Annual Reports, Uranium and a Welcome to New Subscribers
Published 04-SEP-2021 14:00 P.M.
17 minute read
The boring small cap market months of “Sell in May” and “Tax loss selling June” seem a distant memory now as the small cap market was running hot again this week, with most of our portfolio stocks having a good run.
Annual reports are starting to trickle in and can provide valuable management commentary about the future and also a handy financial snapshot.
The current “hot commodity” lithium took a back seat this week as the uranium spot price hit its highest point since 2015.
Long time readers will know we have been holding uranium explorer GTR for over a year now - GTR’s performance is heavily leveraged to a strong uranium price. Uranium looked like it was about to have a run back in early 2020 when we first invested in GTR... but it was a false start and didn’t eventuate. Hopefully this time it’s the start of a strong uranium market.
Our portfolio composition reflects our belief that the world is currently in a “commodities supercycle” and that commodity prices will remain high in the medium term as countries look to “build their way out of Covid induced recessions,” combined with the rush of demand for battery metals as the world goes electric.
New subscribers: We’ve had a lot of new subscribers over the last few weeks - here is a short initiation for new readers (and a refresher for regular readers).
We are a small team of investors whose mission is to build a high performing ASX small cap stock portfolio and share our investment journey with our readers.
We have added five new investments to the Next Investors portfolio in 2021: ONE, BPM, PFE, DXB and KNI.
Since 2019 we have made a total of 23 investments in small cap companies.
Reminder of how it works:
We share all our current positions on our portfolio page - see our current investments.
We provide updates on each investment via email as the company delivers on its plan over time, and we share our commentary, opinions and how our specific investment plan for each company is playing out.
To see the progress of any individual investment click on the portfolio page, click any item in the portfolio to go to the summary page for that company. On this page you can see all our past commentary, the companies achieved milestones, our expected future milestones and the progress of our investment plan for that company.
If you are on a phone/small screen to get to each company summary page just click on the company you want to find out more about, then click the company logo to go to that company’s summary page:
We are always working to improve the experience for our readers to be able to follow the progress on how each of our investments plays out over time, so if you have any comments/suggestions please reply to this email.
Small cap investing is risky and while it’s been a hot market and we have had a good run lately, remember that many small cap companies will fail OR take a very long time to deliver returns, if at all.
Over many years we have learned (by being burned) that “going all in” on any one small cap investment is extremely risky. We have found in our investing career that maintaining at least 10 different, carefully selected positions over the long term with the aim of hitting one or two outstanding results can offset the inevitable failures (this is what has worked for us).
We also maintain a free carry and take profit strategy to de-risk after a company has delivered some milestones - unfortunately this takes time and means holding a long term position and being patient.
Generally, when it comes to small caps you should never invest more than what you are comfortable to lose in any one position. For more detail see our ebook on how we invest in the small cap market. And read the bottom of this email for more information.
Here is what happened this week on Next Investors and our other portfolios:
📰 This week on Next Investors
Oneview Healthcares (ASX:ONE) hosted an investor briefing on Monday to discuss its half year results and provide guidance on what to expect over the next six months.
New information: on Friday after market ONE announced that it has been added to the ASX All technologies index. This will put ONE on the radar of more institutional investors AND funds/ETFs that track this index and will take relative positions in ONE - a positive development.
ONE is a health tech company that provides a “virtual care and digital control centre” to hospital patients at their bedside. The stock is our Tech Pick of the Year for 2021.
The most interesting take away from this week’s presentation was ONE forecasting revenue to increase by 100% over the coming six months to reach €10.4M (A$16.8M). We also noticed that over half of ONE’s revenue is now coming out of the USA, a key market where we want to see ONE continue to capture market share.
Read more on ONE’s results and find a link to a recording of the 30 minute investor briefing call here:
WA exploration company Galileo Mining (ASX:GAL) this week announced that it has identified a new nickel sulphide target in a similar geological setting and along strike from its Lantern prospects. GAL will now undertake infill EM surveying and modelling to refine this new target prior to drill testing.
GAL is also progressing its Delta Blues prospects, where recent RC drilling expanded the mineralised strike length. We now await assay results and while it looks positive at this stage, the economic potential of the mineralisation is still to be further assessed via deeper diamond drilling later in the year.
The company also released an investor presentation that was presented at the Mines and Money conference this week.
Recent portfolio addition, Pantera Minerals (ASX:PFE), reported that it has commissioned a custom heli-portable diamond drill rig that will be dropped at the company’s WA iron ore exploration site within weeks. Final drilling permits are expected within the same time frame, ready for PFE to begin its first drilling campaign by the end of September. Initial results should arrive soon after.
In the meantime, PFE will be busy drilling its “side-bet” battery metal, manganese, and poly metals projects, which we will look at in more detail in a later note. But we are primarily invested in PFE for its upcoming iron ore exploration campaign.
For any metal fans out there, please submit your best Pantera puns and we will use our favourite for our next subject line.
