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Investment Memo:

Resources & Energy Group Ltd (ASX:REZ)


Opened: 05-Jun-2023

Shares Held at Open: 18,750,000

What does REZ do?

Resources & Energy Group (ASX: REZ) is a junior explorer focused on making a metals discovery in Western Australia.

REZ is exploring for gold, nickel, cobalt, copper and PGEs.

What is the macro theme?

Nickel, cobalt, copper, PGEs are critical raw materials for the decarbonisation theme.

Gold and silver (precious metals) tend to perform well in times of market volatility.

These commodities are used in applications ranging from electric vehicle batteries, electrical infrastructure and catalytic converters to reduce emissions in internal combustion engines.

Why did we invest in REZ?

Nickel, cobalt, copper and PGE potential

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.

WA nickel discoveries are in demand

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.

A team that has delivered success for us in the past

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.

Low Enterprise Value leveraged to exploration success

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.

Bear market entry point

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.

Revenue from small gold project

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.

Blue sky, greenfield gold project (this is a side bet for us)

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”.

REZ’s nickel sulphide peers at higher market caps

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.

First time someone has consolidated this landholding and done modern exploration

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.

What do we expect REZ to deliver?

Objective #1: More drilling at WA project focused on nickel/cobalt/copper/PGEs

We want to see REZ follow up on its recent nickel results across its East Menzies project and continue drilling out the nickel/cobalt/copper/PGE potential of the project.

Ultimately we will judge the drill results based on a combination of grade and thickness, if the intercepts are thick, then the grades can be lower and vice versa.

To begin with our bull/base/bear case expectations for the drilling results are:

  • Bull case = Nickel grades greater than 1%
  • Base case = Nickel grades between 0.5-1%

Bear case = Nickel grades <0.5%.


complete Fieldwork (Geophysical/Geochem)

not done Drilling

not done Downhole EM surveys (following up the best drill results)

not done Assays

Objective #2: Extensional drilling across gold targets at WA gold project

We want to see REZ drill out its gold targets in the region, chasing both NEW discoveries and looking to extend the company’s existing discoveries.


not done Drilling commenced

not done Assays

Objective #3: Progress developments studies at QLD gold project

We want to see REZ progress development studies across its QLD gold project including metallurgical testing, mine studies and environmental permitting.


not done Metallurgical testwork

not done Environmental Permitting (water supply issues to be resolved)

not done Land access agreements

not done Development study completed

What could go wrong?

Exploration risk

A large part of our Investment thesis for REZ is to see it go and make a new nickel/cobalt/copper/PGE discovery on a project that has historically been focused on gold exploration.

This will mean a whole new approach to exploration, and there is no guarantee that this leads to a discovery.

Funding risk

REZ is a junior exploration company that is heavily reliant on access to capital markets to finance exploration programs. Whilst it has made sporadic revenue in the past, to fund meaningful exploration, REZ will be reliant on capital markets for additional funding.

Market risk

Given REZ’s reliance on access to capital with high risk tolerance, there is a risk that negative market sentiment makes it difficult to raise funds.

REZ is reliant on a market that is open to financing high risk exploration and could see its share price de-rate in times when the markets are less willing to finance exploration companies.

What is our investment plan?

REZ is a new portfolio addition, our average entry price is ~2.2¢.

As with all our new Investments, we hold 100% of our position for 90 days. After 90 days we may look to sell a maximum of 20% of our total position, which we may do if the REZ share price has risen from a positive drilling campaign or other material news.

This is our standard plan across all early stage exploration investments.

The rest of the Investment will be held into the drilling results over the next few drill campaigns, and hopefully over several further delineation drill campaigns if the initial drill campaign delivers encouraging results.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 18,750,000 REZ shares at the time of publishing this memo. The Company has been engaged by REZ to share our commentary on the progress of our Investment in REZ over time.

Our Investment Summary

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