Market fluctuations and portfolio news and quick takes
14 minute read
Remember a couple of weeks ago when the small cap market was roaring and everything was going up?
Seems like an eternity ago now after the majority of the small cap market took a beating this week.
Short term investors and traders were probably regretting rushing in when the small cap market suddenly went hot, and this compounded the sell downs as they just as quickly rushed for the exits the week after.
As long term holders we invest and hold a position over time to give each company a chance to actually deliver their plan, which can take years.
Yes, it’s exciting to see prices pop during a hot week, and disappointing to see them come back down the next week, but for us long term investors the weekly/monthly fluctuations don’t matter over a multi-year period if the share price is generally rerating upward over time.
Remember you can see our investment strategy for each company, the progress they have delivered since we invested, and our expected future milestones by clicking on any company in our investment portfolio.
It was also an interesting week for us where an unusually high number of our portfolio companies announced news that was worthy of commentary. We try to limit the amount of emails we send each day so we couldn’t cover all of them. In our quick takes (below) we provide a short comment on news from TMZ, PRL, VN8, LCL, AHI, GTR, VUL, PUR and what happened to the GAL share price - we will provide further commentary in the coming weeks.
We are also counting down to the VUL spinout IPO of Kuniko (KNI) next week. Like VUL’s wildly successful Zero Carbon LithiumTM targeting electric vehicle battery makers who are demanding sustainable materials, KNI is focusing on a Zero Carbon version of the other key battery metals Copper, Cobalt and Nickel. We are very excited to be getting behind KNI.
📰 This week on Next Investors
This week we announced the fourth addition to our Next Investors portfolio for 2021: Dimerix (ASX:DXB) as our inaugural Biotech Pick of the Year for 2021.
The ASX listed biotech company has developed a treatment for inflammatory diseases, such as kidney and respiratory diseases. Its treatment for inflammatory kidney disease has passed Phase 1 and Phase 2 clinical trials and they just raised $20M to fund Phase 3 trials over the next 12 months — into potentially a billion-dollar market. DXB’s treatment also has potential applications for lung inflammation for symptoms of COVID induced pneumonia and COVID respiratory complications with results for phase 3 trials of these expected before Christmas.
88 Energy (ASX:88E) this week confirmed the presence of light oil in the evaluation of their Merlin-1 well drilled earlier this year — finally the elusive news we have been waiting for.
88E Managing Director, Ashely Gilbert said, “this is the best well we’ve drilled on the North Slope of Alaska to date, with light oil detected in the Nanushuk across three separate horizons”. While the Merlin-1 well has now confirmed an active petroleum system, Gilbert recognises that there remains a lot more work still to do. Plans are underway for a follow-up appraisal well, scheduled for the Alaskan winter drilling window in Q1 2022.
Minbos Resources (ASX:MNB) this week announced that its Cabinda Phosphate Project was affirmed as a ‘Project of National Importance to Angola’. MNB is developing a phosphate (fertiliser) project in Angola with a 6 million tonne mining target and a 21 year mine life. A Scoping Study indicated that spending just US$27M (CAPEX) will result in a project valuation (after-tax NPV) of $159M-US$260M. We believe phosphate prices will continue to be strong as global food security comes into play which will only lift that valuation.
BHP also announced that it sees fertilisers as a key strategic commodity to provide food security for the growing human race over the next 100 years, and has focused its strategy accordingly.
Tempus Resources (ASX:TMR) this week completed an oversubscribed capital raise that saw a number of institutional investors and specialist gold funds added to its register, plus $6.28M added to its bank account to accelerate drilling for the rest of the current Canadian drilling season. The funds were raised at an average price that was slightly above the last market share price and above the 15 day average price (VWAP). This is very unusual for early stage explorers and we think speaks volumes of TMR’s prospects.
TMR is going to cram a lot of drilling and results in before Christmas so this will be an interesting few months for long term holders like us.
After what has seemed like an eternity, WhiteHawk Ltd (ASX:WHK) — one of our earliest investments and long term holds, has emerged from its “quiet execution mode” announcing a US$1.185M US federal government contract signing.
