Money Talks: These copper juniors are hot targets for the big producers
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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 Adam Miethke, co-managing director at Discovery Capital Partners.
The sector that Miethke sees high potential in is base metals – specifically copper.
“The reason that we like copper is if you just have a macro look at it, we think there’s positive fundamentals in the broader sector, which is a growing demand base for copper in general, and leverage to the structural change in demand that will be more pronounced through the EV market,” he said.
“On the other side of equation, we see slowing supply, compounded by fewer new discoveries being the main reason we’re interested in identifying new potential copper opportunities.”
At the junior end of the market, the most attractive players are the ones that have the potential to make big discoveries, according to Miethke.
“A lot of the small to mid-cap guys in the copper space upon finding something that is a worthy discovery tend to get consumed by larger groups pretty quickly,” he noted.
Miethke pointed to the recent example of the $1.1 billion Sandfire Resources (ASX:SFR) locking in a deal to snap up junior explorer MOD Resources (ASX:MOD) at a nice 45 per cent premium.
And last year, copper heavyweight OZ Minerals (ASX:OZL) swallowed up Avanco Resources in a $444m takeover play.
“So we like to pick opportunities and companies to follow that offer that sort of potential to find world class discoveries, because ultimately the path to funding and building mines is better done with the financial capacity of a larger company by your side,” Miethke said.
On that note, his first pick is minnow Kopore Metals (ASX:KMT), which has a market cap of just over $6m at a share price of 1.1c.
“The reason we like Kopore is we think it offers exposure to large-scale deposits in the Kalahari copper belt,” Miethke said.
“They’re next door to MOD, which has been subject to Sandfire’s corporate takeover.
“It’s the cheapest small cap copper explorer on the ASX. We think there’s a lot of headroom upon any discovery or hint of copper.”
The Kalahari copper belt in Botswana is highly prospective and home to some big emerging mines.
“In the Kalahari copper belt, you’ve also got obviously what’s happening with MOD next door, but then next door to MOD is Cupric Canyon, which is a private equity group that has received finance to construct their mine,” Miethke noted.
“It’s put a lot of eyes on this part of the world, which has been heavily under-explored and offers exposure to large deposits. So as a leverage play we like KMT for that reason.”
It has a market cap of $49m at a share price of 18c.
Venturex is advancing its flagship Sulphur Springs copper and zinc project in Western Australia, which Miethke says is a “quality project”.
“I think its resource growth in recent years has given the asset critical mass that underpinned its positive feasibility study, with a long mine life and attractive development metrics. We are confident this will be one of Australia’s next producing mines,” he said.
Miethke added that the stock is “still cheap” and has a “lot of headroom”, as well as good management and is backed by much larger producer Northern Star Resources (ASX:NST).
Lastly, Miethke named Adventus Mining (TSX-V:ADZN) as a potentially good investment opportunity.
Although it is a TSX-V listed company, Adventus — which is focused on copper in Ecuador, one of the emerging exploration frontiers — has attracted a register of quality international investors and likely to be attractive to investors in the Asia Pacific, he noted.
“They’ve got a high-grade copper resource, 5.2 per cent copper equivalent, and in our opinion is probably the best quality independent developer out there,” Miethke said.
Adam Miethke is a founder and joint managing director of Discovery Capital Partners and specialises in strategic corporate advice including mergers and acquisitions, public listings and equity funding to private and public companies. Miethke’s career has been deeply entrenched in the natural resources sector where he has worked for Tier-1 mining firms and in corporate buy and sell-side roles.