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

Guy Le Page

RM Corporate Finance

Our Guy le Page has noticed a few rumblings in West Africa this year, with the recent Wagner-backed coup d’etat in Niger not making life any easier in the region.

There have been some security concerns in Burkina Faso, but this hasn’t stopped West African Resources (ASX:WAF), chaired by regular NextGen gym goer Richard Hyde, from powering on at its Sabrado Gold Mine.

Some recent USD strength and political instability have seen a sell-down in WAF from just over $1.40 down to around 79 cents per share.

Macquarie Research, however, has a some-of-parts valuation of $1/60/share which Guy wouldn’t disagree with.

The company, which has total JORC Resources of 80Mt at 1.9 g/t for 4.9Moz gold, appears on track for FY 2023 production of around 210,000-230,000oz Au at an all-in sustaining cost of under US$1,200/ounce and is aiming for around average annual production of around 185,000ozpa over the next 10 years or so.

This is projected by Macquarie to deliver some substantial free cash flow over the coming years

“There is plenty of earnings upside with Kiaka Gold project to produce over 200Koz of gold per annum over an 18 year (from mid-2025) mine life,” Le Page says.

Guy is a big believer that Australian mining companies operating in Africa have been good corporate citizens and have been adept at pushing through periods of instability, and reckons that when sentiment turns around, WAF are going to have their day in the sun again…

Argonaut

Broker

Broker Argonaut has initiated a coverage and put out a Speculative Buy recommendation on Northern Minerals (ASX:NTU) , with a target price of 6.4c (vs current price of 3.4c).

NTU’s geographically remote Browns Range rare earth element (REE) project sits in northern Western Australia, near the Northern Territory border, with a total MRE reported as 10.8Mt grading 0.76% TREO.

The unusual xenotime mineralization hosted at Browns is enriched in high-value heavy rare earth elements (HREE) dysprosium (Dy), and terbium (Tb).

NTU previously built and operated a large-scale pilot plant operation for the production of a mixed rare earth carbonate, with ore sourced from the Wolverine and Gambit West deposits.

“A revised DFS is currently assessing the viability of a ~910ktpa mining operation for the production of a xenotime mineral concentrate for sale to corporate partner Iluka Resources (ASX:ILU) ,” noted Argonaut.

In October 2022, NTU and Iluka announced a strategic partnership.

The agreement was framed around the supply of xenotime concentrate by NTU to Iluka’s Eneabba REE refinery, and as part of the deal, the two parties agreed to a conditional funding package of $73 million.

“This change in strategy reduces financial and technical risk for NTU by eliminating the need to construct and operate a dedicated hydrometallurgical refinery,” said Argonaut.

“Instead, NTU will restrict its activities to mining, ore sorting, and flotation beneficiation.”

The broker also said NTU could provide Western countries with a diversification away from China.

“If Western economies wish to develop REE magnetic supply chains external to China, new sources of metals must be incentivised by robust market pricing.”

Andrew Chapman

Merchant Group Australia

“What sector’s not popular?” Chapman said.

“We’ll always look a little bit contrarian in terms of what sector we’re looking at – the last thing I’d be doing at this point in time is a lithium deal because that sectors’ been super-hot and been really running.

“Generally, in our fund, we look at sectors that are not hot.

“We’re really focused on the biotech sector at the moment because that’s an area that I think is certainly the most undervalued, or unloved, and under-owned in the market at this point in time.

“In the overall biotech sector, our main holdings include Race Oncology (ASX:RAC), which recently launched its new corporate strategy to focus on driving lead drug bisantrene’s commercial potential – with a clinical focus on investigating its anti-cancer properties.”

The secondary focus is pursuing increased anti-cancer/FTO benefits of bisantrene, combined with current standard of care therapies in acute myeloid leukaemia (AML).

Then there’s Arovella Therapeutics (ASX:ALA), which saw its share price more than double back in April after saying that lead drug ALA-101 confers significant anti-tumour effect and survival benefit in aggressive leukaemia models.

Clinical data indicated that ALA-101 has the potential to be a novel ‘off-the-shelf’ cell therapy to treat CD19-expressing leukaemias and lymphomas.
Neurotech (ASX:NTI) is following in the footsteps of 2023 biotech market darling Neuren Pharmaceuticals (ASX:NEU) with another possible treatment for the rare neurological and developmental genetic disorder Rett’s syndrome.

NTI recently received Human Research Ethics Committee (HREC) approval and Clinical Trial Notification (CTN) scheme clearance by the Therapeutic Goods Administration (TGA) to investigate the use of NTI164 – the company’s proprietary cannabis-derived drug formulation – in female Rett Syndrome patients.

The progressive neurological disease occurs almost exclusively in girls, with an incidence of one in 10,000 female live births which, executive director Dr Thomas Duthy says, equates to a US$2 billion market opportunity.

Exosome and precision diagnostics company Inoviq (ASX:IIQ) signed a deal last month with Promega which will see the companies co-market a wide range of Promega manual and automated nucleic acid extraction reagents and instruments combined with the company’s EXO-NET exosome capture tools to enable their exosome isolation, biomarker discovery and diagnostics research.

Inoviq also recently reported high accuracy (87%), sensitivity (81%), and specificity (93%) results from an independent clinical validation study of its SubB2M/CA15-3 test for breast cancer detection, and is also developing an

Exosome-based Ovarian Cancer Test (EXO-OC Test) for early detection of ovarian cancer in asymptomatic women.

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.