SUNDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week
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Market strategist, Saxo Bank
With a “severe lack of investment in the mining sector for decades now”, Amir says Saxo is bullish on battery metals. In particular, aluminium, copper and lithium.
No small caps for Amir though; at least, not in this macro economic environment. Specifically, a high interest rate environment where Saxo has a preference for “large cap stocks because they’ve got the balance sheets to weather the storm”.
“Sure, (Rio has) a big proportion of revenue from iron ore, but a large amount comes from aluminium (about 30 per cent),” Amir says.
And for S32, “around 54 per cent of their revenue is from aluminium, so more than half,” Amir says.
Amir’s go-to copper stock is BHP (ASX:BHP).
“One of the world’s biggest producers of copper,” Amir says. “BHP makes about 30 per cent of their revenue from copper – or $17 billion.”
When it comes to upstart lithium, Amir plumps for a couple of household names. She says global giant Albermarle (NYSE:ALB) is “a proxy for the lithium sector and has contracts with most the EV names that you can think of and see on the street such as Ford, Tesla, Renault, and General Motors – pretty much the majority of EV producers.”
And back home, Amir likes Pilbara Minerals (ASX:PLS) – “a first mover in the lithium space in Australia” who just declared their inaugural dividend.
“They’ve never paid a dividend before and beat profit expectations, setting the path for a very strong year ahead.”
There’s been quite the sell-off in the darlings of the ASX resources mob. You don’t have to look far to see a lithium stock hit by anywhere between 30-60% in 2023.
Spot prices for lithium carbonate have tumbled from $US87,000/t to $US48,000/t, but Garimpeiro “would only get concerned if prices for lithium carbonate were to fall below $US10,000/t”, like they did a few years ago. But that, he says, is not going to happen.
Why? Adamas Intelligence recently noted 488.3GWh of battery capacity was deployed globally in newly sold passenger EVs in 2022. That’s 70.2% more than 2021.
This juggernaut requires incentive prices “well north of $US20,000/t for carbonate/hydroxide, and $3,000/t plus for spodumene… well into the next decade”.
So who’s Barry backing in the current sell-off? Back in April last year Ioneer (ASX:INR) had a $1.6 billion market cap at 77c. Its story, Garimpeiro says “has got better, and better” – yet here we are with INR trading at… 30c a share for a market cap of $630m.
In fact, the story got better after Ioneer dealt with the issue of an endangered plant known as Tiehm’s buckwheat on its Rhyolite Ridge lithium-boron project in Nevada. Nothing a botanist, mine redesign and a replanting program can’t get over, as it turns out.
The project is huge, and could be producing in 2026. And some $1.2 billion in conditional government loans and a buy-in from South Africa’s Sibanye-Stillwater should cover the development.
Here’s the rub though. A 2020 feasibility study showed potential annual earnings of $US288m over multiple decades. At the time, the price assumption for lithium carbonate was $US11,740/t…
In 2008, Popple set up Brookville Capital, and he now writes the Brookville Capital Intelligence Report which covers gold and silver mining stocks.
Timing is everything, because now, as it turns out, is a great time to think about gold. A bull market is approaching as people wake up to the devastating impact inflation and recession could have on their investments.
We’re working our way through his book, but here’s a quick primer. It’s Popple’s gold stocks “Dream Team”, where he posits the gold-mining universe as a fantasy football team.
Forwards – They’re the explorers. There are a lot to choose from, so maybe DYOR (do your own research) there.
“If you want a good team, it makes sense to have players in all positions, so I would look to have a broad portfolio,” Popple says.
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.