What market crash? Phosphate used in batteries now?

  Portfolio Update Published On: 30-07-2022 07:33 a.m.

14 minute read

Remember last month when the small cap markets were in a pit of despair from where they would never emerge and everyone was kicking themselves for ever having invested in small cap stocks in the first place?

Was it all just a bad dream?

The last week has been like the good old bull market days in the small cap sector.

Hopefully it will last, but anything can happen.

Any positive emotions enjoyed during the last few days can just as quickly turn bad again if the market reverses back down.

We have a theory that modern markets swing a lot more quickly and wildly than 5 years ago - given the sheer number of new market participants and trading apps combined with the lightning speed of financial information flow.

Whether it’s been a good month or a bad month, we continue to believe in our long term Investment themes of green energy, battery materials, food security, precious metals and natural gas for the clean energy transition.

On Friday we provided an update on what is fast becoming one of our favourite companies - Minbos Resources (ASX:MNB).

We originally Invested in MNB for their phosphate (fertiliser) project, not knowing the world would be facing a global food crisis just 2 years later with phosphate prices now at record highs.

It also turns out that lithium-iron-phosphate batteries now make up 44% of the electric vehicles market in China and nearly half of all Teslas made last quarter had phosphate in their batteries.

MNB has started building its phosphate mine, and the development funding question mark that had been weighing on the share price has almost been fully removed after MNB recently announced a significant financing deal.

The founder and chairman of the world’s biggest battery anode company was the largest investor in this deal.

Read our update on MNB here.

Speaking of electric vehicles (EVs)...

Last week the US announced tax credits to incentivise consumers to purchase EVs and grants for traditional car companies to re-tool factories to produce EVs.

In addition to accelerating EV adoption, the proposed bill will ALSO (according to Bloomberg) further provide up to $20 billion in loans to build new clean vehicle manufacturing facilities and $30 billion for additional production tax credits "to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing."

More US demand is good news for Investors in the battery materials and critical metals space - see a list of all our Investments in this sector here.

If you want a deeper discussion on the US EV market and how it might be impacted by this bill, plus some energy transition talk, check out the commentary from our favourite US investors on last night’s All-in podcast here.

Spoiler alert: the view is that the US market is already naturally switching to EVs after recently hitting the critical 5% adoption tipping point, and no further government incentives are needed.

Speaking of the US...

US markets are in the thick of the June quarterly reporting season - and so far there have been some unexpected positive surprises from big name companies.

And accordingly the US markets have bounced back from their recent woeful lows.

We think these positive results from the US have generally improved the global market mood and are certainly contributing to positive sentiment in the Australian small cap market.

Even if it may only be temporary.

ASX small cap stocks have also been releasing their quarterly reports over the last few days - small cap “Confession Season” is now upon us.

The June quarter feels like an eternity ago but with July 31st falling on a Sunday, the back end of this week was filled with a flurry of announcements as companies raced to get their quarterly reports in.

Companies that are required to lodge are always given till the end of the month following the end of a quarter (in this case 31 July) otherwise they risk being put into a trading halt.

Quarterly reports are useful for small cap investors for the following reasons:

  • Management commentary on what happened last quarter. You can generally tell how excited or apologetic the management sounds, which gives you an idea of execution success.
  • Updated Management forecasts for current quarter (and beyond). Sometimes it can yield a juicy snippet of information.
  • Cash burned - how much money did the company spend in the quarter.
  • Cash remaining - this, combined with “cash burned”, lets investors guess how long till the company will next raise capital. When a company has very low cash everyone knows a cap raise is coming, so there may not be much buying on-market in anticipation of a discounted cap raise. This means share prices can drift sideways or fall until the capital is raised unless the company releases some amazing news.

Our team spent the week including Friday night and early this morning scouring through the reports put out by our Portfolio companies.

We have updated the cash balances for each in our internal tracking sheet which we have shared:

Download our Portfolio CASH AND CAP STRUCTURE tracker

You can bookmark the link to check back to see the (near) real time cap structure and cash balances of the stocks in our Portfolios.

Finally, we have made a small improvement to our upcoming potential share price catalysts tracker - if something has happened in the last week the update will be highlighted in yellow to make it easier to find.

