Crisis or Opportunity? Governments to take action on energy supply shortages

  Portfolio Update Published On: 31-08-2022 09:09 a.m.

17 minute read

Why won’t the shocking night on the US markets affect energy and critical metals?

Energy is a non-negotiable need in the modern world.

We are currently in a global energy crisis.

Russia is threatening to withhold gas supplies to Europe.

This is made worse by years of underinvestment in new fossil fuels projects.

And new green energy projects haven’t come online fast enough to make a dent.

As the northern winter approaches, the crisis has kicked governments into action to make energy security a top priority.

There are two ways to do this:

  1. Find and secure new supplies of natural gas.
  2. Fast track green energy and battery projects.

And we believe both will gain pace simultaneously.

Here is what we have seen in just the last week (sources supplied at end of this note)

The German Chancellor met with the Canadian Prime Minister to discuss supply of liquified natural gas across the Atlantic ocean by ship.

The leaders also signed a five year deal for Canada to supply Germany with green hydrogen.

The French President arrived in Algeria on Thursday hoping to repair fractured relations with a nation whose oil and gas reserves have new strategic significance.

Japan and South Korea have sought assurances from the Australian government that it will not divert crucial gas exports needed to power their economies for domestic use.

Japanese and Korean companies are also looking to invest heavily in Australian green energy projects.

China approved a 6.8 Trillion Yuan ($1.1 Trillion USD) infrastructure plan that includes constructing enough renewable energy to match Europe's current capacity, by 2030.

And a couple of weeks ago, the US signed a bill for $370 billion in energy security and climate change spending over the next decade.

Energy security is high on the agenda at the highest levels of government.

Large pools of funds and tax incentives are now being approved to make sure it happens.

Regular readers will know that over the last few years we have positioned our Investment portfolio to be overweight in:

  1. Gas exploration
  2. Green energy
  3. Critical materials required to build green energy projects and electricity storage.

With more and more funds now earmarked to secure energy supply, we think there will be more interest in these three sectors.

With all the attention on securing new supplies of gas and building green energy projects, here are a couple of our current Investments with interesting developments this week:

Gas exploration - Invictus Energy (ASX: IVZ) is a few weeks away from drilling Africa’s largest untested conventional gas prospect in Zimbabwe - IVZ is currently raising $20M which will see them fully funded for the two well campaign.

See our IVZ Investment Memo

Green Hydrogen and renewable energy - Province Resources (ASX:PRL) is working on a giant clean energy and green hydrogen project in Western Australia. This week they signed a binding agreement with European renewable energy major Total Eren which would see the two companies progress through a 50:50 joint venture.

See our PRL Investment memo

Rare Earths (for wind turbines) - Lanthanein Resources (ASX: LNR) - LNR is exploring for rare earths in Western Australia, specifically neodymium and praseodymium (NdPr) which is critical in the permanent magnets used in wind turbines for renewable energy farms. With most countries rushing to build wind farms we think demand for NdPr will be strong.

Australia’s richest man Andrew Forrest seems to agree, having yesterday invested $150M into LNR’s next door neighbour, $430M NdPr play Hastings Technology Metals (source).

LNR is also just ~30km away from internet chat room favourite Dreadnought Resources (capped at $320M) and their new rare earths discovery.

See our LNR Investment Memo

Over the last few years we have been building our portfolio around traditional energy, green energy and critical metals.

Here are all of our current oil & gas Investments and energy transition metals Investments and our green energy investments.

More on Progress Trackers:

Regular readers would have noticed we have recently started putting out progress trackers for some of our portfolio companies' core projects.

When we are first Investing in a company, we put together an Investment Memo that outlines what the company does, the macro investing theme it sits in, why we like the company, what we expect them to achieve over the next 12 months, the near term risks and our investment plan.

This helps us objectively assess a company's progress when the memo period is up, comparing what was achieved to our original investment thesis.

We then generally look to hold an Investment for a few years and during that time will update our Investment Memo as the company achieves its goals and refines its plan OR fails and creates a new plan or strategy.

Building projects from the ground up can take a long time, and so some announcements we read years after we have Invested can seem out of context.

To complement our Investment Memo’s, we have started using “progress trackers” to help digest CURRENT news within the context of previous announcements, all of which contribute to a singular long term objective the company is trying to achieve.

