Small cap market showing signs of waking up

Published 28-MAR-2022 08:59 A.M.

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8 minute read

The small cap market is showing signs of waking up after a few limp weeks marking another yet another rally after a period of weakness.

These frequent market ups and downs seem to be the “new normal”.

We invest in small cap stocks and share updates on the progress of our investments over time.

We generally provide a comprehensive update on each company we are invested in every couple of months through a detailed email to our subscribers.

We usually send an email update if one of our investments has released an interesting announcement, has progressed its business against our memo objectives or their macro theme is active in the news.

Readers have been asking for more frequent updates on what we think of specific announcements as they happen or global events and how they impact our investments.

In response we have launched “Quick Takes”, where we provide a live feed of quick comments (a few paragraphs) on what we think of an announcement, macro event or media article that is related to any of our investments.

We will try to add a few new quick takes to this page every weekday.

You can follow our live commentary on our investments here.

We provide our comments on each company from our four portfolios: Next Investors, Wise-Owl, Catalyst Hunter and Finfeed.

Please reply to this email to let us know what you think of this page and anything else you would like to see or how we can improve it.

Also if you come across an interesting media article that relates to one of our investments, please send it to us.

You can also use this page to see all of our past:

  • Investment update emails - These are the emails you receive as a subscriber to our portfolios (currently just Next Investors, other portfolios coming soon)
  • Weekend update emails - These are the “What Happened” weekend summaries
  • Educational articles - We publish educational articles to explain some of the things that happen in small cap investing

Just click on what you want to see in the menu to filter the content feed:

Bookmark this page to read our Quick Takes LIVE

Below are links to each individual Quick Take that was published this week.

The link below will scroll you directly to the Quick Take related to the specific company:

KNI: More on DRC cobalt and KNI's European Cobalt Project

IVZ: Trading halt pending an update regarding its permitting

LRS: Metwork drilling leading up to maiden trial mining program at its WA Halloysite Project(Catalyst Hunter Portfolio)

LCL: Maiden resource expands Quinchia gold project to 2.6Moz

MNB: All-in podcast highlights food shortage risks

MNB: Fertiliser prices moving higher off the back of Ukraine/Russia

GGE: Helium well site construction underway; drilling in weeks(Catalyst Hunter Portfolio)

TMZ: On the path to 100Moz Silver Eq. Resource in 2022

EXR: Gas exploration program expanded + hydrogen progress made

MAN: Trading halt pending an acquisition(Catalyst Hunter Portfolio)

GAL: More high grade palladium & platinum assays from Norseman

GAL: Significant palladium & platinum results out of Norseman

88E: Merlin-2 Well Reaches Total Depth

EMN: Manganese on Tesla Menu?

AKN: Updated JORC on the cards at copper-zinc project(Catalyst Hunter Portfolio)

PFE: Lead-silver exploration now underway

RAS: Halloysite drilling to commence this week(Catalyst Hunter Portfolio)

Next Investors: Brisbane Mining & Energy Conf hosting EXR, FYI, AKN, TMZ & NHE

📰 This week on Next Investors

LCL Unveils Mineral Resource Estimate as Gold Brushes up Against US$2000/oz

On Tuesday our gold exploration investment Los Cerros (ASX:LCL) announced a Maiden JORC resource estimate at its Tesorito deposit in Colombia of 50mt, grading 0.81g/t gold for a total of ~1.3 million ounces of gold.

Together with the project’s existing JORC resources, this brings LCL’s total resource across its Quinchia portfolio to 88mt, grading 1.02g/t gold for a total of 2.6 million ounces of gold.

At the time of our note LCL had a market cap of ~$70M, and with $17.8M in cash (as at 22 February), has an enterprise value (EV) of ~$52.2M. This meant that LCL was trading with an “EV/ounce of gold JORC resource” at ~$20.

In our note, we compared this metric to that of three of LCL’s ASX listed peers with similar sized resources. Each is trading on much higher EV/ounce of gold JORC resource multiples of between $80-180/resource oz.

