Guy on Rocks: The junior end of the market is hotting up
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‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week.
Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
The gold index is off 20 per cent in the last couple of months, which is not unexpected.
As we highlighted earlier, gold was either going up or valuations were going to come down, and we saw those values come down. So I think it’s getting into a good buying range again.
There’s been a lot of conflicting information out there about whether the improvement in the economy and the vaccine will take the edge off gold, but I’m still maintaining a contrary view where we haven’t got our $US2300 target, but I still don’t think that’s too far away.
Most of the media in the last couple of weeks has been around coal, which is probably the only negative part of the commodity narrative at the moment unfortunately.
A lot of the chatter has been about iron ore and the big news of it hitting over $US160 tonne for 62 per cent fines, which equated to over $210 a tonne.
I noticed that there is some concern among industry commentators about the steel margins in China, and it was interesting to see that Rio Tinto (ASX:RIO) had entered into discussions with the China Iron and Steel Association to work with iron ore consumers to review the pricing mechanism for the steelmaking ingredients.
They were obviously concerned that the prices, while favourable for iron ore producers, were putting a bit of pressure on the steel industry. It’s not often you see a mining company trying to make concessions on spot prices. It certainly doesn’t work the other way around when prices have collapsed, that’s for sure.
It looks like the deficit for the seaborne market next year is going to be about 35-40 million tonnes.
We’re still not seeing any positive news really come out of Vale. The company has been hit with seasonal rains, Australia’s shipments are down fractionally and we’re in the cyclone season. So that seems to have spawned a lot of activity on the junior end of the market.
It appears there’s a bit of a rotation back into risk assets again. This feels a bit like 2005 and we’re moving into a pretty strong commodity market. Nickel is up over $US17,000 a tonne and copper is trading very strongly, so I think that should give the rest of the market another lift.
It was another fascinating week on the junior end, with plenty of action across the board.
On the iron ore front, Fenix Resources (ASX:FEX) continued to do good volumes, but a couple of other juniors are starting to move.
Recently listed Akora Resources (ASX:AKO) I think is one to watch. That listed this year on the back of some very high-grade Madagascan iron ore resources. The company has some pretty impressive exploration targets.
Akora’s Bekisopa project in Madagascar sits a couple of hundred kilometres from the coast, but with the sort of exploration targets and the grades they are getting — over 100 million tonnes at 65 per cent iron ore – it’s very impressive.
The company also has some magnetite, which is probably less of interest, of around 30 million tonnes, but it is going to have a very aggressive exploration program.
The Bekisopa project has been drilled in the past, about 10 years ago, and they were getting pretty decent intersections. So I think that is one to watch.
Akora closed at 56c on Wednesday, but edged back to 42c on Thursday, so I think there’s definitely some trading opportunities there. It currently has a market cap of about $28m.
I think the news to look out for will be the outcome of the drilling program, which is underway, and results should be out in March quarter next year.
That’s had a pretty strong move up from its 25c listing price to where it is today, but there’s still plenty of room to grow by the look of it.
The other stock that is moving and is due to deliver its first shipment next month is Venture Minerals (ASX:VMS).
The company hit a 52-week high of 6.7c on Wednesday.
I think the numbers published in the feasibility study some time ago are looking very conservative. They’ve got a market cap of about $64m at the moment, but plenty of activity on their other projects as well.
I think there still looking to drill those Golden Grove lookalikes.
One I’ve been following for a couple years now, which has just completed a capital raising with some pretty interesting investors – well known resources investor Tolga Kumova put in $1m in and retail mogul Gerry Harvey was also a subscriber in the recent placement — is Meteoric Resources (ASX:MEI).
The company has a gold project in Brazil called Juruena. It’s very high-grade, hasn’t had a lot of work done on it recently, but that is looking really interesting.
Meteoric previously reported drill results of 14m at 10 grams per tonne (g/t) and 14m at 11g/t. So it looks like the project has better than half a million oz potential at some pretty high grades.
The company is cashed up with $4m in the bank and starting to drill on its Butcher’s Creek project, which I think is interesting.
The other project Meteoric is looking at having a crack at is Palm Springs, which has returned some good intersections like 69m at 4.4g/t. I think it’s an interesting project, but I think the Juruena project is where most of the action is.
Meteoric closed Thursday at 6.8c giving it a market cap of about $81m.
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada and the United States.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.