What Happened?

A buoyant day in small cap land on Friday.

Seems like a few more people are dipping their toes back into small caps.

Another good sign of small cap market sentiment coming back is Sun Silver (ASX: SS1)’s $13M IPO closing early after “overwhelming demand from investors”.

And the SS1 listing date has now been brought forward to mid-May 2024

That’s ~2 weeks away.

(it was originally scheduled for June 5th).

“ Sun Silver Limited is pleased to advise that its $13 million Initial Public Offering (IPO) has closed early following an overwhelmingly strong response from investors. The IPO closed within a week of opening, reflecting exceptional demand from both institutional and retail investors.”

So it looks like we only have around two weeks to wait now for SS1 to start trading on the ASX.

SS1 is listing at a ~$25M market cap.

And given SS1 has 292 million ounces of silver equivalent, “overwhelming” demand for the IPO, and the silver price having its best run in a decade, it will hopefully be a strong open for SS1.

Especially if the planets align with yet another leg up in the silver price going into the listing date.

(Source)

We understand that final allocations in the IPO will be confirmed and communicated next week.

We are counting down the days to SS1 listing, only a few more sleeps to go...

Undervalued companies? Our new “Emerge” Portfolio.

Last weekend we launched our new “Emerge” Portfolio.

(read about our emerge Portfolio here)

And this week we added a new company to Emerge - Trivarx (ASX:TRI).

For Emerge Portfolio Investments we will be targeting companies with real assets that have recently gone through a recapitalisation round OR are currently in the process of getting one done.

Criteria for the Emerge Portfolio:

• Real, later stage company with a genuinely valuable asset/business
• Company had fallen on hard times, bad luck that was not within its control
• OR previously ineffective board/ management team has been replaced
• Currently or recently recapitalised, fresh cap structure and clean balance sheet to execute business plan
• Sentiment swinging towards the macro theme in which the company operates
• Another chance to execute business with fresh, new investor base

Recapitalisation rounds don’t come around often, but a few more than usual happen in the depths and ends of a bear market, when “bad luck” just seems a lot more common for companies and fresh capital is hard to raise.

These companies can offer some great returns if you get the timing right and they reset back to more normalised valuations (not without risks, which we outline in our Emerge Portfolio introduction here)

Our new Emerge Investment - TrivarX (ASX:TRI)

On Thursday we launched an Emerge Portfolio Investment - TrivarX (ASX:TRI).

TRI is developing an AI powered algorithm that screens for mental health disorders by analysing patients' sleep data.

The blue sky for TRI here is that if it turns out that sleep data CAN successfully be analysed by its AI to screen for depression, it is likely able to screen for OTHER mental health issues too.

We’re thinking things like anxiety, PTSD, Alzheimer’s, etc

And imagine if this tech can eventually be succesfully integrated into wearables that track sleep data, like Fitbit, Apple Watch or Oura Ring.

TRI has been around for over 9 years and has had millions of dollars invested into its technology.

Right now, TRI is running a Phase 2 trial on 400 patients, hoping it can successfully screen for depression (specifically a current Major Depressive Episode - cMDE).

At our Initial Entry Price of 2.5c per share, TRI’s market cap was ~$11M.

At its last trade of 3.2c, it’s still capped at less than $15M, with $2.5M in committed funds incoming.

We think the company’s current valuation has a lot to do with the historic missed timelines and “taking on too much too soon” from a strategy perspective (under TRI’s previous management and trading name, Medibio).

Our view is that the years of slower than expected progress led to a disgruntled shareholder base who sold the company down and brought its valuation to where it is today.

Given where the company is at with its technology (Phase 2 trials) and the years invested in the technology stack, we think that the current valuation gives us a good entry point to TRI.

We like these kinds of entry points, at a time when we believe a company is on the cusp of finally delivering what previous, long suffering shareholders had been waiting years for (and also funding all the work).