Further pointing to opportunity in LCL, Sprott lifted its previous A$0.36/sh target price to A$0.37 while maintaining its BUY rating on LCL in a research note released after LCL’s JORC announcement.

At Sprott’s 37c price target, LCL would have a $236M market cap (vs the current $70M MC) and an enterprise value of ~$218M. That translates to an EV/ounce of gold resource of ~$83 and puts LCL in line with its peers.

📰 Read the full breakdown: LCL Unveils Mineral Resource Estimate as Gold Brushes up Against US$2000/oz

In our other portfolios 🧬 🦉 🏹

🦉 Wise-Owl

Can IRD be the next to join the big league?

We started the week by launching our 2022 Investment Memo for Iron Road Ltd (ASX: IRD).

IRD is advancing one of the world’s largest, development ready, high grade (>66% Fe) iron ore projects. Meanwhile, it is also progressing a multi-commodity port that presents longer term potential to be part of South Australia’s primary green hydrogen export hub.

Capped at under $150M, IRD remains one of the few companies with its hands on a significant, development ready, high grade iron ore project, anywhere in the world. Whilst there are plenty of iron ore projects, only a handful are ready for commercialisation now AND are of substantial size and quality.

IRD’s iron ore prospects are our primary focus and main appeal to our investment decision. We also acknowledge that the company’s multi-commodity port opportunity (backed by Macquarie Capital) could be significant too, leveraging IRD’s iron ore products with an export logistics solution.

To see all of the reasons we continue to hold IRD in the Wise-Owl portfolio and what we want to see the company achieve in 2022 read our 2022 Investment Memo here:

📰 Read the full breakdown: Can IRD be the next to join the big league?

🏹 Catalyst Hunter

Cashed up MAN picks up high grade Chilean copper asset

On Friday, our junior exploration investment Mandrake Resources (ASX:MAN) announced the acquisition of a high grade copper project in the Antofagasta region of northern Chile.

Like us, the market seemed happy with the news — the share price traded up by more than 50% during the day.

This region of Chile is home to the world’s largest copper mine owned by BHP/Rio Tinto — an 11.2 billion tonne @ 0.8% copper deposit, which contributes ~ 5% of total global production. It also hosts a 10.5 billion tonne @ 0.6% copper deposit owned by Chilean state controlled Codelco.

MAN’s new Chilean copper project sits less than 100km to the east of BHP/Rio Tinto’s project and comes with ~15,000m of historical RC/diamond drilling results with a peak intercept of:

  • 86m @ 4.83% copper from 121m, - including higher grade sections of 27m @ 7.1% copper from 134m, and 3m @ 14.4% copper from 164m.

Notably, this intercept has twice the thickness, a higher grade, at almost half the depth of ASX-listed Carnaby Resources’ copper project. Yet Carnaby is trading at a market cap of $194M while MAN was only capped at $22M prior to the acquisition.

With its large cash balance ($16.2M), MAN can now aggressively drill the project with the hopes of confirming a new high grade copper discovery.

📰 Read the full breakdown: Cashed up MAN picks up high grade Chilean copper asset

FNT Rock Chip Samples are in - Peak Grade >8%

On Monday our rare earths exploration investment, Frontier Resources (ASX:FNT), announced the results from a rock chip sampling program, returning peak grades >8% TREO (total rare earths).

With ~134 rock chip samples collected from outcropping ironstone formations, FNT returned 54 samples of potentially economic rare earth grades >0.1% TREO and 31 high grade samples >1% TREO - a positive early sign for FNT.

The rock chip samples were taken at the north western corner of FNT’s grounds, right next door to $467M capped Hastings Technology Metals’ Yangibana Rare Earths project and importantly sits right above where there was a cluster of high priority EM targets.

Armed with the sample results, FNT’s footprint of known REE mineralisation is now >2.5km long, coupled with 12 high priority EM targets we are invested in FNT to see the results from their maiden drill campaign at their WA rare earths project, which we now know is slated for the later half of Q2 2022

📰 Read the full breakdown: FNT Rock Chip Samples are in - Peak Grade >8%

Have a great weekend,

Next Investors



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