On Friday, our cybersecurity investment WhiteHawk Ltd (ASX:WHK) announced that it has entered into a co-sell agreement with Dun & Bradstreet’s Public Sector Solutions business regarding Cyber Risk and Vulnerability Reporting. The co-sell agreement will initially focus on public sector opportunities among U.S. federal, state and local government, federal system integrators, and international government customers. It will hopefully see WHK deliver advanced cyber risk solutions and services at greater scale and with broader impact.
This week also saw WHK report a 83% lift in revenues for the half year to 30 June, as compared to that period a year earlier.
The company has also welcomed Brian Hibbeln as a Non-Executive Board Member. Brian is a former Director of the US Remote Sensing Center (Washington D.C.) and was instrumental in supporting the DoD and intelligence community. His extensive global networks and experience will open new channels for WHK into the Australian, British and other global markets.
🗣️ Quick takes on key portfolio company events this week:
Invictus Energy (ASX:IVZ)
Much like our investments in 88E, early stage oil & gas explorers generally have very long, quiet periods as they prepare for their big drilling event. We have been invested in IVZ for almost 12 months now, and we expect the share price to rise in anticipation of drilling results which are still a while away - we have observed this usually happens with early stage explorers.
Taking a position early and patiently waiting to free carry and take some profit just before drilling results, then holding the remaining position for the result is our general strategy for early stage explorers. But it requires a lot of patience to do it properly, which can be hard when the market is running hot in other sectors.
On Monday, IVZ provided an operations update on the Cabora Bassa Project in Zimbabwe, completing 400km of line clearance ahead of the commencement of the seismic data acquisition.
Seismic surveys produce detailed images of the various rock types and their location beneath the earth's surface. This informs the potential location and size of oil and gas reservoirs, without having to disturb the land, and helps choose a drilling target. Drilling a well like IVZs’ is very expensive so it’s important to maximise the chance of success.
Managing director Scott Macmillan said that “The preparations for the basin opening drilling campaign are progressing well and we are on track to select a rig and the service providers towards the end of this quarter and then commence formal contract negotiations and award.”
Vulcan Energy (ASX:VUL)
After its impressive run over the past year, VUL is now capped at $1.5Bn. As announced last night, that sustained performance will see it added to the ASX 300 Index from September 20 as part of the S&P Dow Jones Indices quarterly rebalance. Being added to an index is a major milestone for listed companies as it makes them attractive to large institutional index investors.
VUL also released its annual report this week. It’s worth a read, even if you get no further than the CEO and Chairman’s letters to shareholders.
Chair Gavin Rezos, summarised the year saying VUL “has made great strides in the past 12-months towards bringing our valuable Zero Carbon LithiumTM Project in the Upper Rhine Valley, Germany, closer to fruition.
“Following upon the release of the Pre-Feasibility Study in January, we secured significant equity capital through Goldman Sachs and Canaccord Genuity, acquired additional permits as well as acquiring leading businesses in Germany in both below ground geothermal wells and above ground geothermal plant engineering.
“We have also successfully operated our pilot plant for lithium chloride extraction from live brines with over 90% initial recovery and secured valuable binding offtake agreements with LG Energy Solutions and Renault, post the end of the 2021 Financial Year.”
This is all already known stuff and is a nice stroll down memory lane... but most interestingly, we noted the following forward looking statement:
“In the next 12 months, as we progress our Definitive Feasibility Study and commence the financing stage for the Zero Carbon LithiumTM Project, we will also use the expertise we have developed in geothermal lithium to grow our business in other parts of the world where the right geological conditions occur for geothermal lithium production. Such opportunities must represent similar environmental benefits and low operating costs as demonstrated in the Upper Rhine Valley.”
We will update our expected VUL milestones to include international expansion.
The company also released a comprehensive investor presentation.
...we note that rumoured (but yet unconfirmed) offtake MoU partner Stellantis is featured on page 4 of the investor presso alongside confirmed offtake partners LG Chem and Renault Group.
A study published in the Journal of the American Society of Nephrology on Wednesday shows people who contract COVID are at an advanced risk for acute kidney injury (read more here).
DXB is currently undergoing two Phase 3 trials to determine the impact that its drug can have a benefit in the acute and long COVID setting. Although DXB can’t say for sure whether its drug would work in COVID-caused kidney disease, developments like this highlight the importance of research into drugs that have demonstrated the ability to benefit kidney disease patients.
Creso Pharma (ASX:CPH)
CPH has announced that it will pursue dual NASDAQ and ASX listings following the mutual termination of its proposed merger with Red Light Holland Corp. This decision came about after the board determined that retaining an ASX listing and pursuing a dual NASDAQ listing will provide the best vehicle to pursue North American focused growth opportunities.
CPH and Red Light Holland will continue collaborating and Bruce Linton is to remain a strategic advisor and major stakeholder in CPH. Red Light Holland has agreed to an initial ~$170,000 purchase order, demonstrating its commitment to an ongoing relationship.
We weren’t 100% convinced about CPH’s proposed merger when it was announced, and we listed what we DID and DIDN’T like about it here back in June when it was announced. Specifically, we thought it would be problematic for current Australian investors to not have the shares dual listed on the ASX.
