we think AGH is in somewhat of a similar position now to AL3 a few months ago.

AGH has already proven its model in Canada, and just opened its facilities in Florida, just as THC drinks start to gain momentum in the US as a replacement for alcohol.

(in this example, the US Navy’s letter to AL3 would be like Coca Cola saying they want to use AGH to make all their THC-infused drinks... this has happened yet but it would be great for AGH something similar happened)

“Picks and shovels” strategy needs a rush or a boom. Investment thematic cycles - out of favour, until they aren't...

Our view is that all investment thematics experience waves of market interest - going in and out of favour over time.

All new thematics experience an initial period of “over hype”.

The initial hype phase occurs when a shiny new “game changing” idea captures the market's imagination and share prices rise to reflect everyone’s excitement.

Then reality sets in and it takes years longer than imagined for the real world to embrace that thematic.

We think there always comes a time when an investment thematic matures and finds its natural place in a market again.

The Gartner Hype Cycle is a useful visualisation for investors to try and identify where a particular new idea/technology may be in the “hype cycle”:

In 2018, cannabis stocks were ripping and THC drinks and cannabis were catching investment from big drinks companies...

Heineken launched its own marijuana drink and the owners of Corona invested over US$4BN into cannabis company Canopy Growth.

(Source)

(yes you read that right, in 2018 a big alcohol company invested US$4BN into a cannabis company)

Both companies were too early in 2018 with the real demand for THC drinks not really kicking in until the last ~18 months.

( too early - like many that were investing in the cannabis space ~7 years back, including us)

We think the sector is just starting to come out of the bottom of the “trough of disillusionment” phase.

AND enter the “slope of enlightenment" phase here:

The THC/cannabis industry as a macro thematic has gone through the initial “over hype” wave, and is now (hopefully) coming out of the “trough of disillusionment”.

At the same time this is only our prediction - we might get this wrong here and that trough of disillusionment phase could go on longer than we predict. Like all early stage emerging markets, looking back in hindsight is much easier than trying to predict the future.

Here is the article from October 2022 when we predicted unloved sectors of gold and cannabis would soon have a resurgence (read it here)

(got gold right so far... now a come back for cannabis?)

(Source)

Another macro thematic doing a similar thing is metals recycling

Metals recycling is another thematic that we think is going through the same phase of the “Gartner hype cycle”.

Metals recycling stocks were in favour back in 2021-2022 when battery/critical metals prices were trading near all time highs.

Then the industry had a very big breather... some companies went broke and anyone left just exited the sector completely due to a lack of market interest.

Now battery/critical metals prices aren't necessarily running, BUT the threat of bifurcated markets due to geopolitical instability is making recycling hot again.

MTM Critical Metals - one of the biggest runners so far in this cycle is up by over 20x in the last 12 months - today it is capped at >$300M.

Our metals recycling Investment Iondrive (ASX:ION) has also gone on a run over the last ~45 days.

ION is up by over 200% from our Initial Entry Price of 1.4c - today it is capped at ~$55M.

However note the past performance of MTM and ION is not indicative of their future performance. Caution should be exercised when assessing past performance.

ION does have a few things on the go at the moment which we think could re-rate the stock even further:

1. ION expects to be making a Final Investment Decision (FID) on its pilot plant this month. IF everything goes to plan, ION’s plan is to have the plant in production by the end of this year/early 2026.
2. ION is testing its tech on old printed circuit boards to see if it can recover copper, gold, silver, osmium and rare earth elements from them. Results are due this quarter...
3. ION is testing its tech in the minerals processing industry (starting with nickel) - results from this could come at any time.

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 compared ION to MTM in a previous note which you can check out here: How does the ION compare to MTM?

A completely new investment thematic that hasn't had the “hype” phase yet...

One completely new investment theme that we think hasn’t had a chance to have its “initial hype” phase yet is “bioweapons defence”.

Military defence spending is on the rise due to the current shifting global order and US foreign policy changes.

Most investors are focused on military metals, drones, shipbuilding etc.

The market hasn’t really had to react to the use of bioweapons in the past.

The closest we got was in 2020 when the COVID outbreak happened.

Everyone remembers the big rally in any stock that had the word COVID in the announcement.

We think bioweapon defence hasn’t really captured the market’s attention yet, but it’s definitely something governments think about.

Our Investment Island Pharmaceuticals (ASX:ILA) just acquired a drug - Galidesivir - that the US government has spent more than US$70M on trials against viral diseases like ebola, zika and marburg.

