When a project you really like comes with baggage: cap structures, copium (and of course, critical minerals)

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When will it end...

Here’s a brief summary of the small cap chainsaw massacre over the last few weeks:

The last few weeks have probably put the final nail in the coffin of my “the small end of the market will come back from July” prediction.

Gold and silver came off, hence small gold and silver stocks are getting hammered.

Critical minerals stocks were looking very good for a while but have also come off the last couple of weeks.

Lynas Rare Earths announced a takeover of Brazilian rare earth small cap Meteoric Resources for $968M in scrip... right next door to our $63M capped Investment PNN.

(M&A is a very good sign that the underlying fundamentals in a theme are still strong)

Here’s how my “the market will bounce back from July” prediction looks in the context of just the gold, silver and US critical metals stocks in our Portfolio.

The last few weeks has been grim across the board:

And remember that near-dated silver and gold call options bet I put on?

That's looking pretty cooked too:

Still time left - but these call options will need a precious metals miracle to get back up.

(I have some gold, silver and critical minerals copium coming up in a second)

Also my long suffering football team lost the Grand Final (I’m talking Australia’s version of football - long story).

Things were broadly looking pretty good on the small end of the market for a while, let's hope it's a temporary barf and things get better over the coming weeks.

Our latest Portfolio addition BUY continued to be sold down this week.

A case of a project I really like, in a great macro theme (oil) but in a bloated cap structure with a lot of sellers.

“Capital structure” (or “cap structure” for short) is the number of shares on issue, plus options outstanding, convertible notes, debt etc.

What’s also important are the shareholders when we are referring to capital structure.

A strong cap structure is one where shareholders are here to follow a company progress its project - a busted up one is where shareholders are there for a quick profit or to cut their losses.

Think of a great project in a bloated cap structure like that girlfriend (or boyfriend) we all once had that was super hot (project) but batshit crazy (cap structure).

(maybe I can tame her?)

One of our 2025 investments RML was like that... loved the project so accepted the undesirable cap structure - but it worked out pretty well.

The RML cap structure was pretty rough when it acquired its US critical minerals (tungsten, antimony) and gold project in Idaho, USA.

Post acquisition RML had over 1.2 billion shares and 800 million options (oof)...

(but we really liked the asset)

...and despite the woeful cap structure it still had a pretty good run from the get go.

RML went from 1.8c to a peak of 8c in about 8 weeks, eventually hitting a 15c high a few months later - RML is now hovering around the ~4.2c mark.

Perfect project, perfect timing (right before the US critical metals boom phase 1 started in mid-2025)

And RML shook off the bloated cap structure very well.

(AND also backed it up with some actual REAL drill hits, plus they have the metal of the moment - tungsten)

So it CAN and DOES happen...

(“past performance is not an indicator of future performance” ringing in my ears)

Not so lucky with BUY... yet.

Let’s see where the share price is in a few weeks.

Another one of our Investments with “busted up cap structure risk” (that we accepted because we really liked the project) is military/defence tech company NS1 (originally HTG).

Drones? Military? Autonomous weapons comms? A similar peer Elsight that cracked the Defence comms market with similar tech and delivered a 30x+ run over 18 months?

We thought NS1 would do really well.

BUT...

With 1.84 billion shares on issue and 230 million options and over ~$10M of debt including one of those horrible death spiral convertible notes (Riverfort, Lind etc) - NS1 had its work cut out.

A risk we recognised and accepted going into it, and yep, for now it has materialised.

(The good news: This week NS1 announced that the debt maturity has been extended by 12 months, so they have more time to lob in a few of those big military deals we are all waiting to see)

We still haven't sold a share of either NS1 or BUY because once the sellers are done I think the fundamentals are good enough to re-rate the stocks higher.

The question for long term investors like us (not traders) - can the quality of the project eventually beat out the sellers in a cap structure?

Some of that is in the company's control (executing on the project, not issuing more shares than necessary, avoiding new options, managing debt)

Some of it is not (macro theme being in favour, capital markets being buoyant etc).

One of the best examples from our Portfolio of how a successful project can overcome a poor cap structure is LRS.

