MoneyTalks: Arlington’s Simon Catt says his top sector picks for 2022 are gold and uranium

MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.

Today, we hear from Simon Catt, director at Arlington Group Asset Management.

Gold is hot right now

Catt said that his first pick for 2022 is Wiluna Mining Corporation (ASX:WMC) which has a market cap of $120 million.

“Strategic shareholders from Russia and Germany seem to agree this is a very serious gold asset,” he said.

“The Germans and Russians have backed Wiluna in a $53 million equity raise on the eve of commissioning its new 100,000 ounce pa underground gold mine and concentrator in the northeastern Australian goldfields.

“Two high profile Russian gold industry players have joined German Deutsche Balaton at the top of the Wiluna share register.”

Catt said that tier one global gold producer Polymetals – which will produce over 1.5 million ounces of gold in 2021 – has taken an equity stake in Wiluna.

The company’s formed a strategic alliance in 2020, combining Wiluna’s Australian mining expertise and Polymetals’ global leadership processing refractory gold concentrates.

Russian billionaires on board

“The billionaire joining the Wiluna share register is Russian oligarch Vladislav Sviblov who privatised 300,000 ounce pa producer Highland Gold (LON:HGM) in 2020 in a one billion pound takeover,” Catt said.

“Together Deutsche Balaton, Sviblov and Polymetal will own over half of Wiluna plus a concentrated list of real money North American and European institutions round out the top 10 at over 75% of this top eight Australian gold endowment.

“Wiluna will surprise its Aussie peers and revisit its profitable past as it ramps to 120,000 ounces of gold production in 2022 on the way to a forecast 250,000 ounces by 2024.”

Uranium equities also in the spotlight

Catt also flagged that uranium equities have led the uranium price in 2021 “anticipating the rally and coordinated squeeze by Canadian and Kazakh producers plus financial players like Sprott.”

“While the uranium price has rallied from around $30/lb at the start of 2021 to as high as $50/lb and is now around $48/lb, uranium developers like Paladin Energy (ASX:PDN) and Boss Energy (ASX:BOE) for example have rallied 300-400%,” he said.

“We believe there is only one medium term solution for low carbon base load power: nuclear.

“Small Modular Reactors (SMRs) that produce circa 50MW are a technology proven on nuclear submarines and take years, not decades, to build.”

How do investors get exposure to SMRs?

Rolls Royce is part of a syndicate developing them in the UK and in the US there is only one SMR with a design approved by the US nuclear regulator – NuScale.

“Control of NuScale was bought by Texas based NYSE listed engineering firm Fluor Corporation (NYSE:FLR) in 2011 after the technology was invented by scientists at Oregon University in the early 2000s,” Catt said.

“Fluor has been involved in the nuclear industry for over 70 years and built 25 plants.

“Fluor rallied 14% on November 5th this year after announcing it had agreed to sell six new SMRs to Romania.”

TINA – There Is No Alternative – to nuclear

Catt also said that European nations that have turned off their coal-fired power stations and are dependent on imported gas while subscribing to a low carbon future have no other choice but nuclear.

“Half of electricity generation in France is nuclear and the United Kingdom has turned to Rolls Royce for SMR development,” he said.

“Germany may have to consider a U-turn on its previous decision to shutter its nuclear business just as in the United States, the Biden administration is now suspending the closure of operating nuclear power stations.

“Bill Gates is backing SMR developer TerraPower.

“As Ballard Power Systems is the proxy for North American investors wanting to bet on fuel cells, so we propose that Fluor Corporation will become the proxy for Small Modular Reactors.”

Catt said that investors should look for steady news flow from Fluor and NuScale advancing both their plans for a new SMR in the American state of Utah starting construction by 2025.

“Fluor will buy itself a steady stream of future engineering work and so transition away from its current reliance on the US oil and gas and petrochemical industry to pivot towards the renaissance of US nuclear power generation,” he said.

“TINA – There Is No Alternative – to nuclear – if the world wants low carbon, safe and reliable power.”