ASX:REZ

- Resources & Energy Group Ltd

WA gold project underexplored for nickel, cobalt, copper and PGEs.

Between 1969 and 1986, BHP/RIO kept hitting nickel sulphides grading between 0.1-2.2% in the region. Chalice Mining’s PGE discovery in WA was made after decades of gold focussed exploration.

Nickel discoveries are hard to make, but once discovered, they become highly valuable.

IGO purchased Sirius Resources' nickel discovery for $1.8Bn, Chalice Mining’s discovery is now worth ~$2.7BN, and Mincor Resources was recently scooped up for $760M.

REZ’s Chairman Gavin Rezos is also the chair at Vulcan Energy Resources and Kuniko.

Vulcan is our best ever Investment, it went from 20c to a high of over $16 and is now trading at around $3.70.

Kuniko went from 20c to touching as high as $3.60 in a couple of weeks after IPO, and is now trading at around 45c.

We also note that early Vulcan investor and WA mining billionaire John Hancock is the 14th largest REZ shareholder according to the 2022 REZ annual report.

REZ has a market cap of just $6M and had $1.4M in cash in the bank at the end of last quarter, which equates to a low Enterprise Value of just $4.6M. Any exploration success could re-rate the company to multiples of where it is trading now.

Most small cap stocks (including REZ) have been beaten down over the last financial year, especially during periods of market weakness like in May and June (from tax loss selling).

In addition to this, we think that REZ may have been oversold due to a large fund being a forced REZ seller over the last 6 months (Magnolia fund in liquidation) - if this was the case we hope that most of this selling is now finished.

REZ has produced gold from its WA gold project before. The most recent production run brought in $3.35M in the June quarter 2022.

With some additional drilling, REZ could look to do the same again in the future.

It’s very unusual for a small cap explorer to have any revenue, we like this because it reduces the need over time for capital raises, which dilute existing shareholders and can weigh on the share price.

We are Invested in REZ for the Nickel exploration, but we are also bullish on gold in general in 2023.

In addition to its small gold projects that sporadically produce revenue, REZ says it has “significant greenfield gold exploration project at Gigante Grande” and will be “pursuing a million plus ounce resource and bulk mining project”.

Nickel discoveries are hard to make, but once discovered, they become highly valuable.

WA nickel discoveries have produced major winners in the past…

• $1.8BN Nova nickel discovery - Sirius Resources’ Nova nickel discovery was purchased by IGO for $1.8Bn in 2015.
• ~$2.7BN Julimar nickel/copper/PGE discovery - Chalice Mining was looking for gold (similar to REZ) and made the Julimar nickel/copper/PGE discovery - now Chalice trades with a market cap of ~$2.7Bn.
• $760M take over of Nickel player Mincor - Australia’s richest man Andrew Forrest just completed its takeover of Mincor Resources for $760M. Mincor is one of the nickel players in the region where REZ is exploring.

Given the company’s current valuation, we think the upside on a discovery here is multiples of where the company currently trades.

REZ is following up on previous work done by BHP and Rio Tinto.

Between 1969 and 1986, BHP and Rio Tinto kept hitting nickel sulphides grading between 0.1-2.2% in the region.

For decades, the nickel potential wasn't followed up primarily because the land position was owned and explored by different companies at different periods of time.

AND because the demand for new nickel discoveries was just not as strong back then.

Now with nickel’s importance in the Electric Vehicle (EV) battery supply chain, nickel exploration is back in favour.

While the nickel price has sold off since a 2022 peak, we remain confident that new nickel discoveries will be well received by the market.

After almost ~55 years REZ holds a 100% interest in a land package big enough that it thinks it could host a new discovery.