⏲️ Upcoming potential share price catalysts list

Results expected in the near term:

  • GGE drilling its maiden helium well in Utah, USA (memo).
  • PRL signing a Joint Development Agreement (JDA) with partner, Total Eren, to materially de-risk its WA Green Hydrogen Project (memo)
    • IN PROGRESS: The signing of the JDA with Total Eren. PRL’s deadline to sign the JDA is now set at 10 August 2022. .
    • Update: Just after market close yesterday, PRL announced a short extension to the due date for the signing of the JDA with Total Eren to the 10th of August 2022.
  • IVZ to drill its giant gas prospect in Zimbabwe - we have been waiting two years for this event (memo).
    • IN PROGRESS: Drilling is now scheduled for August. IVZ says it is considering three separate farm-in offers.
    • Update: This week IVZ announced that its environmental management plans for the Mukuyu-1 well had been approved. The significance of this is that IVZ has now concluded with “the permitting requirements” which allows the company to do in-field seismic and exploration drilling. Read our Quick Take on this news here.
  • KNI is drilling its cobalt targets in Norway (memo).
    • IN PROGRESS: KNI has completed its first cobalt drilling program in Norway, hitting visible cobalt in 7 out of the eight holes at their highest priority target as part of its expanded 11 diamond drillhole campaign.
    • Update: No progress.
  • BPM has completed drilling at its lead/zinc prospect in the Earaheedy Basin close to Rumble Resources’ recent discovery (memo)
    • IN PROGRESS: ~3,740m of AC/RC drilling completed along strike from Rumble’s discovery. Assays are now pending.
    • Update: No progress.
  • PFE is drilling its polymetallic (Hellcat) project (memo)
    • IN PROGRESS: PFE is doing 1,700m of diamond drilling across four EM targets at its Hellcat project targeting base/precious metals.
    • Update: No progress.
  • LNR commencing drilling for rare earths along strike from Hastings Technology Metals. (memo)
    • IN PROGRESS: LNR is still in the process of getting approvals so we are not sure exactly when drilling will occur. It may be later than most on the above list, but we are keeping an eye on progress.
    • Update: LNR confirmed in its quarterly report that ongoing heritage surveys were expected to be completed during the September quarter, with drilling to follow soon after. This means we are unlikely to see any meaningful progress until later in the current quarter for LNR’s drilling program.

🗣️ Quick Takes

Here are this week's Quick Takes:

BOD: Quarterly report - advancing multiple clinical trials

DXB: DXB Quarterly Reveals FSGS Patient Numbers

EXR: Pilot production program commencing soon

EXR: New coal bearing sub-basin discovered

GTR: Presentation at Metals and Mining conference

GTR: Quarterly reveals strong cash position

IRD: IRD advancing potential green hydrogen port opportunity

IVZ: Farm-in progress during the June quarter

IVZ: Environmental management plans approved, drilling in August

IVZ: Drill rig now arriving on site, drilling expected in August

IVZ: OTC listing update - Depository trust company status approved

LRS: More assay results on its way to a JORC resource

MAN: Quarterly report - $17.2M in cash

PRM: Searching for high impact energy projects

SGA: Diamond drilling program ongoing in Kazakhstan

VN8: Back to back record quarterly sales result

VUL: Green light from local councils & new licence area

📰 This week on Next Investors

It’s phosphate - and MNB has a lot of it

Our investment in Minbos Resources (ASX:MNB) has rapidly evolved over the last six months and is now riding not one, but THREE interesting long-term macro investment themes:

  1. MNB has used its in-country relationships to secure some of the world's cheapest hydro energy for a green hydrogen-ammonia project.
  2. MNB has nearly secured full finance to build its phosphate project next year - in a time of record high phosphate prices and a looming global food security crisis.
  3. MNB announced up to $60M in new funds ($25M capital raise done at 11 cents + US$25M non-binding debt term sheet) - $15M of the placement went to a syndicate of investors which includes the founder and chairman of the world’s largest battery anode company - AND that company could use MNB’s phosphate as a battery material.

Phosphate for batteries?

Elon Musk definitely thinks it's a viable battery chemistry alternative and some of the world’s biggest battery makers are investing heavily in it.

In China, LFP batteries command 44% of the EV market and nearly half of all Teslas made last quarter had phosphate in their batteries.

With a large capital raise completed and the balance sheet strengthened, MNB isn’t just a fertiliser and green ammonia/hydrogen Investment anymore, it is now also a battery materials Investment for us.

📰 Read our full Note: It’s phosphate - and MNB has a lot of it

GTR launching USA uranium drilling campaign

Kicking off its 2022 exploration program, our US-based uranium exploration Investment GTI Energy (ASX:GTR) has completed the planning process for its upcoming 100,000 foot (~30,000m) drilling program across its uranium projects in Wyoming.

Drilling is due to start in the coming weeks and be completed by Christmas. GTR plans to drill ~130 holes across five different targets, following up on drilling done earlier in the year when the company announced a maiden discovery.

The ultimate aim of the drilling program is to either put out a maiden uranium resource estimate or, at the very least, an achievable exploration target to base future exploration programs.

