Next Investors logo grey

Small Cap market is looking good… and are share price re-rates back?

Published 01-JUN-2024 13:44 P.M.


13 minute read

Definitely a bit more life in the small cap markets lately...

A few consistent weeks of it too.

Nowhere near as bad as it was in October last year and early this year.

(remember that? ...*shudders* )

Back then any good news released by a company was sold into, and capital raises were struggling to get up.

Share prices wouldn’t go up, no matter what.

Now if a company puts out genuinely exceptional news, its share price can even run a few 100%...

And then actually stay at a higher share price than it was before the news.

This is called a share price “rerate”.

And small cap investing is mostly about patiently waiting around for a rerate to happen in your stocks.

So what is the state of play in the micro cap end of the market right now?

We think the window to deliver good news AND be rewarded with a rerate is definitely open...

But what about all the great news that was released by companies when the small cap market stank?

And nobody cared at the time?

Or it was sold into and the share price went down?

We think now that market sentiment is turning and share registers are reset, fundamental progress that was made during the “small cap nuclear winter” will gradually need to be reflected in current share prices.

Maybe not suddenly, but baked in as part of share price reactions that come off the back of new good news announcements.

We have seen it in a few companies over the past few weeks - share prices are being rewarded when companies put out material news...

These are the same companies that went through a period of suffering and a “valley of death” where things seemed insurmountably tough.

One in our Portfolio where good news was rewarded this week (and we suspect is building off past news too) was Dimerix (ASX:DXB).

DXB announced a licensing deal for its FSGS (a kidney disorder) treatment in the United Arab Emirates (UAE), Saudi Arabia, Oman, Kuwait, Qatar, Bahrain and Iraq worth up to A$120M.

(this $ amount is largely assuming their drug successfully passes Phase 3 trials and certain sales milestones are hit)

AND DXB could still sign another deal over the two biggest markets on the planet - USA and China...

Right now DXB’s market cap is ~$274M, well below the total deal values of the licensing deals the company has managed to sign to date.

DXB’s share price is up ~50% off the back of that news on Tuesday.

(well done to DXB holders that stuck it out over the last couple of years just waiting for a rerate)

Next Investors Image

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.

The good thing about the market when it starts rewarding good news is that it opens the door for companies to raise capital and invest that cash into delivering even more good news... and faster.

(through things like more drilling, clinical trials or investment in products etc).

Biotech company sentiment turned a few months before the broader small cap market sentiment, so biotechs are a little ahead of exploration and resources.

(remember that few months when the resource exploration market was still awful and biotechs were the only interesting small caps to follow)

Another of our investments in the biotech space we hope can eventually deliver a DXB style result for us is Neurotech International (ASX:NTI).

Since we Invested, NTI has delivered a string of positive clinical trial results, for niche disorders such as PANS/PANDAS, Rett Syndrome and the more widespread Autism Spectrum Disorder.

Treatments which all loom as potentially lucrative commercialisation opportunities.

But it seems to us that every time NTI releases good news, some shareholders take the chance to sell into liquidity on the day.

We think there is a build up of positive news that is still to be fully reflected in the NTI share price, which despite strong evidence that NTI’s treatment works for these disorders, the company is only trading at a ~$65M market cap.

We participated in the recent $10M capital raise at 10c on the back of the clinical trial data for BOTH Rett Syndrome and Autism Spectrum Disorder (ASD).

That raise was “open and shut” pretty quickly...

(We were scaled back as well)

NTI previously rose ~300% between June 2023, and February 2024 to 12c in the lead up to its two clinical trial results.

While the share price has since traded below the capital raise level of 10c, we feel comfortable holding NTI given the operational success that NTI was able to achieve in a period of much improved sentiment for biotechs.

(and we saw what can happen with a bit waiting for a rerate like we did with DXB)

NTI now has a precious cash runway as it pursues very valuable Orphan Drug Designation status in multiple jurisdictions (in particular the USA and EU).

We’re hoping that validation from regulators either in the US or EU could be the catalyst that rerates the company’s share price and starts to reflect all of the progress the company has made over the last ~12 months that hasn’t been rewarded by the market...yet.

Especially if the news is delivered in the current market environment which is rewarding good news instead of being met with aggressive selling (as we saw across the small cap market for most of the last two years).

Click here to read our note on NTI’s clinical trial results for Rett Syndrome and ASD

Speaking of catalysts, below is one company in our Portfolio we are watching for news from on Monday:

A stock to watch on Monday

Galileo Mining (ASX:GAL) went into a trading halt on Thursday related to a farm-in on the lithium rights at its Norseman project.