Back in early 2022, LRS had 1.5 billion shares on issue, ~500M options and death note merchants Lind were all over it... plus LRS was running out of cash.

It was trading at 3c.

Then they made a lithium discovery and it went from 3c to as high as 42c...

and eventually got acquired by Pilbara Minerals for ~$560M in PLS stock - equivalent of 20c a share.

That $560M in PLS paper ended up being worth a lot more when Pilbara’s share price started running.

(well done Chris Gale for snatching victory from the jaws of a bloated cap structure)

So again it can and does happen, but everything is easier when a company has a good, tight cap structure.

Imagine if BUY, NS1 or even RML’s projects were in a tight capital structure, with sub 100M shares, no options and holders who wanted to be there to see the project through.

And these quality projects didn't have to do the extra heavy lifting that comes with a seller heavy cap structure.

But sometimes projects you really like come in a cap structure that needs some work.

(this usually happens when a project is acquired by an existing company after a few failed attempts at other projects in the past - and all the angry shareholders and baggage that comes with it)

Like the hot-but-crazy girlfriend, let's hope she “does an LRS” - settles down, gets serious about life, stops issuing so many shares, options and convertible notes and gets acquired by Pilbara Minerals for $560M.

And as we have seen in the past, one big announcement can turn things around.

Anyway - back to the broader small cap markets - It's not all doom and gloom, hopefully just a typical ”off” couple of weeks.

Here’s some videos that are helping me cope with the current lull.

Three videos worth watching this weekend (that kinda made me feel better about my life decisions)

Being on the road meant I had more time to watch/listen to podcasts and presentations earlier in the week.

The standouts (enough to mention here) were:

• Billionaire (and possibly the greatest promoter in mining) Robert Friedland's presentation at Mining Forum Americas - he mentions robot girlfriends... in a mining conference presentation... (Watch it here)
  
• US Secretary of War - Pete Hegseth's first "State of the Force" address - he mentions robots and critical minerals a lot (watch it here)
  
• Michael Oliver - Precious metals perma-bull said soothing words that made me feel better about my precious metals stocks... “Gold and Silver Are Setting Up for a “Meteoric” Move“ - sounds good to me (watch it here)

Here are some key takeaways from Friedland's speech

Space and the moon as the opening slide of a presentation at a mining conference is why we think he may go down as one of the GOAT mining promoters.

Friedland also has a pretty impressive background - founder of ~US$12BN copper giant Ivanhoe Mines and behind some of the biggest copper discoveries made in our lifetime (Oyu Tolgoi in Mongolia and Kamoa Kakula in the DRC).

He obviously talked his own book during the preso starting with copper - he said:

"Just to maintain 3% GDP growth, absent the AI phenomenon, data centers, electric cars, we have to mine the same amount of copper in the next eighteen years as we mined in the last ten thousand years."

Midway through his bullish take on copper he also played a military promo video for an "army of robots" - humanoids, robot dogs, autonomous turrets and said:

"All of those actuators require critical raw materials to mimic muscle. And if we don't have the materials to make those actuators, then somebody else is gonna make 20 billion robots a year, and we're not gonna have any."

(glad he’s also on the “robot dogs are terrifying” bandwagon)

And yes... he talks about making love to robot girlfriends and how men will go to war over them:

“If you have a beautiful female or male robot, anthropomorphic, to make love with, that robot is made out of these metals. And this is what wars are going to be fought on, and this is what wars are being fought on today."

We are bullish on AI, robots and the energy needed to power them - if we really are going to have billions of robots running around Earth then we are probably going to need even more copper than Friedland says in his preso.

(We hold AW1, PAT and TTM as copper exposures in our Portfolio)

Friedland then read out the restricted critical mineral list and explained that under China’s new rules, buyers need to hand over blueprints to whatever the minerals are being used to build...

... to the Chinese Military Commission.

AND China can refuse the sale "for any reason or no reason".

We were extremely bullish US critical minerals anyway, but IF Friedland is right then that is big.

He was also quick to point out that the Trump-Xi extension to export restrictions was only extended by 60 days and now lapses on the 10th of January 2027.