Over the last ~12 or so months, TRI’s board and management has changed and that was a big part of the reason why we chose to make our Investment in the company.

We are now backing the current TRI team to take the company’s technology stack, further refine it, validate it with clinical trials, and hopefully repeat a ResApp-style $179M success.

ResApp was another ASX listed MedTech company that eventually got taken out by Pfizer for $179M in 2022.

The connection between ResApp and TRI comes from one of TRI’s directors being an early director and financier of ResApp.

We are hoping the skills, experience and relationships built during that ResApp journey can be directly applied to TRI, for the benefit of TRI shareholders...

TRI’s Phase 2 trial results are due in the next two months...

Click here to read our note launching our TRI Investment Memo

GEN - the other company in our Emerge Portfolio

Another “Emerge” Investment we made recently is Genmin (ASX:GEN).

GEN’s plan is to produce and sell GREEN iron ore within 18 months via a starter mine, and it's got a clear pathway to grow its production over time.

GEN had been in suspension for over 7 months.

GEN re-listed on the ASX last month after having completed a recapitalisation raise at 10c per share, is now debt free, and is emerging with ~$7.7M in the bank (assuming the $4.9M raise shortfall is not placed).

All of GEN’s permits and mining licences are now in place, rail and port deals are signed, and an “emissions free” energy source has been secured from a nearby hydro-electric dam.

GEN is about to take its next step to finance and build its project over the next 18 months, and become a green iron ore producer.

GEN recapitalised during a period where there was a transition in government in Gabon and it was unsure if it would secure a mining permit.

With debt cleared out, a cleaned up balance sheet and a mining permit secured from the transitional government - we think GEN has emerged from the recap round in strong form - noting GEN is now up to 13c from its recap round price of 10c.

Our Entry is at 10c.

This week, GEN started moving up, which is exactly what we hope to see after a company has gone through a recent recapitlisation.

After a recapitalisation, a stock may initially experience more selling pressure than buying pressure.

The stale, long term shareholders take control for a few weeks (sometimes months) and continue selling on market - especially if the stock has been in suspension and the original, long suffering shareholder base has mentally and emotionally had enough of holding onto the company’s stock.

(especially if their shareholding has been “crunched” by incoming fresh, new investors in the recap round)

We saw that play out with GEN for almost a month.

After we announced our Investment, GEN’s share price traded slightly lower than our Initial Entry Price but is now starting to move in the right direction.

(Fingers crossed the selling from the stale, original GEN holders is done and GEN now can deliver a few big catalysts to keep up the momentum)

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

The iron ore price has also rebounded off recent lows which may be another reason for investors starting to take a look at GEN again.

We also saw some news out of Fortescue Metals with respect to its green iron ore ambitions.

One of the key reasons we are Invested in GEN is that a big part of the company's strategy is to be able to produce and supply buyers with green iron ore.

Green iron ore needs to be:

• High grade or processed to higher grades using renewable energy

AND

• Have low impurities (less energy required to process it)

The bulk of iron ore used in China is purchased from BHP, RIO and Vale - it is lower grade and NOT considered “green”.

GEN plans to produce and sell GREEN iron ore within 18 months via a starter mine, and it's got a clear pathway to grow its production over time.

(Source)

Key takeaways:

• Fortescue in talks with Chinese authorities for 100 million tonnes of green iron supply.
• Plan aims to produce carbon-free iron ore for export.
• Requires 8 million tonnes of green hydrogen per year.
• $50 million pilot plant announced, but no update on progress.
• Talks with China ongoing, no specified timeline or details on authorities involved.

And here’s what it means for our green iron ore Investment, GEN:

• Shows increasing momentum behind the green iron ore macro thematic.
• Fortescue is looking to transition its business to supply large quantities of green iron ore, also a good signal that the big Chinese buyers are demanding that type of product.
• Another sign the Chinese are interested in green iron ore is the ~4 MoUs GEN already has with major Chinese iron ore purchasers.

