What Happened?

The small cap market has been a hive of activity this week.

(well, compared to the pretty grim last few months at least)

A few more stocks than usual have been responding to positive news and macro events.

And there have been quite a few capital raises going around... and getting done.

Nothing overly bullish just yet but some good, positive signs.

A few more people appear to be cautiously dipping their toes back into the small cap section of the market.

For the last few weeks the lithium price has been steadily trading ~18% above the lows it sat on for ~4 months during the “lithium winter”.

And lithium exploration stocks have been edging back up off their lows.

We continue to watch uranium, gold and silver prices closely.

Sun Silver IPO now open - Our new Portfolio addition.

We are adding a new company to our portfolio - Sun Silver Ltd.

Sun Silver aims to develop a globally significant tier 1 jurisdiction silver gold asset with an Inferred Mineral Resource of 292,000,000oz AgEq at 72.4gt Ag, in Nevada, USA.

Sun Silver plans to list on the ASX on June 5th 2024 (indicative date) through an IPO.

For full details see the Sun Silver IPO Prospectus (click the link that says “Prospectus”)

You should read the Prospectus in its entirety before making a decision to invest in the Offer.

We strongly recommend you seek professional financial advice whenever making financial investment decisions.

We have secured an allocation for Next Investors subscribers in this IPO.

We received significant interest so far and have requested more allocation.

Priority will be given to bids made and payment received by Monday 22nd April.

You can apply via the link below (please limit bid size to a maximum of $20k):

To bid into the Sun Silver IPO click here

You should read the Prospectus in its entirety before making a decision to invest in the Offer. We strongly recommend you seek professional financial advice whenever making financial investment decisions.

Drone versus Drone wars?

We Invest in lithium companies because of lithium's use in batteries for the transition to clean energy.

Primarily it's used in electric vehicle batteries.

An interesting (and troubling) discussion we listened to on the All In Podcast this week is predicting a new demand source for batteries.

There is talk of human soldiers being replaced on frontlines in wars (by both sides of a conflict) by giant swarms of small to medium sized battery operated drones.

Meaning that battery production capacity and secure battery metals supply will suddenly become a national security matter for countries:

Here is where they talk specifically about lithium battery supply risks in a potential global drone arms race:

(The full discussion on drones as the future of war starts here)

We don’t want to see any more wars in an already tense geopolitical climate, but if militaries around the world are starting an arms race to outnumber each other in lithium battery powered drone numbers, it’s something we will need to keep an eye on in the medium term.

We just hope that most of these military drone swarms end up just sitting around in warehouses to deter adversaries from deploying their own military drone swarms, and don’t ever need to be used.

Speaking of lithium...

Remember when LRS delivered a 1,000%+ return from a lithium discovery in Brazil?

It was one of our best performing Investments in 2022/2023.

Off the back of the success with LRS we Invested in SLM.

SLM was exploring for lithium in Brazil too, and it started off very strong.

In June 2023, SLM ran from ~16c to $1.34.

It spent a few weeks trading at above $1.

A good cap structure, a promising project, and the glow of LRS’s success (LRS are a major shareholder of SLM).

During SLM’s share price run the company raised ~$8.1M at 55c.

(we put $200k cash into that cap raise at 55c... and are still holding it all).

Unfortunately, the small-cap exploration gods did not bless SLM’s initial exploration efforts; it now trades around 11c.

A couple of disappointing initial drill results and drilling delays meant that SLM could not gather the drilling information it needed to be convinced to pay the $3.6M (plus 3M SLM shares) to fully acquire the project.

...and the vendor wouldn’t extend the option to do more drilling.

SLM made the prudent decision NOT to stump up the cash to acquire the project that looked great at surface, but didn’t deliver when it came to drill results.

SLM now has a $5M cash in the bank (as at Feb 2024) and has been on the hunt for a new project in recent months.

We look forward to seeing what they eventually come up with.

If there is anything the SLM share price run taught us is that it appears there are many investors out there keen to find and back “the next LRS”.

We are too.

