MoneyTalks: Everyone’s talking about the energy bull market but these 4 stock picks will have their moment in 2024
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MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Sanlam Private Wealth senior investment advisor Ben Faulkner.
From Faulkner’s point of view, it’s all about the energy sector – oil and gas and uranium – which he says will remain a screaming theme for the next few decades.
OPEC is continuing to cut back on supplies of crude oil and for the first time in history, Russia has drastically reduced gas supplies to the Eurozone.
Australia has also had its fair share of gas issues, particularly on the East Coast, with exports getting shipped off to Asia and Japan.
“There’s a clear imbalance and undersupply at the moment which is partly driven by a lack of new supplies and developments,” he says.
“On the uranium front, supply generated from past denuclearisation is depleted now with no new supply sources coming on from the more traditional side of the equation either.
“Demand is also starting to pick up as Japan, China and Western countries turn on old and new reactors to fill the void from the energy transition taking place now as we all aim for net zero.”
But although there’s pockets of interest out there – like the energy sector, for example – Faulkner says the microcap sector is “pretty dismal” with interest rates starting to hit everyone’s pockets, along with inflation and the cost of living.
“The first end of the market to feel that kind of sentiment is the junior end,” he says.
“People trying to service their mortgages don’t have excess cash to trade on the market and aren’t prepared to take a risk.
“Sentiment and confidence are very low right now, every broker that I’ve spoken to in the last two weeks is down in the dumps and happy to see the end of the calendar year.
“Usually when you start hearing everyone is bearish and depressed like that, I like to take a bit of a contrarian view and think that we’re probably nearing a bottom in that end of the market.
“Looking ahead to CY2023 and into 2024, sentiment can’t get much worse so I am quietly confident we will get a rally into the year end and in the first quarter of CY2024.”
Two commodities that Faulkner expects to perform well next year is nickel and copper.
“There are supply issues with both commodities but probably more so with copper with the whole electric vehicle and green energy transition,” he says.
“Copper demand is going to continue to grow and there’s not a lot of new supply coming online.
“New mines are taking a lot longer to get approved and most of the high-grade deposits have been depleted – new copper discoveries are generally low-grade and take years for production to come online.
“Everyone sees copper as a proxy to global growth and China’s economy slowing down has negatively on the copper price.”
Nickel, on the other hand, is a bit forgotten when it comes to the energy transition, he says.
“However, it is a key component in all the electric vehicles, and it should also perform well next year.”
Faulkner is a shareholder in all four companies mentioned. Sanlam Private Wealth has raised capital for all four stocks and has earned fees for those services.
Faulkner’s number one stock pick is $17m market cap explorer Western Mines Group (ASX:WMG).
“They have made a significant nickel sulphide discovery over in Western Australia at a project called Mulga Tank – its last two drills have hit the jackpot with the discovery hole returning a 640m intersection of nickel at 0.30%,” he says.
“The follow up hole hit 840m at 0.28% nickel with some copper and cobalt as well – it’s a significant discovery, and it is turning into a very large deposit.”
WMG’s head geologist and technical director is Dr Ben Grguric, a former BHP Nickel and Norilsk Nickel executive who Faulker says has been associated with a number of similar discoveries.
“If you talk to Ben, Western Mines Group have done some early metallurgical testing and one particular test is called ‘aqua regia’, which showed over 90% of the nickel is contained in sulphides,” he says.
“Ben used to be one of the technical experts at BHP’s Mount Keith Nickel mine, one of the company’s most profitable and largest nickel mines in Australia – if not the world – and it is looking like an identical Mount Keith deposit with the possibility of a higher-grade Perseverance and/or Kambalda Hybrid system.
“The metallurgy is looking even better than Mount Keith.
“When you’re getting 700-800m of continuous intersections of nickel it’s a very consistent flat lying ore body that is amenable to open pit mining.
“The potential ore body is covered in sand, so it is free dig with a very low strip ratio.
“I don’t think the market has fully valued this recent discovery, and I think that comes down to a couple of things, mainly poor market sentiment… investors are probably questioning the grade as well.”
But Faulkner has no doubt WMG will find high-grade areas at the project, with two drill rigs currently running full-time at the site.
“They will come out with an exploration target and resource later this year which will add value to their share price, especially if they make a higher-grade discovery.”
Faulkner’s next pick is QMines (ASX:QML), the owner of the Mt Chalmers project in northern Queensland and the Develin Creek project, which the explorer acquired in January 2021.
“Develin Creek has an existing 3.2 million tonne resource, a mining licence and is only 17km northeast of Rockhampton, so very close to infrastructure and a major town,” he says.
“The company has delivered five resources at both projects and is continuing to drill out its resource at Develin with their own drill rig, which means they aren’t exposed to the cost and availability of equipment.
“For the resources QML has, I think it is highly undervalued with a market cap of around $20m.
“The company has plenty of upside if and when the copper price rallies, and general sentiment improves.”
Faulkner’s third pick is Golden Mile Resources (ASX:G88) whose flagship Quicksilver nickel-cobalt project about 288km southeast of Perth holds a resource of 26.3Mt and 0.64% nickel and 0.04% cobalt.
“Their Yuinmery gold project is in the highly prospective Goldfields region and has just completed an RC drilling program,” he says.
“The company is probably less developed when compared with QMines and WMG but it only has a market cap of around $10m, so there’s plenty of exploration and development upside potential.
“They also have a good commodity mix with gold being a bit of a hedge, and plenty of news flow to come from their Quicksilver nickel-cobalt project which is advancing Stage 3 metallurgical test work programs and are the precursor to a scoping study.”
It’s early days but Taiton (ASX:T88) is drilling over in South Australia’s ‘elephant country’ at the Highway project in the Gawler Craton.
From a real estate perspective, Faulkner says they are in the right area given their project is surrounded by the likes of Prominent Hill, Olympic Dam and Carrapateena.
“It’s an extremely large area but their most recent announcement showed encouraging geological results with 2.5km molybdenum target.
“If they make a discovery, that’s a potential multi-bagger there, but they have a bit more geophysical and geological work to do to define some drill targets,” he says.
“I have no doubt they hold the potential to make a huge IOCG discovery similar to the likes of Olympic Dam.”
At Stockhead we tell it like it is. While Golden Mile Resources and Taiton Resources are Stockhead advertisers, they did not sponsor this article.