Early-year trading indicates market is set for an up-and-down year

With much of the Australian finance world still on holiday, we were back to work this week.

Feeling refreshed, we saw some big swings in the market as it edges upwards once more.

The first few trading days of 2022 were extremely positive, reminding us of what we saw in the first week of January 2021 just before the small cap bull market in the first few months of last year...

Only to be brought back to earth later in the week after the US markets took a tumble.

This could be the new normal in 2022 - a lack of easily defined direction and increased volatility as the emotions of fear and greed battle for control of the trend.

Beneath the surface though, we’re seeing some positive signs in our portfolio as the broader index masks a lot of the action in our carefully selected small cap stocks.

Whether that’s down to individual operational factors or developments in the big macro themes they work within.

For example, one of the macro themes we’re positioned to benefit from is the batteries metals boom, along with a range of other commodities. What’s more, it’s increasingly possible that action in this space increases as commodities get used as a hedge against inflation.

But this isn’t the only macro theme we follow at Next Investors. Which is why we’re rolling out quick refreshers on our macro themes which explain the why and how of our investment methodology.

Keep an eye out over the coming weeks for a deeper dive into each of our key investment themes, including an investment memo for each stock we hold in that thematic covering what we expect them to deliver in 2022.

In the meantime here is a high level summary of our key investment themes and stocks we hold in each.

📰 This week on Next Investors

The first day of trading in the new year saw our European battery metals investment Euro Manganese (ASX:EMN) announce that the European Bank for Reconstruction and Development (EBRD) made an investment in the company to the tune of C$8.5M (~A$9.3M) via a placement at C$.4775 (A$.52) per share.

Following the placement, the EBRD will hold 4.5% of EMN shares on a fully diluted basis - and has been granted rights that allow participation in future financings to maintain its pro rata equity interest in EMN.

This deal demonstrates the partnership with EIT InnoEnergy - who helped foster the deal - is progressing. EMN signed a deal with EIT InnoEnergy in February 2021 with the aim of fast-tracking EMN’s project, assisting with the securing of offtake agreements and helping raise up to €362M to develop its project.

📰 Read the full take here: New Year, New Strategic Investor and New CEO for EMN

🗣️ Quick takes on key portfolio company events this week:

Vulcan Energy Resources (ASX:VUL)

On Tuesday VUL announced that it had been granted five new exploration licenses for geothermal energy, and lithium at its Zero-Carbon lithium project.

The licenses cover 325km2 and are considered prospective for deep geothermal and lithium brine. The newly granted tenements have now increased Vulcan’s project area by nearly 50% to over 1,000km2.

The expanded landholding provides VUL with ample opportunity to expand the resource & size of their lithium project in the future.

Next: We want to see VUL’s demonstration plant operating, the DFS complete, and a Vulcan listing on the main German bourse.

Elixir Energy (ASX:EXR)

EXR was another one of our portfolio companies that started the year off with an update on its operations.

On Tuesday EXR confirmed that the 2021 drilling program had been completed with the final 3 wells now fully completed. The program as a whole comprised 17 wells of which 65% successfully intersected coals in the CBM (Coal-bed-methane) window.

This brings to an end ~300 days of non-stop drilling in 2021 with EXR already moving onto the mandatory annual regulatory process for the 2022 exploration program. Importantly EXR confirmed that key long-lead items for the pilot production program have recently been ordered.

Next: For EXR it is all about production testing. We will monitor the project over the next 12 months and provide updates and commentary as it progresses.

Invictus Energy (ASX:IVZ)

On Wednesday IVZ confirmed that it has managed to secure the necessary casing, wellheads and ancillary long lead items for a 2 well drilling program commencing in May 2022.

In the announcement IVZ also mentioned that they were well advanced with the tendering process for the well services contract - which covers most of the drilling activities that will take place over the drilling program.

With the formal award of the contract expected shortly, long-lead items secured and the recent capital raise completed everything is shaping up nicely going into 2022.

Next: We want to see the drill-rigs commissioned and drilling commencing at the elephant scale Gas prospect in Zimbabwe.

🌎 Mainstream Media:

MedTech (ONE)

Oracle to buy medical records company Cerner in its biggest acquisition ever (CNBC)

Stryker announces definitive agreement to acquire Vocera Communications (Global Newswire)

Battery Metals (VUL, KNI, GAL, EMN, EMH, FYI, EV1)

Forget gold: Equity strategists tip green metals as inflation hedge (AFR)

How a nickel mine in New Caledonia could be the key to Tesla’s success (AFR)

Lithium stocks electrify ASX in new year rally (AFR)

Tesla surges after vehicle-delivery record stuns Wall Street (AFR)

Electric vehicles: the carmakers wary of going ‘all in’ on batteries (Financial Times)

Expect More Shipping Chaos as Omicron Forces Transport Workers to Quit (Bloomberg)

The world wants lithium but not mines (AFR)

Toyota commits $70 bln to bolster electrification, shares rally (Reuters)

Northvolt’s First Battery Cell Leaves Assembly Line on Schedule (Bloomberg)

Telecommunications (VN8)

Telcos think outside the box in hunt for growth (AFR)

Green Hydrogen (PRL, EXR)

Can ‘Green Hydrogen’ Clean Up Natural Gas? (Bloomberg)

Iron Ore (PFE, IRD)

Iron Ore’s Rally Hits 50% as China Economy Support Fans Optimism (Bloomberg)

Fertilizer (MNB)

China’s Xi Urges Stabilizing Agriculture, Rural Development: TV (Bloomberg)

COVID-19 Treatments

India Medical Agency Flags ‘Major’ Worries Over Merck Covid Drug (Bloomberg)

General Investing

Commodities Notch Their Best Year Since Financial Crisis Rebound (Bloomberg)

How American stocks could continue to climb (Economist)

Explainer: what is corporate social responsibility or CSR – and what do investors need to know? (The Conversation)

Have a great weekend,

Next Investors