SUNDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week

Warwick Grigor

Executive chairman, Far East Capital

Having established Far East Capital with Andrew Forrest in the 1990s as a specialist financier and corporate advisor for small cap mining companies, Warwick Grigor has ridden all the ups and downs.

Who better for Stockhead to reach out to for a 360 degree perspective on the state of the resources investment market in 2023?

Grigor gave Josh Chiat his takes on the best commodities for long term plays, which gold company will keep you warm in your bed at night and why investors should be cautious around uranium bulls.

Grigor actually prefers copper and nickel, broadly because a) we’ll need more and more of it, b) the supply chains are already in place and c) prevailing sentiment is it’s too difficult to establish new supplies.

But gold is the commodity du jour, and Grigor’s favourite right now is Emerald Resources (ASX:EMR), a $1.15 billion company that also happens to be one of the lowest cost gold miners on the market.

A “combination of excellent management and a good, growing resource base” makes it “an inspirational company”, Grigor says. “It is the type of gold stock you can buy and forget, and sleep at night.”

Grigor has also just joined the boards of Victorian explorer Nagambie Resources (ASX:NAG) and West Wits Mining (ASX:WWI), which is eyeing a 4.2Moz resource in South Africa’s Witwatersrand Basin, one of the world’s great gold fields. You can consider that a vote of confidence.

And if you’re in the market for a “junior company with good management focus and a growing portfolio of gold assets”, Grigor likes South Australian explorer Barton Gold (ASX:BGD), sitting on 1.3Moz of gold resources in the Gawler Craton.

The buzz has been building around uranium again – it put a run on last week to be the top performing major commodity for April, lifting nearly 6% to hit US$53.75lb.

Grigor’s not moved. There’s an element of “selective deafness” he says about clean energy potential of yellowcake and reckons the price doesn’t have a lot further upwards momentum.

“If it does,” he told Stockhead, “there are plenty of stockpiles and mines that can be reopened… Kazakhstan always has the potential to ramp up supply from low cost ISL mines.”

If you must, though, he says be careful when it comes to companies with low grades in the 200-300ppm U3O8 range. His preference is for the good stuff they find in places like Canada’s Athabasca Basin, home base for 92 Energy (ASX:92E).

In Wyoming, Peninsula Energy (ASX:PEN) expects to restart commercial production by mid-2023. And a bargain buy at home looms in Aussie explorer Alligator Energy (ASX:AGE).

“Alligator Energy offers both high grade unconformity projects in the NT as well as a good grade ISL project in South Australia,” Grigor says.

Barclay Pearce Capital

You might call this one a ‘picks n shovels’ trade.

If you believe green hydrogen’s going to save the world, you might try and pick up a hydrogen producer. Do your research first and you’ll quickly note that hydrogen is hard to store and transport, because it degrades regular metals. GreenHy2’s (ASX:H2G) solution to that is hydrogen storage in metal hydrides, which involves breaking up the hydrogen molecules and storing them on the ferrous titanium.

The H2G process is reversible and has no degradation effects on the host metal. BCP says this is the only commercial technology capable of 100% renewable fraction, and is completely green, using 100% renewable generation.

Bonus item – hydrogen stored in metal hydride tanks has no expiry date. BCP has a target price of 5c on H2G, versus the current price of 2c.

It’s also has a big target on A2 Milk (ASX:A2M) at $8.01, versus the current price of $5.40, bringing some hope to long-suffering investors who’ve ridden it from 2020 highs around $20, all the way down to $4 last year.

However, in the first half, signs of life. A2M delivered revenue of $783.3m, up 18.6% from the prior corresponding period (pcp). The company also reported bottom line NPAT of $68.5m, up 22.1% on pcp.

That has BCP confident A2M has effectively executed its China growth strategy, growing its infant milk formula sales by 18% in the country during the half when the market was down 12.5%.

There’s a not-so-small matter of decreasing births rates in the Middle Kingdom to deal with but BPC says it expects A2M to deliver positive earnings revisions of 3% for FY23 and future periods.

“We are updating our price target from $5.79 to $8.01, and retaining our HOLD recommendation,” the broker said.

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.