Ron Sargeant

Touchstone Asset Management Portfolio Specialist

Sargeant said at its core, investment comes down to buying companies with the best risk/reward trade-offs.

He said Touchstone’s investment process delivers this by building an optimal portfolio of quality stocks at a reasonable price.

“We call the process QARP and use qualitative and quantitative inputs to objectively and consistently assess quality – which is an excellent proxy for risk – and price relative to value, which is a key input for returns,” he said.

Sargeant said such a focus on quality would not normally draw you to the resources sector, however at the present moment it is interesting for a number of reasons.

“Firstly, looking longer term, there are good reasons to think resources will be a standout sector in the coming decade,” he said.

“Some of the more opaque markets such as lithium have experienced falls of 50% or more, however even the copper price has declined by more than 20% from its 2022 highs.

“Metals like aluminium are already trading well into the cost curve with any further weakness potentially creating attractive levels for buying the stocks which can enjoy the cyclical recovery and then structural growth longer term.”

Top Picks

The big Aussie BHP (ASX:BHP) is Sargeant’s preferred long-term investment within the sector given its favourable commodity exposures – principally iron ore and copper, high-quality asset base and low level of debt.

“Despite its significant size and rock-solid fundamentals, the stock price does periodically get impacted by short term weakness in either equity markets, China macroeconomic conditions and/or commodity prices,” Sargeant notes.

“This can create attractive and relatively low risk buying opportunities.”

Still at the large end, but with slightly higher risk Sargeant says is South32 (ASX:S32).

“It offers the growth opportunities that we see in the base metals as a result of decarbonisation, however without the risk that comes with being in smaller, single asset or single commodity stocks,” he said.

“The portfolio is being repositioned over time towards future-facing metals and is primarily exposed to the aluminium value chain.”

He reckons the company has a good balance sheet, strong returns, and is conducting a long-running buyback.

In the gold space, Sargeant likes Evolution Mining (ASX:EVN) which he acknowledges has been through a tough period with its Red Lake asset.

“We feel those risks are well understood and largely discounted in the share price,” he said.

“The more significant upside however, comes from simply delivering on Cowal followed by Mungari and Ernest Henry.

“These are quality assets with notable life extensions recently delivered.”

Sargeant said EVN held an investor day and two days of site visits at its NSW Cowal and Queensland Ernest Henry mines which Touchstone attended.

“The opportunity in the Ernest Henry operation was plain to see with a highly prospective geology and what looks to be conservative grades,” he said.

“Evolution Mining has restructured its debt and smoothed its capex profile which has given the company flexibility around its capital management program.”

Moving on to rare earths, Sargeant said in some respects Lynas (ASX:LYC) is riskier as it has a single mine with a single commodity exposure and can be subject to geopolitical risk with a problematic asset based in Malaysia.

“That said, the company is involved in the extraction and processing of rare earth minerals which are vital for electrification and decarbonisation,” he said.

“Demand is expected to grow substantially over the coming decade with limited new supply likely to lead to a significant supply deficit.”

“The stock looks reasonably priced following a pullback associated with the ramp-up of the new Kalgoorlie plant which will lower operational risk over the medium term.”


Guy Le Page

RM Corporate Finance

Our very own stock sleuth Guy Le Page has zeroed in on Greenland this week, where Energy Transition Minerals (ASX:ETM) – formerly Greenland Minerals Limited (ASX:GGG) – has its hands on the would-be developer of the giant Kvanefjeld in southern Greenland, one of the world’s largest under-developed REE-U deposits (11.1 million tonnes of rare earth oxide, 593 million pounds U3O8).

In its most recent presentation (May 2023), it claims output could supply 15% of the world’s REE requirements and 100% of the EU’s requirements.

The company has since embarked on lithium exploration on its Villasrubias lithium project in Salamanca, Western Spain, while it battles on with the Greenland Government.

The company completed a fairly compelling feasibility study back in 2015 however the Greenland Government has refused its application for an exploitation license.

A statement of claim is due to be lodged with the arbitration tribunal in Copenhagen by July 19, 2023. After 15 years and $130 million of expenditure you can sense an element of frustration among the board and shareholders.

In June of last year, the company entered into a litigation funding agreement with Woolridge Investments LLC, a subsidiary of Burford Capital Limited, to fully fund the arbitration costs in the dispute with the Government of Greenland and the Government of the Kingdom of Denmark.

Le Page feels a monster damages claim could be in the wings and if the Haig finds in favour of ETM, this could well and truly empty the coffers of the Greenland Government, and a reasonable chunk of the Danish Government for that matter.

At an enterprise value of around $20 million at 3.9 cents, Le Page reckons any sniff of victory in Greenland could put a rocket under the ETM share price.

Felicity Thomas

Shaw and Partners Senior Private Wealth Advisor

A couple from Felicity today in the uranium space.

Deep Yellow (ASX:DYL) hopes to become a tier-1 uranium producer with a developed portfolio of geographically diverse exploration, early stage and advanced uranium projects.

“The company is positioned as one of the few uranium companies globally able to execute to development and production, with credible multi-mine asset exposure,” Thomas explains.

Its flagship Tumas project tin Namibia has 3.6Mlbpa and a potential 30+ year Life of Mine (LoM).

Once in production, DYL will be the largest pure-play uranium producer on the ASX with a potential production capacity +7mlb.

Shaw and Partners has a 12-month price target of 0.92c on this stock.

One of her other yellow cake specials is NexGen Energy (ASX:NXG) which is developing the Rook 1 uranium mine in Saskatchewan’s southwestern Athabasca Basin, the largest development-stage project in Canada.

“Unlike Cigar Lake, the deposit is entirely contained in basement rock with no surface water,” Thomas says.

“A 2021 Feasibility Study outlined an initial 11-year life producing 29Mlb at AISC US$10/lb for US$1.3bn capex (11-month payback) making it the lowest cost uranium mine in the world.

“The company is now progressing to through the permitting and detailed engineering phase.”

Shaw and Partners has a 12-month price target of $10.75 on this stock.


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