Money Talks: The key to picking small cap resources stocks in a volatile market
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 Rob Brierley from Perth-based financial services provider Advantage Management.
There may be uncertainty around global markets right now, but Brierley says he is still mainly looking to the resources sector for value, focusing on companies with “competent and capable management teams that have a track record of delivering”.
The market has generally become risk adverse, which normally sees money flee from small caps into the larger, less risky companies, he says.
“Whether it’s the US-China trade war, European politics, or Brexit, the markets are on edge,” he says.
“[But] I believe that these issues will resolve themselves over the next three months and that China will continue to invest in infrastructure which will underpin commodities demand.”
On the supply side, Brierley says there aren’t a lot of new projects being developed other than those replacing depletion – like BHP’s (ASX:BHP) South Flank iron ore project replacing the end-of-life Yandi mine.
“The majors have been particularly constrained during the past five years with their capital expenditure programs,” he says.
Capricorn Resources (ASX:CMM)
Market Cap: $263.4m
“The emergence of a new, highly accomplished management team has resulted in a swift, significant capital raising and a flurry of corporate activity regarding debt financing, which now sees the Karlawinda gold project fully funded for development,” Brierley says.
“Karlawinda is a rare, greenfields, open pit gold project and the team of ex-Equigold and Regis Resources executives/directors provides comfort around execution risk.
“The 16c-per-share capital raising price would’ve been an attractive entry price, but I believe there is some long-term valuation upside at current levels.”
AIC Mines (ASX:A1M)
Market Cap: $21.03m
“This is a small company that has a highly capable executive team headed by Aaron Colleran,” Brierley says.
“Aaron was instrumental in the inorganic growth of Evolution Mining (ASX:EVN), in his business development role at that company.”
“A1M has $10m of cash and liquids and, under the stewardship of Aaron and Chairman Josef El-Raghy — who successfully built significant gold mining group Centamin plc, I think is poised to pounce on project opportunities in the copper and gold space.”
Mayur Resources (ASX:MRL)
Market Cap: $78.23m
“MRL is involved in a suite of industrial minerals, gold and infrastructure projects in PNG,” Brierley says.
“It’s certainly not the sexiest story in the ASX-listed small resources sector, but it has advanced several projects to statutory permitting for development and feasibility assessment.
“Although I have some concern on sovereign and funding risk, the key management team of Paul Mulder and Tim Crossley are experienced project developers with proven track records.”