(GAL’s focus is on palladium and nickel discoveries, so any joint venture for the lithium rights on their ground will be an added bonus)

Next Investors Image

We have been watching the developments in the Norseman/Kambalda region for a while now.

Depending on the dollar value and terms of the deal, this news could be a catalyst for GAL’s share price.

Especially considering GAL’s market cap going into the halt was $48M.

GAL also has some assays on the way from its recent round of drilling, any new discovery made from those results could also be a big catalyst for the stock.

Serious value in the micro-cap resource end of the market?

The team at Lion Selection Group (they are a fund that invests in the same kind of stocks we do - specifically small cap resource exploration) put out a report sharing their views on the current state of the small cap resources market.

The macro commentary especially piqued our interest starting with this chart:

Next Investors Image


The chart shows how badly the micro cap sector has performed over the last ~2 years.

It shows that while the big indexes are down 6% and 24% respectively, micro cap resources stocks are down a whopping ~69% over the same period.

(we definitely have a couple of -69% or worse performers on our hands at the moment)

We’ve been Investing in small caps long enough to mentally and emotionally handle crippling paper losses during a seemingly never ending bear market cycle.

But it’s probably a shock to the large cohort of new small cap market participants that joined in during the boom times of 2020 and 2021 and had never seen a bear market before.

That relative underperformance of small cap resources tells us that is a good place to go looking for new Investments.

We have been looking to add new companies to our portfolio and have already announced 5 new Investments this year:

  1. Mithril Resources (ASX:MTH) - We Invested in May at 10c now trading at 22c
  2. Sun Silver (ASX:SS1) - We Invested in May at 17.3c now trading at 54c
  3. TrivarX (ASX:TRI) - We Invested in May at 2.5c now trading at 2.7c
  4. Lightning Minerals (ASX:L1M) - We Invested in April at 7c now trading at 8.7c
  5. Genmin (ASX:GEN) - We Invested in April at 10c - now trading at 12c

(given the market looks like its coming back, we may add a few more new Investments over the coming months)

Most of Lion Group’s commentary is talking about micro cap resources stocks - but we think much of the comments on market dynamics applies to all sectors.

There was also a section talking about whether or not the bottom is in for micro caps:

Next Investors Image


After talking about the run in copper and gold prices, they also put out an update on something we have been following.

The “Lion Clock” which the Lion Selection Group has been publishing for a while now and is their gauge on wherever the market is closer to a “Boom” or a “Crash”.

(there are a few versions of this “seasons of the market” image, this is Lion’s take on it for small cap resource stocks)

Next Investors Image


The Lion team have been talking about the market being “between 12 o’clock and 3 o’clock” for much of the last 2 years.

In their March report they called the market turning to “4 o’clock” on their clock - which we interpret to mean they believe the market is somewhere near the bottom.

Below is what they had to say:

Next Investors Image


It’s hard to say for sure where the market is relative to the “Lion Clock” but no matter where the market is we think there are always opportunities out there where the risk/reward is asymmetric.

There is an old saying in markets:

Bears sound clever, bulls make money”.

The truth is that it's easy to pick apart an investment opportunity and find reasons NOT to invest.

Scepticism is a healthy trait to have in small cap investing.

Especially in the small, high risk end of the market where we look for opportunities, every company is taking on a lot of risk to try and deliver a lot of reward for shareholders.

Inherently this means there will always be a bunch of reasons for someone NOT to make an investment - macro news, geopolitical events, a commodity price falling 5% etc etc.

But each year we find ourselves surprised when one of our Investments emerges from the “valley of death” and delivers a material share price rerate.

(some examples that come to mind in recent years are DXB, LRS and GAL)

The way we see it, the trick is to try and get as many factors working in your favour as possible and hope that the stars align for your company OR the company just keeps plugging away and eventually makes its own luck.

We are long term holders - we take 2 to 5+ year views when making Investments and will always give our Portfolio companies a chance to deliver before we re-evaluate our position.

And that usually involves a lot of waiting.

At the end of the day, we don't expect to get every single Investment right, but if a few come off in a big way then it makes up for all the portfolio companies that got unlucky or failed to deliver what they set out to do.

Next Investors Image

What we wrote about this week

Tyranna Resources Ltd (ASX:TYX)

TYX put out another batch of assay results this week and has 11 more to come before the end of this month.

We are especially interested in seeing TYX drill out the “Link Zone” between its Muvero discovery and the rock chips with high lithium grades at Muvero East.

TYX expects to be drilling that area in the coming months...

Read more: Are these two zones connected? TYX is going to find out by drilling the potential “Link Zone”...

