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

Racking up the company dime at the annual Diggers & Dealers Mining Forum in Kalgoorlie this week, Stockhead’s own mining boffin Reuben Adams has sunk in some intriguing sentiment from the rare earths circuit.

Reubs says Lynas (ASX:LYC) is running the ruler over acquisitions, including ionic clay projects, to enhance flagship hard rock operations at Mt Weld in WA.

The ionic clay deposits, while very low grade, typically have more of the heavies, which are used in the production of high-performance permanent magnets.

Rare earth permanent magnets are a crucial component in wind turbines and in the drive train of hybrid and electric vehicles.

Finding a complementary clay deposit for the light-dominant Mt Weld “is certainly what we are looking at”, LYC boss Amanda Lacaze told our Stockhead Reuben at the forum.

“Ionic clay processing has had a bad rep for many years for the way it was originally prosecuted in China, where they basically just pump the earth full of ammonium sulfate and catch the minerals as they leached out,” Lacaze says.

Long-term demand is still expected to grow strongly from 260-280,000tpa rare earth oxides (REO) in 2022 to 340-370,000tpa in 2027.

Of that, magnet rare earths are the major growth driver. There is an “onwards growing deficit” of magnet rare earths from 2023 onwards, says Australian Rare Earths (ASX:AR3) non-exec chairman Professor Dudley Kingsnorth.

By 2030, that deficit could reach 20-40,000tpa – a significant figure.

“But there are better ways of doing it today. It will remain an important source.”

Tim Hoff

Canaccord Genuity Senior Mining Analyst

Canaccord analyst Tim Hoff says the mining and metals sector is defying that trend, as long as your company is making discoveries and investing in delivering exploration and production success.

He says the Diggers & Dealers Mining Forum has shown the resource sector in Australia is very much alive and well, and open for opportunities for the punter on the street.

“I think probably the key themes that we can see in the event is that investors are still very much interested in metals and mining, but they’re paying for discovery and they’re paying for delivery,” he said.

One of the big stories Hoff says, is Azure Minerals (ASX:AZS), exciting analysts, brokers and investors alike.

Azure has risen more than 1100% this year after hitting massive pegmatite-hosted lithium at its Andover project in the Pilbara.

Some analysts have said they expect drilling to date already points to an economic resource of 60-70Mt. The company formally posted an exploration target of 100-240Mt at 1-1.5% Li2O on Monday, something that could be, MD Tony Rovira told delegates at Diggers & Dealers, as good as a top 5 hard rock lithium resource globally.

Hoff says the response to Azure shows the market will still reward Tier 1 discoveries.

“Looking at it and the connection between results and where people interpret value, that gap has closed. It’s happening very quickly these days,” he said.

And while Gascoyne Resources (ASX:GCY) was a disappointment for a long time, struggling to make anything work at the Dalgaranga gold mine, new management led by Northern Star geo Simon Lawson has turned things around with its focus on the Never Never high-grade gold discovery.

It now contains 3.83Mt at 5.85g/t gold for 721,200oz.

“I’m not a gold analyst, but I’ve been singing the praises of Gascoyne during the conference, I think that that discovery of the Never Never is something that’s unique and interesting,” Hoff said.

“Where we see a lot of one gram per tonnes, all of a sudden we’re seeing five grams per tonne. So I think that’s fairly significant.”

Hoff also likes the look of WA1 Resources (ASX:WA1), which is on the trail of a high grade niobium discovery on the WA side of the NT border in the West Arunta region of the mining state.

It could provide diversity of supply in a market dominated by a single mine in Brazil. Niobium is used widely but in small quantities in high-strength steels and superalloys for jet engines and rockets.

“The grades stand out as a class of their own and the grades and scale is sort of two important factors, but it’s very much unknown in the market,” he said. “Grades and tonnes, on that basis alone it’s starting to shape up as a significant resource.”

Hoff is also keeping an eye on neighbour Encounter Resources (ASX:ENR), which has hit some niobium results on its own tenements but is yet to pull the excitement around WA1, up 4500% in the past year and still with a market cap of just $220m.

Wilsons Asset Management

Investment Manager

Wilsons says Rumble Resources (ASX:RTR) could double on zinc demand with an Overweight rating and a 40c target price (vs current price of 18c).

Rumble is focussed on the early stage Earaheedy Zinc-Lead project, located 110km northeast of Wiluna in WA.

The explorer declared a maiden resource for Earaheedy in April this year of 94Mt @ 3.1% Zn+Pb and 4.1g/t Ag (at a 2% Zn+Pb cutoff), playing the project as one of the largest zinc sulphide discoveries globally in the past decade.

“This is only the starting point for how large Earaheedy could become,” notes Wilsons.

“We believe Rumble is only in the early stages of the discovery phase, and expect ongoing positive exploration newsflow ahead of the commencement of a scoping study late this calendar year.”

Meanwhile, Wilsons believes zinc has been somewhat ‘forgotten’ in the battery material/electrification thematic which has taken off in recent years.

“We would argue that zinc is critical to the successful decarbonisation of the economy, and is particularly leveraged to any potential Chinese stimulus expected over the coming 12 months.”

Euroz Hartleys

Broker

Broker Euroz Hartleys has a Buy recommendation on specialist underground explorer, Develop Global (ASX:DVP) , with target price of $3.90 (vs current price of $3.08).

Run by industry titan Bill Beament of Northern Star Resources’ fame, DVP has a two-pronged strategy: to mine its own resources, and to help others mine theirs.

Euroz Hartleys believes the ‘secret sauce’ for this specialist underground miner is its capability and capacity of the mining team to keep development ahead of production.

“In this way, Mr Beament has made it clear what his focus is; and it is in the name, DEVELOP,” said the broker.

The company currently has circa $61 million in cash, including money from the recent capital raise.

Meanwhile, progress at the Bellevue Gold (ASX:BGL) contract continues with 3km of underground development completed for the quarter, which generated $23m in contract revenue.

“We look forward to the commencement of production in August, which will see this top line number improve as production ore is moved out of the hole and ore-haulage rates are activated,” said Euroz.

With a growing portfolio of future-facing metals, fully leveraged to commodity prices, Euroz sees strong upside to DVP.

“We like the company strategy which puts people first, coupled with other initiatives which closely align with the workforce of the future – a strategy that places it well to attract and retain the next generation of talent.”

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.