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What we are looking for before Christmas...

Published 03-DEC-2022 13:00 P.M.


10 minute read

With only four weeks until the market effectively shuts down for Christmas, many small cap stocks will be scrambling to tie up loose ends.

Assay labs, brokers and other businesses will soon shut up shop until the new year, so the window is closing for companies to announce material news before the market hibernates.

A number of our Investments have pending material announcements that COULD land in the next few weeks, so we’ll be watching closely to see if any drop an early “Christmas present” for investors.

Here is a list of our Investments with anticipated near term news:

Invictus Energy (ASX:IVZ) - Results from sidetrack well

IVZ has already confirmed a working hydrocarbon system at its Mukuyu-1 well. But before an official discovery can be declared, we need to see IVZ bring oil and/or gas to the surface.

With its sidetrack well, IVZ is looking to identify any moveable hydrocarbons and ultimately put out a “net pay” number.

IVZ’s last update was on 24 November and the company confirmed results from the sidetrack well would be available within ~12 to 18 days. This means we should know whether or not IVZ can officially declare a discovery by 12 December.

This is the big one we are waiting for. We hold 4,029,602 shares 1,217,101 options in IVZ - one of our biggest current bets with a binary result coming in the next couple of weeks that will determine the mood for our Christmas holidays this year.

Latin Resources (ASX:LRS) - Maiden JORC Resource at lithium project

With infill drilling assays received in October, LRS has all of the data it needs to build a resource model for its lithium project in Brazil and define a maiden JORC resource estimate.

Our expectations for LRS’s maiden JORC resource number are as follows:

  • Bull case (exceptional) = >15Mt JORC resource
  • Base case = 5-15Mt JORC resource
  • Bear case = <5Mt JORC resource

LRS is following the same playbook of its larger Brazilian neighbour, Sigma Lithium, which announced its maiden resource estimate in 2018 of ~13Mt with lithium grades of ~1.56%.

At that time, Sigma had a similar market cap to that of LRS today. Sigma now trades with a market cap of more than $5BN — that’s around 18.5 times LRS’s current market capitalisation.

Read our take on LRS’s similarities with Sigma here: Brokers comparing LRS to $5.7BN capped Sigma Lithium.

Dimerix (ASX:DXB) - Part 1 Patient Recruitment Complete

On Monday, our 2021 Biotech Pick of the Year DXB announced it was 90% of the way towards recruiting patients for the first part of its much anticipated Phase III clinical trial for FSGS (a rare kidney disease).

We invested in DXB in August 2021 primarily for the results of the Phase III FSGS clinical trial, which is fully funded through to the interim trial results.

Completing recruitment for the first part of this clinical trial will be a landmark milestone for DXB, in particular because FSGS is a rare disease and recruiting patients can be challenging.

Once recruitment is complete, we expect a wait of ~9 months before interim clinical trial results can be announced. These results will indicate whether there is sufficient evidence for DXB to continue progressing with the trial through to ‘accelerated approvals endpoint’.

FYI Resources (ASX: FYI) - Alcoa US$50M funding commitment secured

Last year, FYI signed a joint development agreement with Alcoa to fully fund and develop its high purity alumina project (with an NPV of US$1.1Bn) in exchange for 65% of the project.

The development agreement was separated into three separate phases, with escalating funding commitments from Alcoa at each phase.

In the past 12-months FYI has completed its pilot plant production achieving 99.999% (5N) alumina purity.

Scheduled before the end of this year is a decision to continue through to the second phase of development, funding for a US$50M demonstration plant.

If FYI can secure the agreement to progress with the next stage of development we see this as a big de-risking event for the project and our Investment.

Stocks in our Portfolio with assay results pending

An “assay” is when an exploration company has submitted drill cores to be tested in a lab to determine the metals content. “Assay results” are often the catalyst for big share price moves... either up or down depending on the result.

We own a handful of exploration Investments that are awaiting assay results from the lab that could arrive by the end of the year. Whether these assays make it back before Christmas and are ready to be announced, will depend on the backlog at assay labs.

Based on the companies’ publicly available expected results timeframes, here is a quick fire list of those that COULD drop assay results before Christmas:

  • Titan Minerals (ASX: TTM) - results from the fast tracked drilling campaign at its copper project (latest commentary)
  • Tempus Resources (ASX: TMR) - assays pending on ‘visual gold’ drill holes indicating a possible new gold vein discovered (latest commentary)
  • GTi Energy (ASX: GTR) - drilling results for its 30,000m drilling program defining the size and scale of a uranium deposit in Wyoming, US (latest commentary)
  • Lanthanein Resources (ASX: LNR) - assays are pending from its rare earths project, along strike from $483M-capped Hastings Technology Metals (latest commentary)
  • Ragusa Minerals (ASX: RAS) - results pending on lithium exploration drilling in Northern Territory (latest commentary)
  • Pantera Minerals (ASX: PFE) - maiden drilling campaign for manganese next door to $200M capped Element 25 (latest commentary).
  • Galileo Mining (ASX: GAL) - drilling continues at its Callisto PGE discovery with further assays pending (latest commentary)
  • Evolution Energy Minerals (ASX: EV1) - drilling for shallow, high grade graphite in easier to mine graphite zones to improve overall project economics (latest commentary)
  • Tyranna Resources (ASX: TYX) - not assays, but we want to see big visual spodumene intercepts intersected in the next round of lithium drilling (latest commentary)

That’s a lot of possible news to fit in before the end of the year, but as we know, delays can happen when assay labs under the pump.

