MoneyTalks: Argonaut's David Franklyn backs these 15 miners to navigate a stormy market

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Argonaut Funds Management’s executive director & head of funds management David Franklyn, who manages the Argonaut Natural Resources Fund.

Anyone can see value in good weather, but what about when things get all dark and stormy.

No, we’re not taking about the cocktails in the Gold Bar.

We’re talking about the commodity market, where only gold and copper seem to be holding the fort after a torrid few months in battery metals in 2024.

With that in mind, we plucked Argonaut Fund Management’s David Franklyn out of the throng at the Diggers and Dealers Mining Forum in Kalgoorlie to give us his take on the lay of the land, the commodities that look like outperformers and the companies he backs to – like the winners of the TV show Survivor – outwit, outplay, outlast.

Market volatility

Diggers and Dealers presenters had the misfortune to rock up at Australian mining’s biggest party as market volatility hit like a twister in Oklahoma.

Bloodshed on markets on Monday and Tuesday left the mood downbeat.

The recent turbulence has come from four sources, Franklyn thinks.

First there’s the overvaluation of the US tech sector, where mini-bubbles have been popping as disappointing earnings results flow through, second there’s the unwinding of the Yen trade in response to rising interest rates in Japan, third is weak economic growth data in the US playing on the demand side outlook as is, in particular for miners, fourth China’s soft economy.

In the wash-up, the big focus at Diggers was a shift from battery metals and industrials back into precious metals.

“I think what’s interesting about Diggers is gold’s become the clear focus,” Franklyn said.

“Battery metals and battery materials are sort of out of favour.

“And everyone wants to know about gold because it’s the one commodity that’s been very strong over the last 12 months. So I think that’s pretty instructive.”

While some fund managers are contrarian, looking for unloved sectors of the market that will pay off long-term as the cycle turns, Franklyn says Argonaut has the view of looking at what the market is telling you.

“While we say that’s an opportunity to potentially look to acquire some of those while they’re out of favour, the primary area of focus is looking for the commodities that have either some growth, like gold, or else some stability,” he said.

“When you get to a market where commodity prices are falling, you’ve got to try and control the controllable.

“And so what you have got to do is look at the quality of the asset, what its cost base is, because they’re the ones that will see themselves through that tough market.”

Franklyn has five main areas where Argonaut has focused the natural resources fund in the current macro environment.

Gold

“If I look at our portfolio today, gold is is a key weighting, it’s probably 15% of our natural resources portfolio,” Franklyn said.

Stocks to watch

“So looking at gold – the ones we like and I think the Diggers presentations really support this – Northern Star Resources (ASX:NST) is really a standout where it’s moving from 1.6 million ounces per annum to 2Mozpa by 2026,” Franklyn said.

“It’s doubling the size of its mill at KCGM. And it’s just moving into a period of cash generation, which we like.

“I think the merger between Westgold Resources (ASX:WGX) and Karora is also really interesting in that it’s now emerged as a 400,000ozpa producer and I think there’ll be a rerating as the market considers that.

“On top of that, you’ve still got a big resource and reserve base: 13Moz of resources and 3Moz in reserves, which is pretty good.

“Then we like probably the two standouts quality wise over the last few years, which is really Capricorn Metals (ASX:CMM) – you’d back them to develop the Mt Gibson project over the next few years, and also Genesis Minerals (ASX:GMD) with Raleigh Finlayson looking to consolidate the Laverton and Leonora regions.”

Copper

“We still like copper, we’ve edged our exposure back a bit over the last month, just as there’s concerns about growth coming out of the US, but we like that in the medium to long term,” Franklyn said.

Stocks to watch

“We do have some concerns in the short term, we’ve edged our exposure back from over 20% to around 10% to copper,” Franklyn said.

“The ones we like are Metals Acquisition (ASX:MAC), which has a great asset in Cobar.

“Sandfire Resources (ASX:SFR) we also like, we think that they’re doing all the right things. They’re reducing debt, starting to generate more cash, and as a development asset FireFly Metals (ASX:FFM) is also good.”

Met coal

“I think met coal is really interesting, in that you haven’t seen a lot of investment in the sector but demand is still pretty stable and the outlook for demand particularly from areas like India is very strong,” Franklyn said.

“So we see that as one commodity where valuations aren’t stretched, the demand-supply outlook still looks pretty good and there’s some opportunities there.

“We’re just under 10% in met coal.”

Stocks to watch

“On the met coal side, I think Coronado is a real standout,” Franklyn said.

“Their second quarter result was outstanding.

“Costs are coming down strongly and more recently they’ve just announced a dividend and the group’s debt free.

“There’s still some operational challenges to get through there, but they’re showing that they’re moving in the right direction. I think that’s a real standout.”

East coast gas

“Clearly there’s an emerging gas shortage in the East Coast, especially the Melbourne, Sydney, Adelaide markets,” Franklyn said.

“So we’re looking to an exposure there through companies like Beach and Cooper Energy.”

Stocks to watch

“Cooper Energy (ASX:COE) still has a bit of debt, so there’s some risk there, so we’re probably more favouring Beach Energy (ASX:BPT) at this point,” Franklyn said.

Uranium

“Uranium I think will be part of the energy mix. It’s obviously taken a bit of a hit over the last week or so,” Franklyn said.

“But we think that holding some uranium probably makes sense over the medium term.”

Stocks to watch

“I think NexGen Energy (ASX:NXG) have an asset (Arrow) you have to look at on the uranium side,” Franklyn said.

“And then Denison Mines (TSX:DML) and Fission Uranium (TSX:FCU) are two other Canadian-based projects. And typically our exposure is through the Canadian-based projects where we think there’s better value than the Australian-listed ones.”

Franklyn says Argonaut would like to see a bigger premium, but is broadly supportive of the proposed merger between Fission and ASX-listed Paladin Energy (ASX:PDN).

Other plays

Lithium is light on at the moment after a near 90% price collapse in the past year. But Franklyn still likes the look of Pilbara Minerals (ASX:PLS) as Argonaut’s favourite producer and Patriot Battery Metals (ASX:PMT) for a longer-term development play.