What Happened This Week? Aug-7th-2021

  Email Sent On: 07-08-2021 13:10 p.m.

10 minute read

The small cap market has roared back this week after a couple of boring months during “sell in May and go away” and “June tax loss selling”, followed by a pretty limp start to July as many investors were unsure about coming back in.

While some share prices had been moving down or sideways as impatient money left, good management teams (like the ones we try to invest in) were busy behind the scenes, executing their plans and building their pipeline of future material announcements.

This value created during quiet periods eventually needs to be reflected in re-rated share prices. The trigger for this to happen is investors coming back into the market once they are feeling confident.

While boring markets feel like they last forever, as we saw this week, they can come surging back really fast. As long term holders, we prefer to be set in all our positions when this happens rather than trying to time entries and exits on market fluctuations. During this time we added to our positions in a couple of our portfolio companies that we thought had been unfairly beaten up due to radio silence or hadn’t run yet (WHK, AJX, TMR, VN8).

The small cap market generally “shuts down” in December and January while everyone is on holiday. That leaves small cap companies with a window from August to November to launch any big announcements, rerate their share prices and raise capital for their next phase of growth if they need it (that’s why it’s called the “capital” markets).

Fingers crossed that we are in for a busy and buoyant four months in the lead up to the Christmas break. But remember this is the small cap market and ANYTHING can happen — sentiment can turn down as fast as it went up especially if a negative global event occurs.

We like this quote we saw online: “if a couple of percent share price drop breaks you, you have invested too much”. We agree. So remember when investing in small caps, only invest what you can afford to lose and create an investment strategy and stick to it. Another saying we like is “if you are losing sleep over the size of any one position, you have invested too much”.

Having said that, we are generally optimistic and confident in our portfolio picks and hope the next few months will bring a lot of exciting news and share price re-rates from our portfolio companies.

🗣️ Quick takes on key events in our portfolio this week:

We added our third investment for 2021 in Iron Ore Explorer Pantera Minerals (ASX:PFE), and we only have a couple of months to wait before their first drilling campaign in October.

There was a lot of trading when PFE came online but it seems to have since found a base around 35c to 40c. But we will know for sure next week as some traders may still need to leave the scene. We hope that in the lead up to drilling, the company can achieve the greatness of the band sharing the same name.

Our best performing stock VUL keeps relentlessly delivering and after spending most of last week at around $9 it finished pretty strongly at $13.25 — not sure if we’ve ever mentioned it but we called VUL at 20c back in early 2020.

We are eagerly looking forward to the IPO of VUL’s spinout company Kuniko (ASX:KNI) that’s developing Zero Carbon battery metals copper, nickel and cobalt. We expect KNI to list on the 23rd of August. The IPO was at 20c and congrats to any VUL holders who got an allocation. Based on the success of VUL’s Zero Carbon Lithium, we expect KNI to open very strongly.

88E had another great run this week and continues its more civilised gradual move upwards compared to its wild spike to nearly 10c and subsequent fall back to 2c in March.

While those who invested in and held 88E during 2020, when it spent the year at ~0.8c, are pretty happy with the current share price at 4.8c, 88E continues to be a polarising story online after some people got burned trying to trade the March spike.

EMN’s share price looked pretty interested in moving up this week closing at 71.5c as the broader market catches on to the battery metals thematic — most battery metals stocks had a good run this week.

BPM announced progress on our favourite of its projects (Lead-Zinc at Hawkins) that it plans to drill before December. We are holding a relatively big position in BPM and after an initial spike it looks pretty comfortable at ~35c for the time being. As always, we expect a run up in the lead up to drilling and are patiently waiting till then.

Since its capital raise earlier this year, EXR’s share price feels like it has been trying to swim while wearing a tracksuit and shoes, despite EXR announcing some solid progress. This week EXR looked like it might be back in the budgie smugglers and ready to swim for gold - finally starting to move up again after a few false starts. Lets see what next week brings.

📰 Here’s what we covered this week on Next Investors

We introduced our third Next Investors portfolio addition for the year this week: Pantera Minerals (ASX:PFE).

We invested in PFE for its barely explored, potential high-grade and high-tonnage iron ore exploration project in the Kimberley, just kilometers from Mt Gibson Iron’s existing infrastructure on nearby Koolan Island.

PFE’s first drilling campaign is due to start in October at its WA iron ore project where abundant hematite mineralisation (iron ore) has been confirmed. That means there isn’t long to wait before things get interesting and drilling anticipation starts to ramp up over the coming months.

We like the PFE team, we like the PFE project, the iron ore price is around 10 year highs, and PFE is drilling in just a few months.

Read our full analysis here: Our New Portfolio Addition is Here

Our best performing investment to date, Vulcan Energy Resources (ASX:VUL) announced another offtake agreement this week — its second in the space of 14 days. We estimate that the agreement, with Renault Group, could be worth up to US$255M per year to VUL for 5 years.