Having picked up the phone to CEO Terry Roberts this week, we were happy to hear that while the past year’s COVID-related delays were frustrating, she was very optimistic that WHK’s behind-the-scenes work will soon deliver what’s been promised to the market.
Like us, the market also seems to like Creso Pharma’s (ASX:CPH) psychedelics progress. The stock has seen a gradual uptick in its share price, breaking a long sideways journey, after its acquisition of Halucenex was completed two weeks ago. Halucenex, a Canadian psychedelics company, is about to enter Phase 2 clinical trials for treatment in PTSD. CPH this week announced Halucenex has been granted a rare “Controlled Drugs and Substances license” license for Halucenex in Canada.
🗣️ Quick takes on key events in our portfolio this week:
On Wednesday, PRL announced some good progress with the appointment of PwC to assist it in progressing its “HyEnergy” green hydrogen project. PwC is one of Australia’s leading advisory firms, with a track record in helping with the delivery of major infrastructure projects.
PRL is an early mover in green hydrogen and is currently our second biggest holding after VUL. PRL continues to build out a team that can bring this early stage green hydrogen project to reality. Andrew Forrest said this week that the green hydrogen market could be worth $16 trillion by 2050.
Our telco investment VN8 closed its Share Purchase Plan (SPP) this week, raising $2M as part of the funding for the transformative acquisition of MNF’s Direct Business. We like that the SPP was so heavily oversubscribed (nearly double), which has translated to more on market buying and a share price trading above the SPP issue price. We look forward to seeing how the integrated business starts to substantially improve key financial metrics going forward, with our bet that VN8 becomes cashflow positive for this financial year.
Now that the cap raise and acquisition is completed, we think after a bit of digestion the share price should start to rerate upwards. VN8 is a revenue generating growth company close to being cash flow positive, and is the kind of investment we like to make up a portion of our portfolio because it is fairly immune to the broader fluctuations of the small cap exploration market.
Fresh off last month’s $20M capital raise that introduced two new major institutional funds to the register, LCL added a further $2.3 million to its treasure chest via the exercise of 16 cents options. Being in such a strong financial position, means plenty more drill holes “...across multiple targets ranging from project generation to advanced projects such as Miraflores and the very promising Tesorito gold porphyry discovery.”
We suspect that with the options overhang now in the rearview mirror, the market will reward LCL for any drilling success that at all resembles the outstanding recent results out of its Tesorito South and Ceibal targets. Now we just need the gold price to stop teasing us and finally get back above US $2,000/oz.
GAL’s share price got pummeled (more than other explorers) in the soft market last week falling from 36c to 26c. GAL has a very tight share register and its share price movements are generally quite visceral up OR down.
We think a few small holders have been spooked in the soft market and because of the tight register the downward price movement was accentuated, which spooked even more people to join the sell off.
GAL’s share price usually bounces back pretty quickly after these little bouts of selling and we are certainly still holding our full position in anticipation of their next result, despite last week’s drop.
AHI has confirmed the target release timing for Tinjoy Biotech’s re-launch of “The Health Cube” in mid-August 2021 has been achieved with a very promising start over the initial days, and 30,000 new registrations. AHI also this week provided a US market update, and a US media release issued by Bearn LLC, regarding the company’s AHI integration, marketplace statistics and $20M Series A Funding round.
AHI is evolving and can be a complex story to track for investors. We will shortly provide an update and company milestones that we think will make AHI’s progress easier to follow.
To help raise global awareness for its Zero Carbon LithiumTM business, VUL has partnered with former Formula One World Champion, Nico Rosberg, and the Rosberg X Racing (RXR) electric racing team in the Extreme-E competition.
Extreme-E was created to highlight the impact of climate change and human activity on some of the world’s most remote locations while promoting sustainability and the adoption of electric vehicles to help protect the planet.
The important take-away from this announcement is that Nico Rosberg is a German national hero and because VUL’s project is located in Germany AND they are planning to list on the main German stock exchange soon, we think Nico’s endorsement will bring huge community support and investor attention to VUL in Germany.
On Thursday PUR said it has commenced the drilling at Phil’s Hill 1,500m maiden diamond drilling program. The first hole is expected to drill to a total depth of 200m and is estimated to take 7 days to drill. The drilling program is anticipated to take around 8 weeks to complete.