We have been on the hunt for a new Brazil exploration project and have looked at quite a few of them in the last 6 months.

Why are companies trying to become “the next LRS”?

Long time readers will know of our Investment in Latin Resources (ASX: LRS)

We first Invested in LRS at 1.8c per share back in November 2020 and continued topping up our Investment at 4.49c and again at 3c per share in the years after.

Then in March 2022 LRS made its lithium discovery in Brazil - what is now the second biggest lithium deposit in Brazil’s Lithium Valley in Minas Gerais.

(second only to $2.3BN Sigma Resources).

That discovery took LRS’s share price to a high of ~42.5c per share - up ~2,300% from our Initial Entry Price. It’s now bouncing around 20c

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.

It has been one of our best Investments, and LRS, together with Sigma, has shown the whole world the potential returns on offer for discoveries made in Brazil’s Lithium Valley...

(Source)

The two companies' success led to a flurry of small cap companies entering Brazil looking to become the next Sigma or the next LRS.

We Invested in one of those last year - Solis Minerals (ASX: SLM).

Our thesis was relatively simple - SLM had a project with huge outcropping pegmatites (we called it the “pegmatite cliff”), and we thought they could make a discovery comparable to LRS.

In the few weeks after our initiation, as SLM neared its first drill program, its share price started running - at its peak the SLM’s share price was ~$1.34.

The run up in share price was a clear example of when expectations run well ahead of reality for a company - before any drill results, SLM’s market cap had at one point hit almost $100M.

Unfortunately, SLM wasn't able to deliver a discovery and the poor results led to a big re-rate down in the company's share price.

At the end of the day, it was a genuine roll of the dice at making a discovery that unfortunately didn't pay off for us and other SLM investors... this time.

But that’s just part and parcel of being early stage exploration Investors...

We are still holding onto our Investment in SLM and are backing the team to try to find a new project that can turn around the company’s fortunes.

For most of 2022 and 2023, many new players entered the Brazilian lithium sector on the back of LRS’s success, and we saw some outrageous terms for new acquisitions.

We saw a few companies really blow up their cap structures on those deals...

(obviously, project vendors were holding out for high prices with so much inbound interest)

Now with the lithium price having come off a fair bit and appetite for greenfields exploration ground a lot lower, we think there is likely to be some decent opportunities floating around for companies to pick up.

Put short - vendor expectations are likely to have come back to reality.

Just like LRS was picking up its lithium assets in Brazil during the 2018-2021 lithium market downturn, we think there might be some good bear market pickups from the small caps that are actively looking at new projects.

When the macro finally goes your way...

Waiting around in small caps is part and parcel of the game.

Investing in out of favour macro themes can mean you get cheap entry points in companies with decent prospects BUT it also means waiting around for the macro to improve before seeing any meaningful move in your Investments' valuation.

Sometimes that wait can be months, sometimes years.

When the macro tailwinds finally blow in your favour, they can have a big impact on capital flows into the sector AND on company share prices.

We saw that in uranium earlier this year as the uranium price broke out to multi decade highs - share prices for uranium companies rose and most of them raised a large amount of cash off the back of the positive sentiment.

Right now we think we are at the very early stages of the same thing happening for the precious metals space (gold & silver).

(we saw it this week with TTM, a gold stock that we have been holding for nearly 4 years, more on that second)

With precious metals (gold and silver) prices running, we also suspect its just a matter of time before platinum group elements (PGE’s) start running too.

Which is when we hope our Investment in GAL will rise again... see our GAL Investment Memo here

• See how macro sentiment impacts share prices here: Why do shares go up?

Gold keeps making new highs - more M&A happening this week...

Another part of the market we are seeing heat up is the gold sector.

Share prices for juniors are still relatively muted but there is quite a bit of corporate interest in the sector and a lot of money being thrown around by the big players.

Last week, we saw Solstice Minerals sell its gold project to $17.6BN Northern Star for $12.5M. The news was huge for a company with a market cap well below the $ value being received for its asset - since then Solstice’s share price has been up >60%.

This week we also saw Strickland Metals announce a ~$37M gold acquisition.