VUL also received results from an updated independent Life Cycle Assessment (LCA) this week, which estimated Vulcan’s Zero Carbon LithiumTM Project to emit negative 2.9t of CO2 per tonne of lithium hydroxide to be produced. The result confirms VUL’s project as having the lowest planned carbon footprint in the world compared to all LCA results in the lithium industry.

VUL ended the week 35% higher at a new closing high.

Read the breaking story here: VUL Signs ANOTHER Lithium offtake - this time worth up to US$255M per year

Galileo Mining (ASX:GAL) reported that nickel drilling is now underway at its Fraser Range Project in WA. This current RC drilling program consists of five drill holes for 1,000 metres, designed to test the top of EM conductors at the Delta Blues target.

Initial drilling should take about two weeks, with assay results to follow soon after that. Follow up diamond drilling is then anticipated in order to test the deeper parts of the EM conductors.

With GAL trading on a “pre-discovery valuation” at $42M, it remains highly leveraged to exploration success. Plus, the nickel price is back to levels not seen since September 2014 amid strong demand from stainless steel mills and electric vehicle battery makers.

Full story: GAL’s Nickel Drilling Campaign has begun

This week also saw Tempus Resources (ASX:TMR) announce that “geophysical surveys have revealed the potential for a much larger scale gold system” at its Elizabeth Gold Project in Canada.

TMR’s goals for the current drilling season are to extend the high grade veins that have already been discovered. With the season not ending until December, expect plenty of action to come over the next few months — especially now that geophysical surveys have shown the whole system to be a lot larger than previously known.

We expect the share price to run up in anticipation of drilling results, like it did early in the 2020 season. If drilling delivers better than expected results we should see a rerate in the TMR share price — TMR only has ~113 million shares on issue so its share price could move quickly.

Full story: New geophys survey suggests TMR’s project is a monster.

Back in April, we announced Province Resources (ASX:PRL) as our Small Cap Pick of the Year for 2021 after it signed a binding MoU to develop its Green Hydrogen project with Total Eren (effectively the renewable energy arm of Total SA).

Total Eren MD Kam Ho’s presented at the WA green hydrogen conference this week. While not much was revealed about its scoping study with PRL, we did learn a lot about building hydrogen plants, types of electrolysers, economics of green hydrogen, wind farms, etc.

This week also saw PRL Managing Director Dave Frances appear on the public relations trail with a couple of video interviews, which may point to PRL emerging from its “quiet execution phase”.

Here’s our full report: Reporting back from the WA Green hydrogen conference panel....

🦉 In our other portfolios 🏹

🦉 Wise-Owl

FYI Resources (ASX:FYI) reported that it has extended its exclusivity agreement for a JV with Fortune 500 company Alcoa Corp (NYSE: AA) for another 30 days, as the pair take time to iron out the finer terms and conditions of a binding agreement.

FYI is in the advanced stages of bringing a High Purity Alumina (HPA) plant into production in Western Australia. The JV would leverage the companies’ combined strengths to capture opportunities in this high-growth Li-ion battery material market and seek to position the JV as a material producer in the industry.

🦉Here’s our take: FYI very close to Alcoa JV – expected in just 30 days

As was the case for our Next Investors portfolio, Vulcan Energy Resources (ASX:VUL) was a big contributor for Wise-Owl investors this week after announcing an offtake agreement with Renault Group and news that Vulcan’s Zero Carbon LithiumTM Project has the lowest planned carbon footprint in the lithium industry worldwide. The stock is now up 3,844% since we first invested in June 2020.

🦉 Read more on the offtake agreement here: VUL secures a potential US$1B Lithium deal with leading EV carmaker

🏹 Catalyst Hunter

Aldoro Resources (ASX:ARN) emerged from a trading halt on Thursday with news it had intersected “significant zones of massive, semi-massive, blebby, and veined nickel-copper sulphides” at its Western Australian Nickel-Copper-PGE project.

This was the first hole drilled at a series of four high-priority electromagnetic (EM) targets, and the first hole drilled in the area in nearly a decade. ARN is now considering adding a second diamond drill rig and a reverse circulation rig to speed up the program.

ARN also confirmed this week that it has further expanded its strategic landholding, locking up 100% of the Windimurra Fairway. Its latest lithium acquisition, adjacent to ARN’s existing ground, significantly lifts ARN's potential for a lithium discovery.

🏹 Read our analysis here: ARN Hits 1.7m of Massive Sulphides - Assays to Confirm Result

🌎 Relevant Mainstream Media:

Commodities

Bloomberg: From Miners to Big Oil, the Great Commodity Cash Machine Is Back

Green Hydrogen (ASX:PRL)

Bloomberg: Hydrogen Plan Isn’t Very Green Under U.S. Infrastructure Deal

AFR: Carbon price of $US100 a tonne needed for hydrogen to take off

Bedding Industry (ASX:AJX)

Bloomberg: Mattress Maker Pines for Padding in Big Supply Crunch of 2021

Green Energy (ASX:PRL)

Bloomberg: TotalEnergies Weighs Stake in Giant North Sea Wind Farm

Have a great weekend,

Next Investors




 

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