Money Talks: Sure rare earths and gold are hot, but here are some top stock picks investors might be missing
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Gavin Wendt, senior resources analyst and founding director of MineLife.
At various times in the market there will be particular sectors that go for a run – the latest being gold and rare earths.
But while rare earths is hot right now, it’s hard to tell just how long it will stay hot.
“There’s persistent market chatter and media headlines that suggest China might try to leverage their control of rare earths production as a result of a seeming escalation of the trade war with the USA,” Wendt said.
“We’ve seen this before of course, back in 2010 – 2012, when there were fears that China would use its market influence to withhold supply and drive up prices. This proved to be a temporary phenomenon.”
On that basis, Wendt decided to offer up some hot picks that aren’t necessarily on the radar for investors.
For now it’s more about individual stocks than one sector being the hot favourite.
One pick of Wendt’s is emerging mineral sands producer Sheffield Resources (ASX:SFX), which has a market cap of $152.4m at a share price of 54c.
Sheffield is advancing its Thunderbird mineral sands project in Western Australia and is down to the last hurdle – project financing.
Thunderbird is one of the world’s largest and highest-grade undeveloped zircon-rich mineral sands deposits.
With the slump in sentiment in the second half of last year, Sheffield had to rethink its plans for developing the project and is now looking at a simpler operation to get into production more quickly and easily.
This put a bit of a dent in the company’s share price, which slipped from $1.21 last October to its current price of 54c.
But Wendt said the fundamentals of the story hadn’t changed.
“The bigger picture is still there, but in this environment they were very much cognisant of the fact that it’s not easy to raise funding,” he told Stockhead.
“So if they can bring the capex down, the numbers are still very, very good, and once they’re up and running they can expand.
“The share price is starting to show some improvement now. So I think some of those people that maybe haven’t followed the story or people that have sold out of the stock are seeing now there’s a plan B as far as the accelerating development of the Thunderbird project.
“And management have been nimble enough and sensible enough to look at alternatives, and you know those alternatives are very, very real and they can still generate a very, very good outcome for shareholders.
“I think there’s definitely more upside in the share price.”
Second on Wendt’s list is uranium explorer Marenica Energy (ASX:MEY), which has a market cap of $8.4m at a share price of 11c.
“Why I really like that story is because of their upgrade technology, which has the potential to upgrade the base case grade of a uranium deposit,” Wendt said.
Marenica’s patented “U-pgrade” beneficiation process has proven it can deliver major operating and capital cost benefits.
The benefits come from the concentration of calcrete-hosted mineralisation by up to 50 times through the rejection of 95 per cent of the mass before the material enters the (smaller) leaching circuit.
Marenica has demonstrated the benefits for its 61m/lb low-grade namesake uranium deposit in Namibia. Operating costs for the project could be reduced from $US80/lb to $US40/lb using U-pgrade.
“The uranium business is so hard at the moment, but the fact that they’ve got this technology could really be a game changer,” Wendt said.
“I think if you’re looking at something in the uranium space you really need to be looking at a company with something that’s considerably different, something unique about them that can give them a competitive advantage and the Marenica story I think is definitely one.”
Lastly, graphite explorer Walkabout Resources (ASX:WKT) is also on Wendt’s list.
The company, which has a market cap of $120m at a share price of 38c, is progressing its Lindo Jumbo graphite project in Tanzania towards production.
Walkabout is currently working on securing funding for the project. Potential funding options are being advanced with an international investment bank for nonbank debt financing alternatives.
“Since engaging with a number of potential off-take partners, WKT is seeing an increased level of confidence in its product and a growing interest in its ability to deliver a stable supply of quality, large-flake graphite,” Wendt said.
“This is evidenced in the recent signing of binding off-take term sheets and the binding global sales, purchase and marketing agreement with international commodities trading house Wogen Pacific.
“These deals substantially reduce the demand-side risk of the project and is very important for WKT’s ongoing funding discussions.
“WKT’s share price performance – having quadrupled over the past few months – reflects renewed confidence in the company’s ability to commercialise Lindi, following on from the granting of its mining licences by the Tanzanian authorities during H2 2018.”
Gavin Wendt has been involved in the Australian share market for over 20 years as a resource analyst. After many years as a broking resources analyst with Intersuisse, Gavin helped establish the Fat Prophets Mining Report in 2005, writing and producing the report until he established MineLife in 2010.