When a company releases a new announcement, our process is to check our Investment Memo again to see how the news ties into the long term goal or risks, then do a scan of the progress tracker to see how it fits into the long term Investment goal.

The progress trackers also give perspective on where a company is at and what it is trying to do.

We have found that it helps us take a step back and understand why it may feel like things are taking longer than they should.

On the flip side, the progress trackers also make it very obvious to us when a company is making very little progress... which can also be a good thing to monitor.

Most importantly, though, it helps us build a picture of generally how fast companies SHOULD be executing, and get an average view of who is a good executor versus who takes ages and always experiences delays across a basket of similar companies.

Regular readers may have seen some of these trackers already, but here is a list of the trackers we have shared so far and some of the new ones we put together this week.

New trackers released this week:

Province Resources (ASX: PRL) - PRL together with its now 50:50 joint venture partner Total Eren is looking to develop a large scale green hydrogen project in WA.

Click here for our PRL Progress Tracker

Noble Helium (ASX: NHE) - NHE is chasing a helium resource that has the potential to be the third largest helium reserve in the world. NHE plans to drill test its project in 2023.

Click here for our NHE Progress Tracker

88 Energy (ASX: 88E) - 88E will be looking to replicate the success of its $1.9BN neighbour on the north slope of Alaska - the home to the biggest oil discovery ever made in the US (Prudhoe Bay). 88E is gearing up for a 2023 drilling program to test the same reservoir units its neighbour has had success drilling into.

Click here for our 88E Progress Tracker

Existing trackers:

Invictus Energy (ASX: IVZ) - IVZ is gearing up to drill Africa’s largest untested conventional gas prospect in Zimbabwe. Drilling is expected to commence in the coming weeks.

Click here for our IVZ Progress Tracker

Sarytogan Graphite (ASX: SGA) - SGA only recently IPO’d and is still relatively early in proving out a giant graphite resource. SGA’s project has the highest grade graphite on the ASX, and has the second highest contained graphite of any ASX listed company.

Click here for our SGA Progress Tracker

Galileo Mining (ASX: GAL) - After 18 months of drilling, GAL made a PGE discovery at its Norseman project, off the back of the discovery GAL raised $20M and is now looking to grow the size and scale of its new discovery. Below is our progress tracker for GAL’s PGE discovery.

Click here to see our GAL Progress Tracker

Tempus Resources (ASX: TMR) - TMR is trying to make new gold discoveries at its Canadian gold project, which has produced some ~230k ounces of gold in the past. With processing infrastructure already in place, we are holding TMR to see it make new discoveries that it can then feed through its mill.

Click here to see our TMR Progress Tracker

Lanthanein Resources (ASX: LNR) - LNR is preparing to drill its rare earth project which borders Hastings Technology Metals (capped at $430M) Yagibanna deposit and is only ~30km away from Dreadnought Resources (capped at $320M) new rare earths discovery.

Click here to see our LNR Progress Tracker

🗣️ Quick Takes

Here are this week's Quick Takes:

AKN: Copper mineralisation at Cosmo prospect, sulphides at Onedin

EV1: EV1’s graphite by-products are better, meaning more margin

EXR: Update on MOU with Softbank’s energy subsidiary

EXR: Power from the Gobi desert to for an Asian supergrid?

EXR: Green hydrogen project update

FYI: Engineering Services Provider appointed for HPA Project

GGE: Workover rig scheduled to begin flow testing on 29 August

GTR: India recognises role of Nuclear in energy transition

GTR: Permitting done, drilling for uranium in September

Lithium macro: Structural shortage in lithium supply now a bigger problem

LNR: Heritage surveys completed, drilling soon.

LNR: Rare Earths neighbourhood heating up - enter Andrew Forrest

LRS: Updated presentation on Brazilian lithium project

LRS: First pass met work results looking positive

MAN: Due diligence period extended on copper project

NHE: Airborne Gravity Gradiometry completed

TEE: Updated investor presentation

⏲️ Upcoming potential share price catalysts list

Results expected in the near term:

  • GGE is drilling its maiden helium well in Utah, USA (memo).
    • Update: This week GGE confirmed that a workover rig is scheduled to arrive on site on the 29th of August 2022, with the flow testing of the Jesse #1A to commence straight after. This should mean we don't have to wait long to see whether or not GGE can go from helium explorer to producer.
  • PRL Joint development agreement with Total Eren (memo)
    • Update: PRL signed binding terms (shareholders’ agreement) for a Joint Venture with global energy major Total Eren, materially de-risking its WA Green Hydrogen Project. To see what we think of the agreement, read our deep dive here: PRL and Total Eren announce Key Binding Terms.
  • IVZ to drill its giant gas prospect in Zimbabwe - we have been waiting two years for this event (memo).
    • Update: On Thursday, IVZ went into a trading halt pending some permitting for its project and so that the company could complete a $20-25M capital raise. We also saw IVZ release a project update with its rig now 90% mobilised. Click here to see the video.
  • KNI is drilling its cobalt targets in Norway (memo).
    • Update: No material news this week
  • BPM has completed drilling at its lead/zinc prospect in the Earaheedy Basin, close to Rumble Resources’ recent discovery (memo)
    • Update: No material news this week
  • PFE is drilling its polymetallic (Hellcat) project (memo)
    • Update: No material news this week
  • LNR is commencing drilling for rare earths along strike from Hastings Technology Metals. (memo)
    • Update: No material news this week
  • GAL commenced its latest round of drilling at its Callisto PGE discovery in WA.
    • Update: No material news this week

📰 This week on Next Investors

NHE: Early stage. Big target. Frontier gas drilling.

Major economies are rushing to create local semiconductor manufacturing plants to diversify supply away from geopolitically tense regions.

Helium is a critical ingredient in the manufacturing of semiconductors - it's an inert gas that is used to quickly cool the magnets used in the production process.

Our helium exploration Investment Noble Helium (ASX:NHE) has a giant unrisked prospective helium resource in Tanzania.

In just one project area, NHE has the potential to discover the world’s third largest helium reserve behind the USA and Qatar — enough to deliver approximately 30 years of the world’s current annual helium needs.

We Invested in NHE because it fits the profile of our previously successful oil & gas exploration strategy where we Invest early and wait for the key drilling event, like Elixir Energy, Invictus Energy, and historically Africa Oil Corp.

Specifically, these key attributes include:

  • Underexplored Basin - NHE is targeting a basin that is analogous to the East African Rift “String of Pearls plays” that have yielded oil and gas exploration success >80% of the time, leading to multiple large discoveries.
  • Frontier location - four East African Rift System basins in Tanzania
  • Large potential resource - NHE’s project has a certified Mean Unrisked Prospective helium resource of 175.5 bcf - potential to become the world’s third largest helium reserve.
  • Plenty of time left to the key drilling event - 12+ months for (hopefully) a gradual re-rate in the lead up to the big drilling event.
  • Founder and CEO holds a large position - Managing Director Justyn Wood controls 38.2% of NHE shares - that’s a lot of skin in the game. He is directly aligned with shareholders and motivated to deliver success.
  • Successful, active neighbour - Helium One re-rated significantly off the back of its first drilling program with its share price going from £0.07 to a peak of ~£0.30 - an almost 4.5x increase.

This is not to say NHE will experience the same success as our other gas exploration Investments, even though all the ingredients are there.

📰 Read our full Note: Early stage. Big target. Frontier gas drilling.

88E is Moving East to Chase Success

Our oil and gas exploration Investment 88 Energy (ASX: 88E | OTC: EEENF) has been actively exploring for oil for many years now, regularly drilling every year in the hope of making a large oil discovery.

For the last 18 months, 88E had been busy drilling “Project Peregrine” on the western side of the North Slope.

That whole time to the east of the North Slope, 88E's neighbour UK listed Pantheon Resources has been busy drilling next door to 88E's original "Project Icewine".

Pantheon has now drilled three out of three successful wells next door to 88E’s Icewine East project.

Since it drilled its first well in 2019, Pantheon’s market cap has gone from ~$60M to $1.9BN.

Pantheon is currently in the middle of drilling its first ever horizontal well with the ultimate aim of conducting a long term production test from the project.

What’s really interesting is that Pantheon’s drilling is targeting the same reservoir units that have been independently assessed to extend south into 88E’s ground.

We are holding 88E in our portfolio because we hope it can try and “manufacture some luck” based on the success of Pantheon.

88E is now planning a 2023 drilling program of its own to see if it can replicate Patheon’s exploration success.

📰 Read our full Note: 88E is Moving East to Chase Success

PRL and Total Eren announce Key Binding Terms.

Early in the week, one of our biggest holdings, Province Resources (ASX: PRL) came out of a trading halt, having signed binding terms for a Joint Venture with global energy major Total Eren.