Following completion of the holes, PUR will follow-up with downhole EM surveys, allowing the company to more accurately model conductors in a 3D environment.
PUR is coming into drilling from a lower share price base than we expected after a few of the Julimar hopefuls took a pounding lately so we are probably going to hold a bigger than planned into the drill result. Just like any typical exploration investment we had a plan, but have slightly changed it based on market conditions. The next few weeks of drilling and results should be fun.
We have been holding uranium explorer GTR for ages and basically the strategy is that if the uranium price soars then so will GTR, so we want to be set BEFORE that happens.
We originally invested in GTR because the uranium price looked like it was just about to pop back in May 2020...but then it didn’t, so we went into patient holding mode.
Our view is that the Uranium price will go for a run in the next 6 to 12 months and then it will be GTR’s time to shine with its growing portfolio of uranium exploration assets.
This week GTR has acquired 100% of Branka Minerals, the holder of ~22,000 acres across several groups of strategically located and underexplored mineral lode claims and 2 state leases prospective for sandstone hosted uranium, in the Great Divide Basin, Wyoming, and the Uravan Belt, Colorado, USA.
TMZ has been busy and is certainly due for an update from us — we are holding TMZ because we are long term believers in the silver story.
TMZ has completed the acquisition of 100% of the Texas Silver Project for a total of approx. A$2.5M. The Texas Silver Project is located in the highly prospective Silver Spur Basin section of the New England Fold Belt in Queensland. This marks another key milestone for TMZ and marks the consolidation of this significant silver district that it views as a vital Hub and Spoke asset with significant JORC silver resources and excellent exploration potential.
In our other portfolios 🧬 🦉 🏹
This week we introduced our new early stage biotech portfolio, Finfeed.com. This portfolio will follow the lead of one of Australia's most successful small cap biotech fund managers who has picked nearly all the ASX’s top biotech multi-baggers of the last two years.
We also made our first investment in the new Finfeed portfolio: Dimerix (ASX:DXB), which was also added to the Next Investors portfolio.
DXB is an Australian biotech company that has developed a treatment for inflammatory diseases, such as kidney and respiratory diseases, and also has applications for treating COVID related lung inflammation. It just raised $20M as it looks ahead to Phase 3 trials.
FYI Resources (ASX:FYI) is in the advanced stages of bringing its High Purity Alumina plant into production in WA. This week it strengthened its Environmental, Social and Governance (ESG) credentials with the appointment of Dr Sandy Chong to the FYI Board. In January, we made our first investment in FYI, topping up further in May following even more attractive metrics out of its updated Definitive Feasibility Study. We now await confirmation of a definitive agreement with Alcoa after the recent extension of its exclusivity agreement.
As also reported on Next Investors, one of our early investments, WhiteHawk Ltd (ASX:WHK), has announced an extension of a US federal government contract worth US$680k, with an option for an additional US$505k. The contract extension not only locks in another year of revenue, but demonstrates the US federal government’s endorsement of the capability and value of WhiteHawk’s Cyber Risk Radar product line.
🏹 Catalyst Hunter
Nelson Resources (ASX:NES) recently reported very promising gold hits from its Socrates prospect within the Woodline Project, WA. Our hope is that a Tropicana-esque discovery is made within Woodline, which shares several geological similarities to AngloGold’s 7.6Moz monster mine.
With a market valuation of circa $8 million, cashed up and its own drilling rigs in hand, we are betting on NES to continue to find more gold in the months ahead.
In hindsight, we probably should have free carried on NES when it ran up to 13c, but we are still holding on to see what they might deliver. Can’t win them all
With its halloysite project now into the pre-feasibility phase, and the view that it is (and has been for many years) “a lithium company”, Latin Resources (ASX:LRS) has turned its focus back on its South American lithium projects.
LRS is back on the ground in Brazil, and this week reported that field work and mapping at its Salina Lithium Project has identified further outcropping pegmatites containing spodumene, confirming the project’s high prospectivity for lithium.
Assays results are just weeks away and drilling is expected to begin by the end of the year. Systematic mapping and sampling over the coming weeks will assist in finalising drill targets.
🌎 Mainstream Media:
Battery Metals (VUL, EMN)
Have a great weekend,