SUNDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week
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The sky has not fallen in on the copper market, yet the share prices of the ASX-listed copper stocks have been taking a pounding.
Garimpeiro went looking during the week for junior copper explorers with small market caps and active exploration programs on rated projects which give them a shot at the big time.
The common theme between the two is that rock-kicking types have told Garimpeiro that their exploration programs have the potential to excite.
Firetail: It has a bunch of lithium and nickel interests in Australia but the excitement around this one is what it might hit in its just-started exploration program at the Picha copper project in southern Peru, to the west of Lake Titicaca.
Green rocks at surface, 100-year-old copper scratchings, producing mines to the north and south, porphyry potential and an active epithermal system potentially juicing up the copper mineralisation – it’s got it all from a target perspective but has been totally overlooked in the modern era.
The maiden drilling campaign by Firetail involves about 5,000m across four targets.
Firetail was trading at 10c mid-week for a market cap of $14.8m.
Strategic Energy Resources: Trading mid-week at 1.3c for a market cap of $6.5m? That’s not a lot for an ASX company of any description let alone a “science-driven’’ explorer for Tier 1 nickel-copper-gold discoveries in greenfield areas.
More to the point, a drill rig is whirring away at a joint venture SER has with Fortescue in Queensland at the Canobie prospect. Fortescue can earn 51% by spending $4m and can get to 80% by spending another $4m.
It fits SER’s modus operandi of working the science to come up with fresh Tier 1 targets and bring in a group with deeper pockets to fund the drilling. Nothing wrong with a $6.5m junior owning 20% of a big discovery.
Sanlam Private Wealth
From Faulkner’s point of view, it’s all about the energy sector – oil and gas and uranium – which he says will remain a screaming theme for the next few decades.
“There’s a clear imbalance and undersupply at the moment which is partly driven by a lack of new supplies and developments,” he says.
“On the uranium front, supply generated from past denuclearisation is depleted now with no new supply sources coming on from the more traditional side of the equation either.”
“Demand is also starting to pick up as Japan, China and Western countries turn on old and new reactors to fill the void from the energy transition taking place now as we all aim for net zero.”
“Looking ahead to CY2023 and into 2024, sentiment can’t get much worse so I am quietly confident we will get a rally into the year end and in the first quarter of CY2024.”
Two commodities that Faulkner expects to perform well next year is nickel and copper, saying “there are supply issues with both commodities but probably more so with copper with the whole electric vehicle and green energy transition”.
Faulkner is a shareholder in all four companies mentioned. Sanlam Private Wealth has raised capital for all four stocks and has earned fees for those services.
Faulkner’s number one stock pick is $17m market cap explorer Western Mines Group (ASX:WMG) .
“They have made a significant nickel sulphide discovery over in Western Australia at a project called Mulga Tank – its last two drills have hit the jackpot with the discovery hole returning a 640m intersection of nickel at 0.30%,” he says.
“The follow-up hole hit 840m at 0.28% nickel with some copper and cobalt as well – it’s a significant discovery, and it is turning into a very large deposit.”
WMG’s head geologist and technical director is Dr Ben Grguric, a former BHP Nickel and Norilsk Nickel executive who Faulker says has been associated with a number of similar discoveries.
“If you talk to Ben, Western Mines Group have done some early metallurgical testing and one particular test is called ‘aqua regia’, which showed over 90% of the nickel is contained in sulphides,” he says.
“Ben used to be one of the technical experts at BHP’s Mount Keith Nickel mine, one of the company’s most profitable and largest nickel mines in Australia – if not the world – and it is looking like an identical Mount Keith deposit with the possibility of a higher-grade Perseverance and/or Kambalda Hybrid system.”
Faulkner has no doubt WMG will find high-grade areas at the project, with two drill rigs currently running full-time at the site.
“They will come out with an exploration target and resource later this year which will add value to their share price, especially if they make a higher-grade discovery.”
Faulkner’s next pick is QMines (ASX:QML), the owner of the Mt Chalmers project in northern Queensland and the Develin Creek project, which the explorer acquired in January 2021.
“Develin Creek has an existing 3.2 million tonne resource, a mining licence and is only 17km northeast of Rockhampton, so very close to infrastructure and a major town,” he says.
“The company has delivered five resources at both projects and is continuing to drill out its resource at Develin with their own drill rig, which means they aren’t exposed to the cost and availability of equipment.
“For the resources QML has, I think it is highly undervalued with a market cap of around $20m.”
Faulkner’s third pick is Golden Mile Resources (ASX:G88) whose flagship Quicksilver nickel-cobalt project about 288km southeast of Perth holds a resource of 26.3Mt and 0.64% nickel and 0.04% cobalt.
“Their Yuinmery gold project is in the highly prospective Goldfields region and has just completed an RC drilling program,” he says.
“The company is probably less developed when compared with QMines and WMG but it only has a market cap of around $10m, so there’s plenty of exploration and development upside potential.”
His bonus ‘under the radar’ pick was Taiton Resources (ASX:T88), whose flagship Highway project over in South Australia’s ‘elephant country’ boasts primary real estate in the Gawler Craton.
The project is surrounded by the likes of Prominent Hill, Olympic Dam and Carrapateena with their most recent announcement highlighting encouraging geological results and a 2.5km molybdenum target.
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.