2021 Small Cap Pick of the Year PRL and Total Eren will own 50% each in the new Joint Venture company that will essentially be the special purpose vehicle for the green hydrogen project.

In the binding term sheet, PRL and Total Eren have committed to 8 weeks for the shareholder agreement to be executed, which in our view is when Total Eren is locked in as a project partner and committed to finance 50% of the “costs required to deliver a pre feasibility study and definitive feasibility study”

While we don’t have visibility on exactly what is in the more comprehensive shareholders’ agreement, the key terms announced by PRL this week give us all the material terms, so we see this week’s news as a significant de-risking event for PRL.

The agreement reminded us a lot of the way Woodside became the oil and gas behemoth that it is today.

In an almost identical way, back in 1963 Woodside secured a huge a 370,000km2 landholding to explore for oil and gas off the north west coast of Western Australia - for just £100.

At the time, there were maybe two Liquified Natural Gas plants in the world and none in Australia - developing gas projects like this was a novel and strange concept.

Later that year, Woodside sealed a Joint Venture with global energy major Shell to help finance and build the ambitious natural gas project.

Over the coming years, global majors Chevron, BP, and BHP also bought into the North West Shelf Joint Venture, bringing their skills and chequebooks to make the project a reality.

And finally, in the 80s, giant Japanese conglomerates Mitsubishi Corporation and Mitsui & Co also farmed-in to the joint venture to help secure gas offtake for Japan.

Woodside is now capped at $63BN - and its 16.6% share in the North West Shelf Joint Venture was worth around $4.4BN in the doldrums of 2020 and likely multiples of that now that the world is in the midst of an energy crisis.

PRL seems to be following in Woodsides project, almost 60 years later focusing on putting together a globally significant green hydrogen project instead of gas.

📰 Read our full Note: PRL and Total Eren announce Key Binding Terms.

In our other Portfolios 🧬 🦉 🏹

🏹 Catalyst Hunter

Ragusa Minerals (ASX: RAS)

Earlier this week we put out an update on our exploration Investment Ragusa Minerals (ASX:RAS).

RAS is up almost 500% for the year closing out the week trading at 30c per share.

Affectionately known by our team as “The Goose”, we think RAS’s move is a combination of the following two developments:

  1. RAS’s farm in rights for up to a 100% interest in lithium exploration projects in the same part of Northern Territory as Core Lithium.
  2. RAS’s gold exploration projects bordering Nova Minerals who has been putting out consistent high grade gold intercepts trending to the south (towards RAS’s ground).

With RAS recently putting out an update on its lithium projects, we note the difference in market cap versus its two peers in the region:

  1. Core Lithium (capped at $2.4BN) which is progressing its JORC 18.9 million tonne lithium resource into production.
  2. Lithium Plus (capped at $65M which is in the middle of a follow up drilling program of a historic discovery intercept which measured 12m with lithium grades of 1.42% from 121m.

RAS, on the other hand, has an early stage exploration prospect with peak lithium grades from historical rock chip sampling grading 8.03% lithium and 23.1g/t gold.

On top of this, the previous owners of the tenements in 2018 detailed “several distinct trends and many kilometres of untested strike length of pegmatites occurring within the leases”.

Recently RAS completed another sampling program and returned rock chips measuring 5.46% lithium.

More importantly, RAS has confirmed spodumene bearing rock chips inside its project area, a good sign leading up to a maiden drilling program at the project in the coming months.

📰 Read our full Note: Ragusa Minerals Rises

Article Sources

https://www.bloomberg.com/news/articles/2022-08-23/germany-taps-boundless-fuel-potential-in-canada-hydrogen-deal

https://www.bbc.com/news/world-europe-62659181

https://www.afr.com/world/asia/japan-korea-say-australian-gas-exports-critical-20220824-p5bcdv

https://www.japantimes.co.jp/news/2022/08/25/asia-pacific/australia-green-ambitions/

https://www.bloomberg.com/news/articles/2022-04-06/china-infrastructure-push-dwarfs-u-s-spending#xj4y7vzkg

https://www.bloomberg.com/news/features/2022-08-25/how-china-will-spend-1-trillion-on-infrastructure-to-boost-economy

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/081622-biden-signs-landmark-us-climate-and-energy-investment-bill-aiming-to-cut-ghgs