The following slide is a great way to get a quick overview on US dependencies:

We have Investments across a fair few of these:

• Fluorspar is OD6
• Niobium and rare earths are SGQ and PNN
• Antimony is RML, SS1, and PFE
• Tungsten is RML and VKA
• Gallium and germanium are RCM and AW1
• Indium is AW1
• Scandium is AUZ
• Nickel is NC1
• Lithium is PUR, MAN and PFE.
• Plus recycling of critical minerals in the USA - ION

As silver bulls it was also nice to see this slide in the preso - showing the minerals required in a 50MW Microsoft data centre - 6,440kg of silver in one small data centre... nice

Here are all our silver stocks: SS1, IVR, MTH, BKB, WCE, RCM, AVM and PAT.

And of course, Friedland didn't waste the opportunity to boast about his recent big successes.

He talked about Sunrise Energy Metals (whose scandium project sits right next door and on the same geological structure as our Investment AUZ).

Sunrise was the best performing mining stock in the world over the last ~18 months - Friedland was quick to point it out saying:

“So if you bought this stock a year ago, you’re up 500%. I guess that’s better than leaving your money in the bank, and up about fiftyfold in the last two years.

“That’s the best performing mining share in the world”

“And I didn’t have to go around doing dog and pony shows or going up and down elevators talking to hedge funds named after Greek gods or go to conferences”

The positive read through for us - is the Elon Musk of mining - Friedland is presenting to and educating investors all over the world about scandium.

Which should make AUZ an easier company to understand for the market.

(This was actually one of the reasons why we Invested in AUZ - See our Initiation note)

Overall, a great preso - probably one of the best we have seen in a long time.

(probably because it reinforces all the stuff we talk about all the time)

The US Secretary of War is also talking about robots and critical minerals...

That second video we linked to earlier is of Pete Hegseth (the US Secretary of War) presenting to a room of officers and at a Marine Corps Base.

Most of it is unrelated to markets (fitness tests and beards - not sure why Pete Hegseth has gone to war on beards, I’m personally pro-beard) BUT...

Two of the six announcements he made are directly relevant to our favourite macro thematics.

(watch it here)

And if it's occupying this much of the US Secretary of War’s brain space and speech time, it's probably a very high priority on the US government's to-do list.

First - he launched a brand new combatant command... for robots.

"Today at my direction, we are announcing the creation of Autonomous Warfare Command or AutoWARCOM. A new four-star combatant command with service-like authorities built to scale autonomous and robotic capabilities across the joint force in the fastest peacetime shift in modern military history." (skip to 19:39)

(source)

Very good news for our Investment NS1 whose tech is perfectly suited for that type of HQ.

(NS1’s tech helps to maintain reliable data/communication links - see our latest note here)

He then announced "Fortress America" by saying that the US had made its own military:

"dependent on foreign mines for rare earths, on overseas factories for microchips, on foreign supply chains for weapons, and on a civilian power grid to keep the lights on at our bases" (skip to 31:21),

And that the US will be:

"Bringing our critical supply chains home. The rare earths, the specialty metals, the semiconductors, the propellants - mined in America, refined in America, built in America by American workers." (skip to 32:24)

Military independence and sovereignty is as “critical” as it can get...

Which is why we are still so bullish US critical minerals as a macro thematic.

Michael Oliver is still sticking to his guns on a mega silver and gold rally -

watch it here

In summary:

• He thinks the precious metals sell-off is exhausted.
• The precious metals miners (their share prices are going up) are his strongest bullish evidence.
• He suspects institutional money is moving into the sector.
• His comparison is 2008: brutal shakeout, then a much bigger rally.
• His method says the long-term bull structure hasn’t broken.
• Debt and banking stress are his macro catalyst.
• The headline numbers are US $8,000 to $9,000 gold and $500 silver (These are speculative chart-based scenarios with no firm deadline, not precise, time-bound targets.)

Thank you Pete, Rob and Mike for some sweet sweet confirmation bias.

(in what was a terrible week in the markets)

Have a great weekend.

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