Strickland had previously cashed out of assets in WA by selling to Northern Star for ~$61M and is now putting that cash to work in another gold asset.

The whole Northern Star/Strickland story shows how money can flow from the megacaps into the juniors and then down again into the private/greenfields exploration space.

All of this M&A isn’t anything new though, it's been happening for over 12 months now.

Our key takeaway from all this?

We think there are more deals to come especially with the price of gold hitting new all time highs on an almost weekly basis.

Some of the big names in the mining industry with seriously deep pockets are also buzzing about how they think gold is the place to be in the current market.

See this video we watched during the week where almost all of the big names agree that investors should have some gold exposure:

(Source)

Eventually we expect to see these deals flow into the universe of companies we Invest in (typically where market caps are <$100M).

One of the companies in our portfolio that had a deal done this week was Titan Minerals (ASX:TTM) who announced a US$120M deal with Australia’s richest person, Gina Rinehart.

TTM agreed on Thursday to terms with a subsidiary of Hancock Prospecting - owned by Australia’s richest person, Gina Rinehart.

The deal will see the Hancock subsidiary pay US$120M to earn up to 80% of just one of TTM’s Ecuadorian copper projects.

TTM has three other projects including its most advanced one - Dynasty - where it has a 3.1m ounce gold, 22m ounce silver JORC resource.

So the deal with Gina’s subsidiary ascribes a read through value of US$150M on just one of TTM’s four projects...

That means a look through valuation for TTM’s 20% free carried interest of ~US$30M (A$45M).

We think the deal now underpins TTM’s valuation and leaves plenty of upside for re-rates off the back of TTM’s other assets, especially considering TTM’s current market cap of ~$60M.

See what TTM’s CEO Melanie Leighton had to say about the deal here:

(Source)

What we wrote about this week

Sun Silver (ASX:SS1)

We are adding Sun Silver to our Portfolio, the IPO is now live - we have secured an allocation for Next Investors subscribers, read the prospectus and bid on the link below:.

Read: Sun Silver IPO - Now Open

Minbos (ASX:MNB)

Minbos came out of a trading halt this week having raised A$6M and A$21.5M via a debt agreement for its phosphate project in Angola.

MNB also hinted at inbound interest from external parties for both its phosphate project and its green ammonia project.

MNB expects phase 1 of construction works to start in the coming weeks and is targeting first production from its phosphate project in Q2-2025.

Read: $61M capped MNB Secures Funds to Build $70M EBITDA per year phosphate mine within 12 months?

88 Energy (ASX: 88E)

88E announced a second oil discovery from its project on the North Slope of Alaska, USA.

88E produced a peak flow rate of ~50 barrels of oil per day adding to the ~70 barrels of oil per day from its first discovery a few weeks back.

88E is now working toward contingent resource estimates for both its new discoveries by the end of Q2-2024.

Read: 88E makes 2nd light oil discovery in 2 weeks - how will the UK react?

Lycaon Resources (ASX:LYN)

This week LYN got land access approvals from the Aboriginal Affairs Minister for its projects in the West Arunta region.

The West Arunta is where WA1 Resources made its Luni discovery - the discovery that took its share price from ~10c per share to where it is now at $17 per share.

LYN holds ground 90 km away from WA1 Resources and is hoping to drill the project in the middle of this year.

For now the focus for LYN is on getting heritage surveys completed ahead of the first drill program.

Read: “The Last Frontier”: LYN (finally) closer to drilling WA1 Resources look-alike target in the next few months

Neurotech International (ASX:NTI)

NTI put out results for two different clinical trials the company is currently running - one for Autism Spectrum Disorder (ASD) and the other for Rett Syndrome.

Both the results showed that NTI’s treatments met their primary endpoints indicating the treatments work and are having positive impacts on the patients taking them.

Off the back of the results, NTI raised $10M at 10c per share, we are now looking forward to further results from NTI’s Rett Sydnrome trials with results due in the coming weeks.