Read our new Portfolio addition note on GEN here:

Click here to read our note launching our GEN Investment Memo

What we wrote about this week

New Investment - TrivarX Ltd - (ASX:TRI)

This week, we made our first biotech Investment for 2024 - TRI.

TRI is a medtech/biotech/AI company focusing on mental health screening using sleep data.

We are backing the current TRI team to take the company’s technology stack, further refine it, validate it with clinical trials, and hopefully repeat ResApp-style $179M success.

With TRI’s $11M market cap entry point, we like the leverage to future success.

Read more: Our New Portfolio Addition is ASX: TRI

Lycaon Resources Ltd (ASX:LYN)

Market interest in the West Arunta was up again this week as WA1 Resources hit an all time high market cap of $1.1BN & Chalice made an investment in Encounter Resources.

Some of the juniors with projects in the region were up as much as ~500%. Our exposure to the region is LYN which is planning a drill program for mid-year...

Read more: ...and LYN is about to find out

Quick Takes

PFE: PFE’s neighbour commissions USA’s biggest DLE plant

GTI: GTR locks in drilling contractors for US uranium project

Bite sized summaries of the latest mainstream news in battery metals, biotechs, uranium etc: The Future Money: https://future-money.co/

Macro News - What we are reading

Battery Metals:

EU would need 50pc tariffs to curb imports of Chinese EV (afr.com)

• The EU may impose tariffs of up to 50% on Chinese electric vehicles to curb imports.
• Even with expected tariffs of 15-30%, Chinese manufacturers could still profitably export to Europe.
• Potential EU measures include higher tariffs, security-based import restrictions, or prioritising subsidies for EU-made electric vehicles.

Copper:

BHP Mega Bid and $10,000 Copper Expose Mining’s Biggest Problem (Bloomberg)

• Despite bullishness in the copper market driven by rising demand, miners aren't investing enough in new mines.
• Even with BHP's proposed takeover of Anglo American, which would make it the largest copper producer, it won't address the impending supply gap.
• To meet future supply needs, miners would require over $150 billion in investment between 2025 and 2032, with challenges including funding, social resistance, and long lead times for new projects.

Copper Market Grapples With a Crucial Question (Bloomberg)

• Copper prices surge to 22-month high, up 13% this year.
• Debate arises over potential beginning of significant bull market.
• Experts predict future price increases amid tightness in copper ore market.

Gold:

China’s gold buying spree raises fears for Taiwan (afr.com)

• China amasses a $261 billion gold reserve, a 16% increase since October 2022.
• Stockpiling raises concerns of preparation for potential Taiwan conflict and safeguarding against Western sanctions.
• Surge in gold purchases coincides with geopolitical tensions and lessons drawn from Western sanctions on Russia, signalling China's focus on self-sufficiency amidst long-term confrontation fears.

Helium:

Intel’s $28 Billion Comeback Bet: Make Ohio a Global Chips Capital (Bloomberg)

• Intel Corp. is constructing Ohio One, a $28 billion chip factory, set to compete globally.
• Superloads transport equipment, highlighting the massive scale of the project.
• Politicians hail the venture for job creation and economic growth, with the Biden administration providing significant subsidies.

Uranium:

Closed US Nuclear Reactors Could be Revived to Fight Climate Change (Bloomberg)

• Growing interest in restarting shuttered nuclear power plants in the US, following $1.5 billion offer to revive Palisades plant.
• Shift in perception towards nuclear power as a clean energy source amidst climate change concerns.
• Industry reevaluates closures, considering economic viability and environmental benefits.

US Senate approves bill to ban Russian uranium imports (Reuters)

• Legislation proposed to ban Russian uranium imports 90 days after enactment, with waivers for domestic supply concerns.
• $2.7 billion allocated to develop the domestic uranium processing industry.
• Aimed at defunding Russia's war efforts, boosting US uranium production, and securing nuclear fuel supply chain independence.

Have a great weekend,

Next Investors