High Voltage: 10-bagger or heartbreak? Risky jurisdictions deliver both for ASX investors
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Our High Voltage column wraps all the news driving ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, manganese, magnesium, and vanadium.
To find those 10- or 20-bagger stocks you need to be prepared to take political risks and exploration risks, says well-known mining investor Rick Rule.
“You are going to have to go to jurisdictions where you are less comfortable, where the industry is less comfortable and where fewer people have gone before,” Rule says.
“If you are looking for a 5Moz deposit in the Victorian goldfields you are assuming you are smarter than hundreds of years of geologists that went before you, which is a lousy assumption.
“Can it happen? Of course. It is a wonderful place to look for a deposit – just look at the Swan Zone at Fosterville. But is it likely? No.”
Big Australian mining companies have historically preferred to operate in ‘Tier 1 jurisdictions’ like Australia, the US and Canada; locales known for their relative geopolitical stability, legislative consistency and wealth.
But increasingly the need to source scarce minerals like lithium, copper, cobalt, and nickel, has seen these major mining houses increase their exposure to operating in the Third World.
There are plenty of miners and explorers who have done well in non-Tier 1 jurisdictions. Goldies West African Resources (ASX:WAF) and Perseus (ASX:PRU), for example, are up +350% and 515% respectively over the past five years.
But for every big win, there are losses.
Last year, a coup d’état in Myanmar saw the suspension in trading for Myanmar Metals – now Mallee Mining (ASX:MYL) – which was looking to develop the historical Bawdwin lead-silver mine.
Bawdwin is a monster multi-billion-dollar project comprising JORC reserves of 18.4 million tonnes at 6.4 per cent lead, 5.4oz/t silver and 3.4 per cent zinc.
The definitive feasibility study outlined a $300m CAPEX and a 13-year mine life at 2 million tonnes per annum, with a four-year payback.
Bawdwin was going to be the world’s #3 lead producer and a top-10 silver producer.
But the coup put an end to that dream for Mallee, which accepted a lowball $30m offer for its share in the project and is now looking for something new in Australia.
Lithium favourite AVZ (ASX:AVZ) is the latest ASX stock to potentially come unstuck in a Third World jurisdiction, where many of the rules and regulations we take for granted in Australia often do not apply.
While the details are still hazy, China’s biggest gold miner Zijin has laid claim to a share in AVZ’s ‘Manono’ project in the DRC.
Zijin says it has secured a deal for a 15% stake in the JV company which hosts the Manono lithium and tin project from Cominiere, a mining company 90% owned by the DRC State.
That is a headache for AVZ, which has long claimed to hold the rights to 75% of Manono.
The Zijin media statement will do little to stem fears from within the investment community about the jurisdictional risk involved in operating in Africa and the grip Chinese business interests have on the continent.
AVZ shares, currently in a trading halt, have now fallen 57.6% after hitting record $1.33 on April 4.
A few fires trying to be put out by $AVZ holders tonight. Some solid DD around and also some baggies crossing fingers and toes. A current market cap of $2.7 billion and a current unfunded project worth $1.4 bill which they own between 36% to 75% ( no one knows) pic.twitter.com/1lyCvJVbhZ
— SPEC Capital (@SPECCAPITAL) May 9, 2022
To limit global warming to 2 degrees Celsius will require almost $US2 trillion in new capital investment over next 15 years, Anglo American Group CEO Duncan Wanblad said on May 9 at the Investing in Africa Mining Indaba 2022.
A lot of this goes toward meeting demand for metals like lithium, graphite, nickel, copper, and manganese, which makes it an “era defining” opportunity for the mineral-rich continent of Africa, Wanblad says.
“We cannot miss an era defining opportunity… We are setting up for a new economy and the African continent should and can play a significant role,” he says.
However, he said steps would need to be taken to ensure the transition was not a missed opportunity for Africa. Government policy should support regulatory certainty, as well as the rule of law, security, and the rooting out of corruption.
S&P Global Market Intelligence analysts are predicting the #Lithium Carbonate market to be in a 50,000t deficit within the next four years
We do expect the LCE price to stabilise over the coming 12 months & hover around the US$25,000/t
No end in sight for Lithium demand pic.twitter.com/ZqqXV3OcEH
— Michael Bond (@MichaelBond_SP) May 10, 2022
Here’s how a basket of ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, magnesium, manganese, and vanadium is performing>>>
Battery metals stocks missing from our list? Shoot a mail to [email protected]. Be nice, he’s fragile.