(something to follow while we wait for progress on ILA’s dengue fever drug - ILA has two “shots on goal” now)

ILA’s initial focus with their new drug will be to treat Marburg virus - a disease that the Soviet Union’s bioweapons program was actively weaponising during the Cold War. (source)

Marburg is a seriously deadly disease with a fatality rate of up to 88% and there are no current treatments or vaccines.

The ultimate win for ILA would be to get FDA approvals for treating Marburg virus, and sell it to governments who would stockpile it against any potential future bioweapon threat...

Having it stockpiled could mean a fast and effective rollout to stop fatalities...

ILA’s strategy with Galidesivir will be to try to get FDA approvals through the “Animal Rule” process which allows for drugs to be approved based on human safety studies and 2x animal studies.

Galidesivir already has human safety studies and one animal study - ILA will be looking to complete the second.

ILA’s new chairman Jason Carroll and CEO David Foster ran through the plan pretty well in the following webinar:

(watch full webinar here)

We also put out a note on the news which you can read here: ILA enters defence against bioweapons and virus terrorism with new acquisition.

Finally, what a night for the silver price...

Last night silver delivered a 3.73% single session rise to US$38.32/oz.

It closed at its highest price since September 2011.

(Source)

Here is what it looks like on a 3 month chart. The last two days of trading are highlighted in yellow:

Silver finished the week on a very strong run - so we will be watching with interest on Monday’s open.

At the same time whilst it's looking good for the silver price, no one knows for sure what it will do next - it could go up or down - commodity prices are impossible to predict with certainty and anything can happen.

We have two stocks that are leveraged to rises in the silver price, and given the bulk of this latest silver run happened overnight on Friday, ASX silver stocks haven't had a chance to respond yet.

A rising silver price is the exact scenario we want to see play out for our Investment in these two stocks.

Sun Silver (ASX:SS1)

SS1 has a 480M ounce silver equivalent JORC Resource, in Nevada USA.

You can do the maths on what every US$1 per ounce increase in the silver price means for the estimated in ground value of SS1’s 480 million ounce silver equivalent resource.

This is the largest pre-production primary silver resource on the ASX.

(Of course, costs to mining, operational execution and processing the silver would also need to be considered, which SS1 is in the process of figuring out).

Nine Days ago SS1 announced announced 70m intercept with a 10,548g/t silver equivalent interval... outside of its 480 million ounce JORC resource

This was on the first drill hole of their 2025 drill campaign - so more drill results should be rolling in any day now...

Plus SS1 reckons they might have military metal antimony running throughout their silver resource, they are re-assaying old cores that were only ever tested for gold and silver - we are expecting more on this from SS1 soon too.

(read our update on SS1’s 10,548g/t silver equivalent interval and what we are watching for next from SS1 here

Mithril Silver and Gold (ASX:MTH)

MTH’s project has a 373Koz gold and 11Moz silver JORC resource.

MTH’s resource grades average around 4.8g/t gold and 141g/t silver - which are seriously high grades.

AND MTH is currently drilling with two rigs to double its resource size.

MTH is going after some more ultra high grade gold and silver hits to help grow its resource.

MTH just closed a ~A$12.7M capital raise at 40c per share on Friday.

The raise happened over in Canada from North American investors.

One thing we noticed in the cap raise announcement announcement was the forced escrows the Canadians put on placement stock:

(Source)

That means no one from the cap raise can sell the shares for at least four months, which gives MTH enough time to deliver material news and re-rate without the overhang of the cap raise shares...

We think the cap raise could be positive for MTH because:

• MTH is no longer cum-raise from a market perspective - meaning investors know the company has cash and wont need to raise cash so will be forced to buy on market if they want exposure to MTH going forward.
• MTH is drilling right now - MTH has two rigs on site, is drilling to upgrade its existing JORC resource and is about to drill two exciting regional targets chasing completely new discoveries... we want to see a third rig get on site ASAP while the silver price looks like it wants to go on a run.

We are especially looking forward to drilling from targets 3 and 5 which MTH says it will be drilling this quarter:

(The blue is where MTH’s existing resource sits, the orange circles are the regional targets MTH has/will be drilling)

For those who missed it, we were just on a site visit with MTH a few weeks ago (which was well attended by the Canadians).

Here is a picture of us going through historical workings with the Canadian analysts:

Read our full site visit write up here: Silver price breakout during our MTH Silver and Gold Site visit.

Have a great weekend,

Next Investors