After Christmas, we expect the market will go quiet for a period as trading volumes decline.

Like clockwork, volumes dry up every year around the holiday period as people shift attention away from the share market to spend time with friends and family.

But for those with time, a foray into the markets during this quiet period can present good entry opportunities into beaten up stocks that are trading on low volumes.

Because the micro cap space is dominated by retail investors, it tends to be particularly impacted by low volumes. The lack of liquidity can create big price swings where micro-caps can move 15%+ in either direction on really small trading volume, all while there is no change to company fundamentals.

For the astute investor looking to build a position, this time of year can present some good entry points — especially into undervalued Investments that are suddenly cheaper due to large swings on low volumes.

By late-January, when everybody is back at their desks and market volumes have returned to normal, these pullbacks are usually quickly corrected, and investments can deliver a nice reward for those who were buying over the holiday period.

This is one reason why we pay particular attention to those Investments that had news due in December, but “missed” the pre-Christmas announcement window, as it’s likely that the company’s material news is pushed out to January when business operations are back up and running.

We think that December can be a good bargain hunting opportunity for those stocks that drop on low volumes caused by the holiday shutdown.

Have a read of our deep dive from last year into Christmas time trading volumes: ASX rests pre-Christmas as the market trades on very low volumes

🗣️ This week’s Quick Takes

AKN: Substantial resource increase at base metals asset

BOD: Exclusive supply agreement for CBD-based insomnia drug

EV1: DFS due in early 2023 - EV1 pursuing improved project economics

GGE: NASA contracts US$149M in domestic helium supply in the USA

KNI: Kuniko getting prepped for 3 pronged attack

LRS: Halloysite-kaolin resource now 33% larger - offtake discussions

LYN: Neighbour Encounter Resources firms up 2023 drill targets

MNB: Positive fertiliser trials results; large cost savings expected

NHE: Noble finds more helium in Tanzania

TG1: High grade gold from soil samples at NSW gold project

TG1: Assay results from WA copper project

TEE: Maiden prospective resource on QLD gas project

TEE: Update on permitting for NT gas projects

Critical minerals macro: Critical minerals - Australia’s opportunity of the century

This week in our Portfolios 🧬 🦉 🏹

European Metals Holdings (ASX: EMH)

While most lithium stocks are trading at, or close to, all-time highs, European Metals Holdings (ASX: EMH) hasn’t quite taken off but has traded mostly sideways and down over the last 12 months.

We think the market is waiting for the Definitive Feasibility Study (DFS) and updated project economics for the company’s lithium project in the Czech Republic which is likely to arrive in the next few months.

We are optimistic about the DFS, not least because it will include a revised project value (NPV) figure based on lithium prices that are now 70% higher than when last calculated in January.

📰 Read our full Note from Thursday here: Lithium in the heart of Europe: Counting down to EMH’s feasibility study

Grand Gulf Energy (ASX: GGE)

Following up on its helium discovery in June, Grand Gulf Energy (ASX: GGE) is working towards the spud of its second well at its Utah helium project. GGE expects this to take place in late Q4-2022 or early Q1-2023 with the aim of producing a commercially viable flow rate from its discovery.

This comes at a particularly opportune time for GGE — and any helium company in the USA — after the US government officially signed into legislation the “CHIPS for Science Act” back in August.

Now just five months on from the CHIPS Act being passed and we’ve seen private capital pour ~US$260BN into companies such as Intel, Samsung and Micron Technologies for US based semiconductor facilities.

Helium is a critical material in the manufacture of semiconductors, as such we anticipate a big increase in US domestic demand.

📰 Read our full Note: GGE going after helium in the USA for US$260BN in chip facilities

BPM Minerals (ASX: BPM)

A few weeks ago our junior exploration Investment BPM Minerals (ASX: BPM) put out the much-anticipated drilling results from its lead-zinc project next door to Rumble Resources.

While BPM did manage to confirm traces of lead-zinc mineralisation, the grades were not high enough for the company to commit publicly to another drilling program.

BPM retains a strong cash balance of $5.3M in the bank (at 30 September 2022) - on the day of our note BPM had a tiny market cap of $6.5M, giving it an Enterprise Value of circa $1.2M.

BPM can now turn attention to its two gold projects (an unloved sector that we think will rally in 2023), while management could look to acquire a new core asset.

📰 Read our full Note on BPM’s results here: Assays in - What does $6.5M capped BPM do next?

Have a great weekend,

Next Investors.

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