What Happened This Week? Nov-13th-2021
15 minute read
Our team met yesterday to discuss what could be the next long term investment theme in which we should take positions for our portfolio during 2022.
Our investments over the last few years have been across themes of battery metals, gold, health tech, commodities and oil & gas.
For the next theme, we discussed anti-aging technology, the meta-verse, drugs (psilocybin, ketamine and MDMA) for treating mental health issues, artificial intelligence... even crypto and NFTs.
However the topic that came up the most was how to position for inflation, which has been on most investors minds and all over the news lately.
Today we are going to cover which of our portfolio stocks we think will perform well in a high inflation environment and why.
Inflation means an increase in the cost of living as the price of goods and services rise, or rather Inflation is the decline of purchasing power of a given currency over time.
Governments around the world have increased the supply of money flowing through the economy (through quantitative easing) to steady the ship during COVID uncertainty, and interest rates have been at record lows.
You’ve probably already noticed things getting more expensive when you are out shopping.
Gold is the most common, traditional hedge against inflation. Gold has been a bit unloved over the last 12 months but the gold price has kicked up over the last few weeks as inflation fears mount. Not to mention its precious metal cousin, silver.
Commodities in general are critical in making the things people use every day, and are the first and most important part of any product supply chain, hence producers can set prices for buyers.
Commodities can also be a good investment class for periods of high inflation, especially if those commodities are broadly in demand from other macro themes - like EV battery metals or anything to drive the green economy.
While we don’t invest directly in physical commodities OR later stage commodities companies that are in production - our experience is in early exploration companies and pre-production stage gold and commodities companies.
Today we’ve collated a list of our current investments in gold or commodities, BUT that are past the risky “early exploration phase”, meaning they already have an “estimate” of how much of a particular commodity they might be sitting on, they just need to figure out how to get it out of the ground... economically.
How to tell if a company possibly has a decent amount of a commodity underground?
You may have seen “JORC resource” mentioned in some resource company announcements - JORC stands for Joint Ore Reserves Committee. The JOR committee developed a set of guidelines for the reporting of Mineral Resources and Ore Reserves referred to as the JORC “Code”.
The JORC classification helps resource companies measure and report how much of a commodity they think they have found from their drilling campaigns - JORC compliant resources can be relied on by investors and used in scoping studies.
We think that a company with a JORC resource of a commodity (or close to delivering a JORC resource) should generally do well in times of rising inflation - in the long term of course we need them to execute on their plan, prove the commodity can be economically extracted AND the general commodity continues to be in strong demand.
Positive sentiment around a commodity does generally lift the share price, even of explorers and pre-production stage companies
Here is a list of our current investments that we think will do well during high inflation periods, because they have (or are close to delivering) a JORC resource in gold, silver or another popular commodity:
TTM: Gold in Ecuador 2.1 Million ounces of gold resource, but using a foriegn resource estimation method, TTM is drilling this project now with a view to update to JORC standard resource estimate (and hopefully increase the size). Next we want to see Dynasty project drilling results- more about TTM.
LCL: Gold in Colombia LCL continues to deliver great drill results, but the potential gold system they are drilling just keeps getting bigger and they haven't found the boundaries of it yet. We expect that once LCL finds the boundaries of its deposit it will deliver a JORC resource estimate. Next we want to see more drilling to find boundaries of their huge gold system, JORC resource expected in first half of 2022 - more about LCL.
TMR: Gold in Canada while TMR is probably closer to an “explorer” right now, TMR has a historically producing gold mill, and already has an inferred resource of ~300,000 ounces (not yet classified as JORC compliant). Its main goal is to find and prove a new gold vein and deliver a JORC compliant resource estimate which will allow it to raise funds to restart the existing processing plant they have. Next we want to see them deliver more high grade gold strikes on the new vein they found a few weeks ago - more about TMR.
TMZ: Silver in Australia TMZ owns a historically producing silver processing plant and some historical silver projects, with the goal to combine them into a 100 Million ounce equivalent silver resource. In August TMZ announced they have a JORC compliant 20.7M ounces. TMZ is probably our most advanced precious metals project and we think will do quite well if it can execute on its plan during a period of high inflation. Next we want to see it announce more drill results and further increases to the current 20.7M ounce silver resource - more about TMZ.
