Barry FitzGerald

Small market caps, huge resources – Garimpeiro’s hunting elephants this week.

Africa’s the place to be for that sort of thing. (We’ll assume everyone’s aware we’re talking about huge resources here; we actually love real elephants.) Fitz has singled out two in particular for the scale and quality of their resources, paired with market caps that don’t yet reflect what they potentially have in the ground.

MRG Metals (ASX:MRQ) is trading at 0.4c for a market cap of $7.8 million. Twiggy could put it on his expenses card. But it also has more than 2 billion tonnes of ilmenite-dominant mineral sands on its hands in Mozambique.

Ilmenite is a naturally occurring titanium dioxide noted for its critical properties across things like pigment, welding rods and titanium metal. Demand is growing.

The initial 26-year project was recently assessed at a cost of $US239m to develop, so financing is a “big ask”, Garimpeiro notes. But it could also generate an internal rate of return of 21%.

And there’s talk of “rare earths” and “uranium” on the radar…

Genmin (ASX:GEN) is trading at 20.5c for a market cap of $87 million and seeking 5mtpa of iron ore from its Baniaka project in Gabon. With a resource base of 760mt tonnes (high-grade), it’s in for the long haul.

Twiggy Forrest has a similar sized resource in the northeast of the country, Belinga, and is happy to talk it up.

“Plonk Baniaka in the Pilbara and Genmin’s market cap would be a multiple of what it is today,” FitzGerald notes.

UBS gets charged up

There’s been some efforts by big players to cap enthusiasm for lithium investment this year, and UBS agrees lithium prices are ‘unsustainably high.’ That said, it remains very bullish in the medium to long-term. Sure, lithium prices will fall – but if you’re betting on it, you’re clearly some kind of soothsayer.

The overall picture, according to UBS, is the structural thematic is very much in play.

Here’s who’s on their watchlist.

Allkem (ASX:AKE): Clear pathway to triple production by 2026. UBS currently has long-term spodumene at $1,100, versus spot at $8,500, AKE is pricing <$1,000. Long-term lithium carbonate at $15,000, versus spot at $82,000, AKE is pricing $13,000.

Mineral Resources (ASX:MIN): Selling down of lithium assets now looks to be off the table, a good move given the industry outlook and given half the NPV is in lithium. Also offers iron ore business (5-10%), mining services business (40%).

IGO Limited (ASX:IGO): One of the highest quality ways to play the theme.

Pilbara Minerals (ASX:PLS): Structurally lower margined, and in the long term the least preferred. Short term tough, it has the best leverage to elevated prices and generating a huge amount of cash.

UBS has more to say on its lithium bets here.

 

We’re having Indian

India’s pharmaceuticals industry is huge and getting bigger. That could well offer big opportunities for Aussies, as the two countries deepen ties.

And it’s India’s pharma industry that has staged a healthy return to form. Yes, the ride is bumpy, but the scale and opportunity are enormous.

In case you need more convincing:
• Indian pharma ranks No 3 worldwide for production by volume, and 14th by value
• It’s the largest provider of generic medicines globally, occupying a 20% share in global supply; and
• It’s the world’s leading vaccine manufacturer.

The simple entry is through an actively managed fund or ETF which invests in India. But if you have the patience to secure a Foreign Portfolio Investor’s License (cumbersome), India Avenue Investment Management managing director Mugunthan Siva reckons it opens up a new world of opportunity – especially in pharma.

“It’s no coincidence Australian Prime Minister Anthony Albanese has set up a quick visit to India in March next year,” Siva told Stockhead.

Here’s a couple of notable Indian pharma picks.

Dr Reddy’s Laboratories (NSE:DRREDDY) is a leading generic player that enjoys a prominent position right through the lucrative US market. That US launch, a new leadership team and a global growth strategy ready to roll points to some potentially serious upside.

Sun Pharma (NSE:SUNPHARMA) has grown to become one of the largest generic pharmaceutical companies worldwide, and the fourth largest specialty generic pharmaceutical company globally.

Cipla (NSE:CIPLA) is well-established and sees high revenue and market dominance in certain chronic therapies including inhalation and respiration. It’s already establishing a US brand, and given the US respiratory medicine scarcity brought on by COVID-19, the approval of albuterol would guarantee an increase in US growth and profits over the medium term.

There are more like that from Siva over here.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

Featured Companies

You might be interested in