Welcome to 2022
8 minute read
2021 is done. The time for reflection, rest and relaxation is over and we’re itching to get back to it.
This year we will continue to provide updates on how our portfolio companies are progressing, and introduce some new small cap investments across our key investment themes.
Our process for 2022 remains the same. Starting with rigorous due diligence and stock selection, we then enter positions in around 5-10 carefully selected ASX small cap companies per year.
We hold a position for the long-term while also having a clear investment plan around when we look to take some profits based on the achievement of key operational milestones.
We share our commentary on our investment journey as the story unfolds.
We also look at companies through the lens of investment themes - how do they fit in with the big shifts going on in the world?
So for readers both new and old, today we want to remind you of the themes and companies we are currently invested in, before we announce any new investments for 2022.
No doubt, there were some big wins for our portfolio companies in 2021 - particularly those in the battery metals theme.
Last year wasn’t without challenges though. The traditional ‘Santa Rally’ was called off last year and the market edged down or went into neutral, including a couple of soft periods when small cap stocks were drifting down or sideways.
But looking under the hood of our portfolio, we see more opportunities for it to shift up a gear or two in 2022 as our investments deliver key milestones and hopefully global market conditions remain strong.
Readers who have been with us for a few years know that our best gains have come from identifying high conviction investment themes early, taking positions in quality companies with good management and then patiently waiting for the market to catch on.
Sometimes it doesn’t happen. Sometimes it takes many months. Other times it can take years... we are happy to wait.
Our runaway successes in 2021 have clearly been our early investments in battery metals. For reference, here is our September 2020 ebook “an investor's guide to battery metals” from back when nobody cared about battery metals and none of the major car makers had announced electric vehicle strategies. VUL was 87¢ (now ~$11) and EMN was around 10¢ (now 53¢).
Other broad investment themes we believe in for the next decade include the commodities super cycle, cybersecurity, health tech, green energy (but also traditional energy which we don’t think will go away as quickly as expected), and we have some cherry picked companies that we think will do well over time.
We also mix in some early stage, high risk metals exploration to keep things exciting during the current hot commodities cycle (careful, these are risky).
We want all our investments to provide quarterly environmental, social and governance (ESG) disclosures, and to take ESG seriously. We believe ESG will become mandatory in the next few years and want our companies to have a head start.
To kick off 2022, here is a short summary and reminder on why we believe in each of our key investment themes and the specific companies we have invested in for that theme.
Click on the company name to find our reasons for investing, company milestones (achieved and expected), and a list of all our past commentary on that company.
As the world switches to green energy and battery powered transport, battery metals supply is going to need to catch up and fast. After COVID, countries also realised how fickle global supply chains are, and battery metal demand will further increase as each country rushes to secure their own supply. We went hard on battery metals before they were cool, and this has been where we have had some good success:
- Vulcan Energy (ASX:VUL) - development stage Zero Carbon Lithium in Europe (Germany)
- Euro Manganese (ASX:EMN) - development stage High purity manganese in Europe (Czech Republic)
- Kuniko (ASX:KNI) - early stage exploration Zero Carbon Copper, nickel and cobalt in Europe (Norway)
- Galileo Mining (ASX:GAL) - early stage exploration nickel in WA, also with a palladium project (Western Australia)
- Pursuit Minerals (ASX:PUR) - early stage exploration platinum group elements, nickel and copper (Western Australia)
Clean energy and green hydrogen have been increasingly popping up in 2021, we think it’s still early in this theme and it has a while to play out yet:
- Province Resources (ASX:PRL) - early stage green hydrogen and clean energy project (Western Australia)
- GTi Resources (ASX:GTR) - early stage exploration for uranium (USA). We have been invested for over a year now, waiting for the market to cotton on to uranium
- Minbos Resources (ASX:MNB) - main game is food security but quietly announced a clean energy powered green ammonia project - also see below in food security thematic
- Elixir Energy (ASX:EXR) - main game is natural gas exploration but announced green energy and hydrogen projects - also see below in energy thematic
Technology: Health and Cybersecurity
COVID lock downs have turbocharged adoption of technology in industries that have traditionally been slow adopters. We are particularly interested in health (telehealth and med tech) as humans become more aware of the importance of health, and in cyber security as geopolitical tensions drive sovereign cyber attacks between nations:
- Whitehawk (ASX:WHK) - growth stage - US based cybersecurity tech with customers in US federal government, Defense and large enterprises
- Oneview Healthcare (ASX:ONE) - growth stage - Health tech and telehealth to modernise patient experience in hospitals
- Advanced Human Imaging (ASX:AHI) - early stage - smartphone-based face and body scan tech with applications in health, fitness and medical sectors
Gold and silver have been coveted for centuries and usually do well during periods of high inflation, global financial system concerns, or times of geopolitical instability. While these are pre-production investments they should perform if the gold and silver price runs (and if they have exploration success):
- Tempus Resources (ASX:TMR) - early stage exploration - gold (Canada)
- Los Ceros (ASX:LCL) - later stage exploration - gold (Colombia)
- Thomson Resources (ASX:TMZ) - development stage - silver projects roll up (Queensland)
- Titan Minerals (ASX:TTM) - development stage - gold (Ecuador)
The world is moving to electrification but we don’t think traditional energy is going away anytime soon and will still form part of the energy mix for a long time to come. We believe general underinvestment in this sector will cause a supply crunch over the next few years:
- Invictus Energy (ASX:IVZ) - High impact exploration drilling for natural gas (Zimbabwe)
- 88 Energy (ASX:88E) - later stage exploration and development oil & gas (Alaska)
- Elixir Energy (ASX:EXR) - later stage exploration natural gas (Mongolia)
Early stage metals exploration (commodities supercycle)
We have always loved investing in the high risk, high reward opportunities of early stage metals explorers. These are risky investments with a high chance of losing, but if they DO hit, they can deliver some great returns (Note: there are some repeats here that also fall into this early stage category):
- BPM Minerals (ASX:BPM) - lead, zinc (Western Australia)
- Panteral Minerals (ASX:PFE) - iron ore, plus side projects in manganese and base metals, and a brand new lead-silver project announced in December 2021 (Western Australia)
- Kunico (ASX:KNI) - Zero carbon battery metals copper, nickel and cobalt (Norway)
- GTi Resources (ASX:GTR) - uranium (USA)
- Tempus Resources (ASX:TMR) - gold (Canada)
- Pursuit Minerals (ASX:PUR) - platinum group metals, copper nickel (Western Australia)
Sometimes we just like a specific stock, and may add more investments in that particular theme as it unfolds.
- Minbos Resources (ASX:MNB) - development stage phosphate (fertiliser) - food we think food security is going to be a big theme over next decade
- Alexium International (ASX:AJX) - high performance, green chemicals - we like the team and the concept, they just need to deliver revenue growth and for the market to catch on, was slowed down by COVID
- Vonex (ASX:VN8) - growth stage telco - stable revenue through acquisition, we have been following for a few years so got to know and like the company
- Dimerix (ASX:DXB) - Phase 3 trials stage biotech - we like the runway for the next 12 months for the phase 3 trials of the kidney disease treatment, and the two COVID treatment side bets
So there is our portfolio construction broken down by the investment thematics that we believe will be strong over the next 10 years.
We look forward to bringing you updates on our current investments, and are excited to announce a few new investments this year.
Welcome to 2022,