The Europeans are coming – and these are the ASX small cap stocks they’re buying
The pool of European money targeting junior Australian miners is on the rise thanks to the booming electric vehicle market, says small cap expert Stefan Müller, CEO of Frankfurt-based consultancy DGWA.
How much European investor interest is there in junior Aussie miners at the moment?
Since the electric vehicle boom — which affects especially the German industry heavily — everybody here understands there’s a need for resources and mining and there’s a rethinking.
We’re talking about a market [in Europe] that is one of the biggest and wealthiest in the world. There’s a lot of appetite for investments of all kinds. It’s huge… billions.
However, the mentality of European investors is different to those in Australia, Canada and the US.
They invest long term. If they invest, they believe in it, they make a decision and they want to stick to that decision.
The advantage for companies is [European investors] don’t sell the stock.
European Lithium (ASX:EUR) is a perfect example. The resource is in Europe, which makes it even easier. However, nobody sells the stock.
It is among the most stable exploration companies in the world in the last weeks.
The number of European shareholders is rising every single day. We have more than 60 per cent now already in Europe.
Why is European investor interest in Aussie resources companies growing?
The major stock markets are very volatile now. Bond markets remain boring because interest rates will not go up substantially. So resources is back in focus.
We get a lot of people – wealth managers, asset managers who run funds of $100 million up to $1 billion for a group of people and who simply need resources exposure and they don’t know how to do it.
The size of investors who come into the market is getting bigger and bigger. The big funds are coming now, and I think in the next five years the European investor will be much more important in the resources market than they are now.
The Europeans are coming now. There’s huge money.
Some Aussie miners believe they have to compete with cryptocurrencies and medical marijuana for capital. Are European investors favouring these sectors over resources?
Resources is an up and down but you definitely know that after a long downtrend there will be a long uptrend because people need resources.
Serious investors haven’t invested in bitcoin or marijuana at all, but they will all invest in resources.
These hip sectors are more for gamblers, for rich individuals, of course for some funds, but the serious money is not going into that.
The Frankfurt Stock Exchange is not listing marijuana and bitcoin companies.
Which other Aussie miners are you helping to secure capital for?
Other than European Lithium we have Triton Minerals (ASX:TON), which is a graphite play. We have this Cape Lambert Resources (ASX:CFE) story, which we like a lot. It’s iron ore, copper, lithium, cobalt, it’s a bit of gold, but it’s a dynamic portfolio.
The Australians don’t like it since they want to play single-project stocks, but the Europeans love it because due to sector rotation they all know they have to go into resources now.
And Cape Lambert offers the more diversified portfolio in only one company – it will be a major success in Europe.
We have Latin Resources (ASX:LRS) because it’s cobalt and lithium and that’s what the Europeans love.
Jadar Lithium (ASX:JDR) is a very early stage lithium and cobalt play in Serbia, which is in the middle of Europe with issues. However, it’s a different risk profile and they will expand into other European regions soon.
We have a portfolio of companies with different minerals, different locations and different risk profiles. Every investment has its sweet spot and our network could theoretically buy them all.
Do European investors prefer exploration or more advanced plays?
In the past they have definitely preferred the production stage. They have no idea how it works from greenfields to production.
This surprises me a bit since you can perfectly compare it with the pharma companies.
It’s the same thing – you have all these little labs who are somewhere between stage zero and stage two.
And the success rate is almost the same – 5 per cent max. We teach these people and tell them the earlier you go in the higher the risk is, but the higher the risk is the bigger the profits can be.
Stefan Müller is the CEO of DGWA, the German Institute for Asset and Equity Allocation and Valuation – based in Frankfurt. The company is one of the leading German Corporate Boutiques for global small and mid-cap consulting and investments.
DGWA’s management team runs a 25-year track record in trading, investing and analysing SME’s around the world. It has been so far involved in more than 250 IPOs, financings, bond issues, dual listings and corporate finance transactions as well as corresponding road shows and awareness campaigns.
Mr Müller studied at Europe’s leading business school, INSEAD, in Paris.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.