Titan Minerals Ltd (ASX:TTM)

With gold prices at all time highs, copper prices at all time highs and silver prices running we put out an update on TTM.

TTM has exposure to all three commodities.

First at its Dynasty project which has a 3.1M ounce gold, 22M ounce silver JORC resource.

And second at its Linderos project where the company has agreed to terms on a US$120M farm-out deal (for 80%) with a Gina Rinehart’s Hancock Prospecting subsidiary Hanrine.

Read more: TTM - Gold, Silver and... Copper with a Gina JV?

Mithril Resources Ltd (ASX:MTH)

MTH is one of our most recent Investments - and it is about to start drilling its silver-gold project in Mexico.

Over the last few weeks we have seen a few companies put out some high grade silver hits and be rewarded with share price rerates >100%...

MTH is currently capped at $17M after being suspended for a while - at one point it was valued as high as ~ $110M, based on drilling the same asset.

With silver and gold prices now running we think MTH could rerate higher IF the drill results deliver good news...

Read more: MTH: Drilling Commences as Silver Price Tests Decade Highs.

Sun Silver Ltd (ASX:SS1)

Our 2024 Small Cap Pick of the Year SS1 put out two announcements this week.

The first was a partnership with a group that specialises in securing (non-dilutive) government grant funding in the US. That same group has previously secured over US$400M in funding for other ASX companies... we are hoping they deliver similar success to SS1.

Later in the week, SS1 started a re-analysing historic drillcores - information which will be used to plan SS1’s drill program and to progress an upgrade of the existing 292M ounce silver equivalent JORC resource.

Read more: SS1: Historic drill cores and logs analysis to reveal best new targets for upcoming silver drill campaign...

Quick Takes

EXR increases contingent resource by 328%

DXB sign $120M Middle East drug commercialisation deal

SS1 to seek US DOE grant funding for silver paste

L1M Completes Due Diligence on Brazil Lithium Projects

PUR delivers big lithium hit in Argentina

Bite sized summaries of the latest mainstream news in battery metals, biotechs, uranium etc: The Future Money:

Macro News - What we are reading


Funds Are Most Bullish on Gold in Four Years Amid Record Prices (Bloomberg)

  • Money managers show the highest bullish sentiment on gold in over four years amidst record prices.
  • Factors supporting gold include central bank purchases, strong demand in Asia, and geopolitical tensions in Ukraine and the Middle East, reinforcing its status as a safe haven asset.


Silver’s Critical Role in the Clean Energy Transition (

  • Silver's 2024 rally fueled by eased U.S. monetary policy and geopolitical tensions.
  • Industrial demand surpassed supply for silver in 2023, with a forecasted 9% increase in 2024.
  • Silver's vital role in solar panels, electric vehicles, and AI is expected to drive significant demand.

Battery Materials:

Five Key Charts to Watch in Global Commodities This Week (Bloomberg)

  • Significant price spikes in copper, nickel, silver, tin, and zinc due to supply constraints and high demand.


Copper price to rocket to $40,000 a tonne, says top trader Andurand (Financial Times)

  • Hedge fund manager Pierre Andurand predicts copper prices will quadruple to $40,000 per tonne in a few years due to soaring demand.
  • Andurand's fund rebounded from a 55% loss last year to an 83% gain this year, driven by various commodities.
  • Andurand no longer expects a significant rise in oil prices, citing stable supply despite geopolitical risks and past incorrect predictions.

Copper Mining Investments Take Off in Argentina After Milei’s Reforms (Bloomberg)

  • Global mining companies are investing heavily in Argentina's copper deposits, spurred by a pro-business government.
  • Argentina aims to become a major copper supplier by 2035, potentially producing over 1 million metric tons annually.
  • The government’s reforms and incentives aim to attract investment, though environmental and social concerns remain significant challenges.

Telcos From AT&T to BT Hunt Down Billions Worth of Buried Copper as Prices Soar (Bloomberg)

  • Telecom giants like AT&T and BT Group see an opportunity in recycling old copper wiring, aiming to recover over 800,000 metric tons worth $7 billion.
  • With copper in high demand for electric vehicles and clean energy infrastructure, companies are ramping up recycling efforts.
  • Recovering copper involves stripping and cleaning, with potential profits exceeding 30%. This aligns with efforts to address the global copper shortage amid rising demand.


Victoria needs new gas after all, state Labor admits (AFR)

  • Victorian Energy Minister Lily D’Ambrosio acknowledges the need for new gas supplies in Victoria.
  • Her department warned about looming shortages, contradicting previous assertions about electrification addressing gas shortfalls.
  • Offshore gas exploration projects are pursued to address future supply gaps.

Have a great weekend,

Next Investors

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.