EMN: Manganese in Czech republic EMN has Europe’s largest manganese resource and 98% of it is JORC classified (see page 30 of EMN presentation). Manganese is used for electric vehicle batteries and we expect demand to be strong, combined with inflation driving up commodity prices Next we want to see EMN’s pilot plant produce some samples for potential offtake partners - more about EMN.
VUL: Lithium in Germany VUL has the largest JORC lithium resource in Europe. Lithium is used for electric vehicle batteries and we expect demand to be strong, combined with inflation driving up commodity prices. Next we want to see VUL’s demonstration plant operating, the definitive feasibility study and German listing - more about VUL.
MNB: Phosphate (fertiliser) in Angola MNB has a 27Mt phosphate resource, with a scoping study to build a mine to extract 6.5Mt. Agriculture and food commodities usually perform well during periods of high inflation Next we want to see the results of MNB’s bulk sample that was sent for processing (and obviously more news on its new ammonia project) - more about MNB.
EMH: Lithium in Czech republic EMH holds 49% of the largest hard rock lithium deposit in Europe and recently upgraded their JORC resource. Lithium is used for electric vehicle batteries and we expect demand to be strong, combined with inflation driving up commodity prices. Next we want to see offtakes and a feasibility study - more about EMH.
EV1: Graphite in Tanzania IPO is listing on Tuesday next week, EV1 is our latest investment in electric vehicle battery materials. EV1 has a JORC resource, a definitive feasibility study and a low capex to get into production. Next we want to see EV1 IPO on Tuesday - more about EV1.
FYI: High Purity Alumina in Australia FYI is our most advanced investment, entering the “Development Stage” and is building a high purity alumina plant that will be almost 100% funded by recent JV partner Alcoa, FYI owns the Kaolin asset that will provide the feedstock for the processing plant. Next we want to see results from the extended pilot plant that was announced in October - more about FYI.
LRS: Kaolin and Halloysite in Australia: JORC resource announced in May of 207Mt of kaolinised granite, LRS are now in the process of a pre-feasibility study. Next we want to see more extension of the resource and positive pre-feasibility study released - more about LRS.
As mentioned before, our experience is in early stage exploration pre-production resources companies, so while our investments listed above are past the “high risk exploration stage” there is still risk around - economical extraction, successful feasibility studies, securing the finance to build and execution of building the mine.
We think the later stage companies in our portfolio discussed today that already have or are close to a JORC resource will perform well during periods of increasing inflation, especially our later stage gold and silver investments.
If you want to learn more about the different stages of a resource company, from exploration to production, check out chapter 6 (starts on page 20) of our ebook on how we invest in small cap stocks
Finally, Here are a couple of recent news articles how gold and commodities can be a good hedge during high periods of inflation:
Our favourite explainer: Why we are now entering a period of high inflation
📰 This week on Next Investors
Earlier this week Kuniko (ASX:KNI) received some early positive data from its geophysics program, unveiling multiple electromagnetic conductors across its projects.
Finding EM conductors is a big step toward KNI identifying its first drill targets.
There were several EM conductors discovered at KNI’s Cobalt and Copper Projects, including a few previously unknown areas of potential mineralisation for KNI to drill.
📰 Read the full breakdown: KNI delivers multiple conductors on copper and cobalt - Drill targets next
On Thursday GTi Resources (ASX:GTR) announced that they have secured two drill rigs for the upcoming drilling programme at its Wyoming uranium project next month.
The drilling campaign is aiming to confirm for GTR the historical uranium grades and give them a better understanding of what uranium mineralisation exists below mineralization that was previously identified in the 70s and 80s.
🗣️ Quick takes on key portfolio company events this week:
Our health tech investment ONE went into a trading halt ahead of a capital raise. ONE has early penetration in the lucrative US healthcare market and we think this raise should allow the company to commence an aggressive “land grab” by ramping up sales and marketing in the US.
Los Cerros (ASX:LCL)
Our gold investment Los Cerros (ASX:LCL) has its hands on what appears to be a giant gold system in Colombia’s prolific Mid-Cauca Porphyry Belt that just keeps on getting bigger.
Whilst LCL is aiming to deliver its maiden resource at its Tesorito gold prospect in 1H CY22... it is struggling (in a good way) as they can’t find the edges - they keep drilling and finding gold everywhere.