Given the favourable legislation that is rapidly evolving the US market for cannabis and psychedelics, we like CPH’s decision to go it alone, and note in their latest announcement that they are “actively recruiting key global executives to assist with US listing and international expansion.” We are encouraged by CPH installing a new management team that is experienced in growth and expansion...this will hopefully also be well received by the market.
Since we added Norwegian early stage battery metals explorer KNI to our portfolio, the company announced an exploration update, released a corporate presentation AND appointed an experienced Norway based CEO. The market responded very well, which isn't surprising given the current investor interest in sustainably produced battery metals in Europe.
The KNI share price responded and continues to remain strong post these announcements, hovering in the $2.60 to $3.20 range for most of the week before finishing at $2.68. We look forward to seeing where KNI will find its base in the lead up to commencing geo-physical survey work, which involves applying modern geological analysis techniques to the historically producing assets the company owns.
Soil sampling work followed by geophysical survey results analysis will lead to identifying KNI’s first drill targets.
We haven’t seen an IPO perform this well in ages and continue to follow with interest.
Minbos Resources (ASX:MNB)
The MNB share price ended the week 40% higher. It’s 22.7% rise on Tuesday prompted a query from the ASX. While MNB said it wasn’t sure what exactly was behind the rise, it listed a number of important recent developments that could have something to do with it. These include “mission critical” elements of the Cabinda Phosphate Project:
- The July commencement of fabrication of the granulation plant, and securing land for the plant.
- The stakeholder engagement session with government ministries, as we reported on two weeks ago, including the participation of the International Fertilizer Development Center in that session.
- Last Thursday’s news that a dry season environmental survey has been completed.
MNB also mentioned that the Government of Angola has significantly reduced COVID-19 pandemic travel restrictions, a positive for MNB’s ability to execute the project.
The company has also released an investor presentation ahead of CEO Lindsay Reed presenting at the Africa Down Under Conference on Thursday.
88 Energy (ASX:88E)
88E has been a great performer over the last 12 months, with the share price consistently trading at multiples of where it was for most of 2020.
88E has successfully completed a share placement, raising A$23.96M before costs from domestic and international institutional and sophisticated investors at 2.8c per share. The funds raised, together with existing cash reserves (A$14.9M as at 1 September), are to be used to fund the planned Merlin-2 appraisal well, broader acreage lease payments and working capital, and to identify and execute on potential new project opportunities.
The company has also released an investor presentation that focuses on the Merlin-2 appraisal well that’s planned for Q1 2022, targeting 652 million barrels.
Advanced Human Imaging (ASX:AHI)
AHI released it’s end of financial year report. There are three key catalysts that we think are all set to come in to effect this quarter (see p.10 of the Annual Report):
- Tinjoy WinScan App, anticipated launch mid-late September (~$6.6M committed revenue)
- Nexus-Vista launch, last deadline 31st August (~$4.1M committed revenue)
- NASDAQ launch (30 September - convertible note set to mature)
Given the high upside to each of these events, but also numerous delays and setbacks, we hope that at least one will come to fruition in the coming weeks.
As for any revenues promised by AHI, we are looking for cash in the door. Once AHI delivers on one or more of these key milestones we’ll provide an update on the company’s direction and how we are tracking their progress.
In the meantime, we continue to wait-and-see for AHI to deliver on its promised milestones.
In our other portfolios 🧬 🦉 🏹
On Friday, FYI Resources (ASX:FYI) reported that its exclusivity agreement with leading global aluminium producer Alcoa has been extended for another month to 5 October 2021 – the second such extension.
We view the news as a positive that demonstrates both parties’ commitment to the exclusivity arrangement as they progress JV discussions further.
FYI is positioning itself to be a significant producer of high quality, high purity alumina in Western Australia. It first entered into an exclusivity agreement with $8.8Bn NYSE-listed Alcoa Corp in May to establish the framework for a potential JV to accelerate development of FYI’s high purity alumina project.
In order to progress its WA nickel production ambitions, and armed with its offtake agreement with BHP on one of its projects, Auroch Minerals (ASX:AOU) has kicked off scoping studies across two of its three WA nickel projects — Saints and Nepean. AOU says it is confident in bringing the two projects forward to production and generating “significant cash flow” for the company in the medium term.
Saints is the project that AOU has an existing offtake agreement in place with BHP, but of particular interest is AOU’s Nepean project, a historic nickel mine that used to feed BHP’s nickel smelter. Here, AOU is drilling six holes in the “Nepean Deeps” over the next three months. Any large, high-grade nickel intercepts would be a major catalyst for AOU.
The Scoping Studies are a big first step towards AOU reaching possible near term nickel production and cash flow. And the timing looks good, with BHP preparing to restart its Kambalda nickel operations early next year which will require a local supply of nickel.
🌎 Mainstream Media:
COVID effects on the kidney (DXB)
The West Australian: Uranium bulls upbeat on commodity’s rise
The Interpreter: Australia’s potential as a “green” hydrogen superpower
PV Magazine: Hydrogen-powered truck set for launch in Australia
Have a great weekend,
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S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
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