We will measure the success of GTR’s drilling program against the following expectations:

  • Bull case = Uranium intercepts lead to a maiden JORC resource.
  • Base case = Enough uranium is intercepted to put together an achievable exploration target.
  • Bear case = No uranium is intercepted, and projects are considered stranded.

Yesterday’s announcement comes after GTR completed the acquisition of additional ground in Wyoming, increasing its landholding from 22,000 acres to 35,000 acres — a 59% increase in size. Importantly, all of this newly acquired ground surrounds Rio Tinto’s projects.

GTR has $6.9M in cash after its $5M placement earlier in the year at 2.1c/share.

Having spun-off its gold assets it is now a fully focused pure play uranium exposure on the cusp of a big drilling program chasing a US uranium discovery.

📰 Read our full Note: GTR launching USA uranium drilling campaign

📰 In our portfolios 🧬 🦉 🏹

🏹 Catalyst Hunter

$7M junior TG1 is drilling now - with more to come this quarter

This week our early stage microcap exploration Investment TechGen Metals (ASX: TG1) started drilling the first of three key projects, all of which are scheduled to be drilled this quarter.

Most importantly, none of the three of the targets have been drilled before.

TG1’s near term drilling programs are as follows:

  1. Gold in NSW (drilling ongoing) - High grade gold in trenches, with chargeability anomaly below (Jackadgery Project).
  2. Copper in WA - Three distinct EM anomalies sitting adjacent to high grade rock chips grading up to 8.7% copper (Mt Boggola Project).
  3. More copper in WA - Cluster of IP anomalies that sit right underneath high grade rock chips which returned 54.8% copper and 249g/t silver (Station Creek).

The first being drilled is TG1’s NSW gold project with a 1,000m RC drilling program, which started on Tuesday.

With a market cap of just $7.1M and a cash balance of $1.9M, TG1 is currently trading with a tiny enterprise value (EV) of $5.2M.

With three independent shots in the current quarter aiming for new gold/copper discoveries, we see TG1 as highly leveraged to drilling success.

📰 Read our full Note: $7M junior TG1 is drilling now - with more to come this quarter

ARN delivers rubidium assay results, good enough to drill again

Our junior exploration Investment Aldoro Resources (ASX: ARN) has announced assay results from its Rubidium-Lithium project in WA.

ARN aims to convert its exploration target of 33,000-155,000t of rubidium at grades of 0.07%-0.15% into a maiden JORC resource.

ARN’s assay results for the program returned peak grades of 0.76% rubidium and 1.18% lithium in smaller intercepts ranging from 1m to 4m.

Importantly, these results were good enough to warrant ARN committing to a further 3,000m of drilling.

Like we do with all drilling programs, we set our expectations for to evaluate ARN’s assay results.

Back in early March, we set our expectations for last week's drilling results as follows:

  • Bull case: Average rubidium grades at or above the 0.15% upper range ARN set for its exploration target, with the project also proving a lithium resource simultaneously.
  • Base case: Average rubidium grades above 0.07% and some indication of lithium mineralisation - ✅ This is what ARN achieved
  • Bear case: Average grades <0.07% rubidium and no lithium mineralisation in the assays.

Across the 3,711m, 65 hole drilling program, ARN intercepted AVERAGE rubidium grades of 0.1% (1,009 ppm) along with an average lithium grade of 0.02%.

This puts ARN’s drilling results firmly inside our “base case” target of average rubidium grades above 0.07%, with some indication of lithium mineralisation.

We now want to see the company gather enough data to put together a maiden JORC resource estimate.

📰 Read our full Note: ARN delivers rubidium assay results, good enough to drill again

🦉Wise-Owl

FOD delivers another strong quarter, now primed for growth

After delivering its first cash flow positive quarter since we Invested 18-months ago, The Food Revolution Group (ASX: FOD) delivered another operating cash flow positive quarter – consolidating its financial position and priming the company for growth in FY23.

Earlier in the week FOD announced $11M in gross revenue, a 22.7% increase compared to the previous corresponding period last year.

This made it FOD’s second quarter in a row where the company has achieved operating positive cash flow status.

FOD’s financial performance this quarter is even more impressive when overlayed with the escalating inflationary environment that is affecting manufacturing businesses.

FOD appears to be navigating this inflationary squeeze rather well, given a macro backdrop of labour shortages pushing staffing costs higher, supply chain disruptions, and escalating freight and materials cost.

When CEO Steven Cail was first installed in the top seat he said FOD was on a Fix → Reset → Grow trajectory.

Now, with a second successive cash flow positive quarter behind it, we believe the ‘Reset’ stage has been accomplished and we look forward to FOD executing on the ‘Growth’ phase in FY23.

📰 Read our latest full Note: FOD delivers another strong quarter, now primed for growth

Have a great weekend,

Next Investors