This week, LCL announced a batch of assay results from Tesorito that effectively doubled the outer, lower-grade gold footprint and connected the Tesorito South and Tesorito North systems. Several high-grade (for a porphyry, 1g/t Au is considered good), extremely wide intercepts were delivered, with probably the best being 236 metres at 1.0 g/t Au from hole 34.
Very positive news indeed, and we think points to ultimately a bigger deposit.
Invictus Energy (ASX:IVZ)
This week IVZ announced preliminary results from the 839km 2D Seismic acquisition program that it is doing over its massive prospective resource at the Cabora Bassa Asset in Zimbabwe.
The preliminary results look encouraging, with a number of anomalies that warrant testing in the upcoming drilling program.
IVZ still has to complete full analysis of the results before integrating the new seismic data with legacy gravity aeromagnetic and geochemical datasets that were generated by Mobil during the 90s.
Next stage for IVZ is to secure a farm out partner for the drill program slated for the first half of 2022.
Galileo Mining (ASX:GAL)
On Monday GAL announced that it secured another tenement in the Fraser Rangers, increasing their landholding in the area by an additional 70km^2 taking the total project area to 672km^2.
The tenement was purchased from Mark Creasey who is also GAL’s biggest shareholder owning 24.61% of the company and also the man behind the biggest nickel discovery in the Fraser range - the $1.8B Nova nickel discovery.
The next few months should be really interesting for GAL with drilling results from the Norseman Palladium Project yet to be announced to the market and a new Fraser Range drilling program to commence early December.
Last Friday big pharma company Pfizer Inc. (NYSE:PFE) announced successful results of their anti-viral COVID-19 treatment, moving up 11% on the news (which is big for a large cap like Pfizer). With both Pfizer and Merek both launching their COVID-19 treatments in the last two months, the market for COVID-19 drugs are starting to take shape.
Still in the recruitment phase of their own Phase-III COVID-19 study, we think DXB’s solution may have an edge, due to their drug being ‘anti-inflammatory’ rather than ‘anti-viral’.
Antiviral drugs need to be taken very soon after symptom onset to be effective (for Pfizer this is within three to five days), whereas anti-inflammatory drugs can be taken well after that time.
We expect to have some results of DXB’s Phase-III COVID-19 study by Christmas.
Euro Manganese (ASX:EMN)
Earlier in the week EMN put out an update on their Manganese Project in the Czech Republic. The pilot-plant is once again operational, producing Manganese products that EMN will use for marketing purposes to potential off-take partners.
We also got an insight into the demonstration plant progress, with the different modules that make up the plant set to begin construction in China by the end of this month. Although EMN indicated that the demonstration plant would be constructed by the end of 2021 (in its June 2021 investor presentation), it appears that the timeline has been pushed out to Q2 of 2022.
With 60% of the definitive feasibility study now complete and on schedule, we are anticipating strong newsflow for EMN in the new year.
Titan Minerals (ASX:TTM)
On Monday, our Ecuadorian-focused gold-copper play TTM announced promising rock chip assay results from its Linderos exploration project.
144 of 227 rock chip samples have been assayed at the first prospect, with the best returning 64g/t gold with >1,500g/t silver. At the second prospect, 28 of 47 first channel samples have returned highly anomalous copper and gold results, the pick being 42m @ 0.31% copper and 0.12g/t gold.
We consider Linderos as a side-bet, with our focus squarely on the gold being uncovered at the flagship Dynasty project, 20km up the road. Any discovery at Linderos will be seen as a bonus.
In our other portfolios 🧬 🦉 🏹
On Wise-Owl we put together a “report card” on how our portfolio companies performed in the last quarter (1st July to 30th September).
We provide a recap of the key events that have happened with our portfolio stocks since the new financial year began and commentary (including share price commentary) on each stock and what we are expecting next.
📰 Read Report (PART 1): What have our portfolio companies been doing? (Part 1)
📰 Read Report (PART 2): What have our portfolio companies been doing? (Part 2)
🌎 Mainstream Media:
US Inflation - Gold (TTM, LCL, TMR, TMZ)
Chalice Mines (PUR)
Hydrogen Energy (PRL, EXR)
Oil (IVZ, 88E)
COVID-19 Treatment (DXB)
Have a great weekend,