SS1 completes $13M raise - cornerstone fund invests at a premium

Our US silver Investment, Sun Silver (ASX: SS1) completed a significant raise today, which we think will provide it an excellent cash runway ahead of some significant milestones.

While many small caps are struggling to get strong raises away, SS1 has managed to pull off what many haven’t - a large placement that involves a cornerstone investment at 80c per share.

Usually placements take the momentum out of a stock, SS1 could be different - SS1 raised at premium from a cornerstone investor, the silver and gold prices are rallying and any potential market perceptions that a raise is imminent have now been wiped away.

We think investors clearly liked what SS1 has delivered so far, and what it could achieve in the future given the raise terms - SS1 raised A$13m in total comprising:

• An A$8m placement at A$0.62 per share
• US investor Nokomis Capital who took ~$4.2M of the placement and committed to another $5M placement at 80c per share - a 10.3% premium to SS1’s last close price.

Of note, was the $5M component of the total $13M dollar raise, which went to Nokomis Capital at a price of 80c which was a 10% premium to the last close.

Nokomis Capital is a US-based investment firm/”research-focused hedge fund” founded in October 2007 - the fund has a significant amount of assets under management ~US$641M. (Source, Source)

So we take the funds' presence on the register as a good win for SS1 - i.e. they have a very large portfolio and we think that Nokomis Capital won’t likely need to exit their SS1 position quickly and has the funds necessary to potentially follow the investment on market and support the company.

Clearly, Nokomis already has a taste for precious metals like gold and silver as well as emerging critical mineral and defence supply chain commodity, antimony.

It’s worth noting that Nokomis hold 1.9% of US gold-antimony developer Perpetua Resources as of a January 2023 presentation:

(Source)

Perpetua Resources has recently been favoured by the US government, with the following support:

• $24.8M in funding from the Department of Defence under the DPA Investment Program to support environmental and engineering studies in 2022.
• $34.6M in 2024 under the Defense Production Act designed to support construction readiness and environmental activities on this mine.
• $1.8BN letter of interest for a loan from the US Export-Import bank to construct the mine.

Nokomis Capital also has large positions in gold giant US$41BN capped Agnico Eagle and US$1.4BN capped Mag Silver. (Source)

SS1 has both silver and antimony across its project (and gold) - and we’re hoping it can follow in the footsteps of Perpetua Resources.

SS1 recently announced that it was also looking at “potential funding avenues with the Department of Defence in response to the urgent demand for antimony in the U.S”.

Hopefully that means SS1 is putting itself in front of the right people to try and get funding for its project, similar to the deals signed by Perpetua.

Read more about SS1’s antimony potential in the below article:

SS1’s high grade antimony readings - does it run across the whole project?

Raise points to a very strong silver market - sentiment high…

In a recent research report from Citi’s Commodities desk, sighted by us called “The stars align for silver as traditional and new fundamental drivers combine” the investment banks analysts laid out a powerful case for silver.

We think the growing interest in silver was evidenced in the unusual strength of SS1’s raise in the current market conditions.

SS1 has the largest silver resource on the ASX and last week the silver price moved strongly up to US$31/oz:

(Source)

Citi went on to say:

“We have been bullish on silver for some time, and we believe the time is right to get even louder about it. We re-iterate our 0-3 month forecast of $35/oz(>15%) and 6-12-month forecasts of $38/oz(>25%) (indicative probability 60%). We believe that the setup in silver is presently the strongest it has been in decades.”

NB: Whilst that price target looks promising, at the same time it’s important to note that analyst price targets are based on a number of assumptions that may not prove correct. Never rely solely on a price target to make an investment decision. Do your own research before making an investment.

Commodity prices can be fickle, but we hope Citi is right on this as it will help reduce commodity price risk for our SS1 Investment as they get ready to deliver the following newsflow.

Here’s what we are looking for next from SS1, now that they’ve tucked away a big, successful raise:

🔄 More Assay results for the 7,500m drilling - SS1 is currently drilling out its project, assay results are expected any day now.

🔄 Antinomy potential - We want to see if antimony is widespread across SS1’s giant JORC resource.

🔄 Further update on silver paste tax credit - We want to see SS1 put out an update on the US$60M grant application the company is working on for its silver paste business.

How does this impact Our SS1 Investment Memo:

Funding risk/dilution risk

As a small cap, SS1 is reliant on capital markets to advance its projects. If something negative happens at a macro or company level, SS1 could struggle to access capital on favourable terms. These capital raises may take place at a discount, and result in the issuance of new shares which incur dilution to existing shareholders.

Source: 18 May 2024 SS1 Investment Memo

This raise mitigates funding risk for a good stretch of time for SS1, although it did incur dilution to shareholders.

We think Nokomis Capital will be a sticky holder, given their large warchest $640M of AUM.

For a full rundown of our investment thesis, read our SS1 Investment Memo, where we share:

• What SS1 does
• The macro theme for SS1
• Our SS1 Big Bet
• What we want to see SS1 achieve
• Why we are Invested in SS1
• The key risks to our Investment Thesis
• Our Investment Plan