Read: NTI’s two clinical trial results are in - Treatment success for BOTH Autism AND for Rett Syndrome

Titan Minerals (ASX:TTM)

This week TTM announced a US$120M deal with a subsidiary owned by Australia’s richest person - Gina Rinehart.

The deal will see a subsidiary of Hancock Prospecting invest ~US$120M to earn-in a 80% stake in just ONE of TTM’s FOUR projects. The focus on that project is to make a giant copper-gold porphyry discovery.

The deal excludes TTM’s Dynasty project which has a 3.1mOz gold and 22mOz silver JORC resources.

Read: Gina Rinehart Hancock Subsidiary to earn into TTM Copper Asset

Quick Takes

88E: 88E makes second oil discovery in the USA

GUE: GUE to drill large uranium project in May

88E: 88E - what’s next?

GTR: GTR - US uranium drilling on track for Q3-2024

BPM: BPM RC drilling next to $1.9BN Capricorn Metals in June/July

PFE: PFE now has a bigger lithium project

NTI: NTI adds impressive board member

Bite sized summaries of the latest mainstream news in battery metals, biotechs, uranium etc: The Future Money: https://future-money.co/

EV Adoption Worldwide: Which countries have the most EVs? And why is 5% adoption important?

Macro News - What we are reading

Gold:

Gold is back — and it has a message for us (ft.com)

• Gold prices surge due to concerns over inflation, geopolitical tensions, and economic shifts, driven by factors like fiscal stimulus and changing global dynamics.
• Analysts predict a significant rise, citing parallels with historical trends, worries about US debt sustainability, and support from a weakening dollar and potential monetary policy shifts.

Gold Prices at a Record High Are Keeping Pawn Shops Busy (Bloomberg)

• Gold prices near $2,500/ounce attracting sellers to Brooklyn's King Gold & Pawn
• Customers cashing in jewellery due to economic uncertainty
• Geopolitical tensions and inflation concerns driving gold's appeal
• Some holding gold for long-term security
• Sellers seizing opportunity to profit from record prices

Iron Ore:

Why China could deliver BHP, Rio and FMG a double blow (afr.com)

• China's iron ore prices surge, boosting Aussie miners.
• Concerns: Biden's tariff threats, RBA's grim outlook on Chinese property.
• Long-term: declining iron ore demand due to Chinese steel shifts, trade tensions.
• BHP, Rio diversify; China's economy challenges global growth.

Rare Earths:

China mystery swirls as Gina Rinehart’s Hancock Prospecting grabs 5.8 per cent stake in Lynas Rare Earths (The West Australian)

• Gina Rinehart heavily invests in Lynas Rare Earths and MP Materials, sparking merger talks.
• Hancock Prospecting, Rinehart's company, acquires a big stake in Lynas, lifting its share price.
• Rinehart also holds shares in MP Materials and Brazilian Rare Earths.
• Chinese rare earths player Shenghe Resources' involvement complicates matters with its holdings in MP and suspected ties with Lynas.

Silver:

Silver Through the Ages: The Uses of Silver Over Time (visualcapitalist.com)

• Silver serves as a precious and industrial resource from ancient currency to modern technology.
• Crucial for future technologies: Especially renewable energy.

Biotech:

J&J, Bristol Myers race to amplify CAR-T manufacturing to meet label expansion in multiple myeloma (Endpoints News)

• J&J and Bristol Myers Squibb are increasing CAR-T therapy production to meet demand.
• J&J aims to double Carvykti capacity by 2024, while Bristol Myers expands Abecma manufacturing.
• Both companies are addressing manufacturing challenges to ensure adequate supply.
• Despite sales fluctuations, they emphasise efforts to meet growing CAR-T therapy demand.

Critical Minerals:

Australia Lends $375 Million to Critical Mineral Firms for Green Transition (Bloomberg)

• The Australian government invests $585 million in loans for two mining projects.
• Aim is to bolster the domestic critical minerals industry and reduce reliance on China.
• Projects focus on high-purity alumina and graphite essential for green energy products.
• Part of broader strategy to develop green manufacturing and mining sectors for international competitiveness.

Have a great weekend,

Next Investors