MoneyTalks: Discovery Capital’s 5 small cap picks primed for gold, graphite and copper exploration

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 Discovery Capital Partners, founder and managing director Adam Miethke as well as director Kale Pervan.

Discovery Capital Partners is an independent corporate advisor specialising in small to mid-cap companies within the metals, mining and other identified growth sectors.

Having worked for tier 1 mining firms and corporate buy and sell-side roles, Miethke understands the value drivers for resource stocks at all stages of their lifecycle.

Despite the lack of interest and liquidity in the commodities space over the last 24 months, he believes the market is on the upswing for gold, copper and graphite – the resources people haven’t wanted to talk about for the last few years.

“When interest starts coming back into a space like metals and mining it tends to go to the bigger end first,” he says.

“Once the big end of town gets more expensive and fully valued, then that interest starts to trickle down the curve into the smaller cap stocks which is what we are starting to see now.

“Seeing that volume of liquidity coming back is a really good, healthy sign,” he says.

“It has allowed us to raise money for our target clients so that they can go out, make more discoveries and build their projects.”

ASX juniors with promising assets

Pervan’s experience in the resource sector includes a stint as mining engineer for mid-tier producer Regis Resources (ASX:RRL), the third biggest gold miner on the ASX.

He says there’s a larger gap and value discrepancy between the small cap stocks and the bigger end of the market.

“The middle component of the market, which usually includes the developers and advanced resources, is pretty much barren due to opportunistic M&A by larger producers in the down cycle and this creates a bit of an opportunity for small cap stocks,” he says.

“We believe there aren’t enough ASX junior companies out there that will get developed so when we see an earlier stage project with promising assets, we’re very keen to get behind them.”

This graphite stock’s got skin in the game

One such company is Kingsland Minerals (ASX:KNG), owners of Australia’s biggest graphite project – ‘Leliyn’ in the Northern Territory.

KNG significantly de-risked the project last week after producing commercial grade concentrate of +94% total graphitic carbon.

It is now planning to conduct tests to assess the production of spherical graphite, the product that is consumed as an anode in lithium-ion batteries.

“Graphite is one metal that doesn’t get spoken about very often even though there’s more graphite used in an electric vehicle than any other metal,” Miethke says.

“Companies like Kingsland are plugging that gap in the market through their new discovery, and we think there’s exciting times ahead.

“It is a really simple, large project with all the infrastructure, it’s close to the port of Darwin which means it is an alternative outside of Africa for end users wanting graphite from Australia,” he says.

“The directors also have a lot of skin the game holding about 21% of the stock and they are just about to drill their Lake Johnston lithium project – close to Wesfarmer’s Earl Grey asset – which looks exciting as well.”

Copper with a bit of REEs on the side

In the copper space, Discovery Capital have their eyes on one particular stock flying under the radar and that’s Alvo Minerals (ASX:ALV) with assets in Brazil.

“They’ve effectively got their own +70km VMS belt which lends itself to high-grade copper, zinc and associated metals,” Pervan says.

“The company IPO’d about three years ago just as the junior market started to fizzle out so it never really got the presence in the market.

“They’re drilling some of their primary copper targets to build on their 4.6Mt inferred resource right now in a maiden 5,000 metre diamond drilling program,” he says.

“Alvo also have a bit of rare earth optionality after picking up some highly prospective ground along strike from Serra Verde, the only ionic clay REE project in commercial production outside of China.

“And it’s worth mentioning they just had a strategic investor from Brazil buy into the company who now owns a 19.9% stake at a premium of 17.5 cents,” Pervan says.

“The stock is trading at around 10-12c at the moment, so that’s a significant premium and they have about $5 million cash in the bank to carry out aggressive drilling campaigns at both projects.”

A TSX copper play

Further abroad on the TSX, Miethke says Discovery Capital Partners likes Mogotes Metals (TSX.V:MOG) with copper and gold projects in the Vicuña district of Argentina and Chile.

“The vendors are Australian, and their flagship Filo Sir project is along strike from the Filo del Sol discovery, in the same district as NGEx Minerals Lunahuasi and Los Helados deposits,” he says.

“It’s a massive porphyry district which means – more often than not – there’s more than one chance for a discovery.”

ASX goldies

But one commodity Miethke reckons investors should be looking at is gold.

“When it’s beaten up, it presents value and when gold rallies, it rallies pretty hard so we might be at the start of that at the moment,” he says.

“The market is also rewarding exploration – it’s backing companies that are actively exploring and one company that fits that bill is Great Boulder Resources.”

Great Boulder Resources (ASX:GBR) owns the Side Well gold project near Meekatharra in WA where recent drilling at the Mulga Bill project and the emerging Saltbush discovery has delivered some outstanding high grade gold intersections including 32m at 8.38g/t gold from 104m including 18m at 13.76g/t gold and 26m at 3.31g/t gold from 88m, including 8m at 10.02g/t gold.

“They’re in a good location, 25km away from the Bluebird Mill owned by Westgold who are active in the region having recently invested $6 million into neighbouring junior Ora Gold,” Pervan says.

“The project hosts a 668,000oz resource at 2.8g/t gold so there’s some clear growth upsides to that resource, but also some exciting discovery targets.

“It’s been forgotten about over the last year or two due to the weak market sentiment towards gold but they are well funded and there’s a lot of value to add there.”

Cosmo shoots for the stars at Kanowna

Another stock Discovery Capital Partners like is Cosmo Metals (ASX:CMO), owners of the large and highly prospective Kanowna gold project.

Kanowna covers >20km2 in 12 contiguous prospecting licences with heritage agreements in place just 13km from Kalgoorlie.

“What we like about that project is that it is not greenfields, there are some existing hits they can follow up such as 44m at 2.4g/t gold from 24m and 18m at 5.3g/t gold from 18m,” Pervan says.

“It’s a stone’s throw from Northern Star’s +5Moz Kanowna Belle mine which provides them with a bit of optionality of a plant nearby, plus there are two other plants within a 15km radius as well.

“Having that processing optionality is really important, investors on the ASX are willing to pay a premium because it lowers the resource threshold required for development and provides a quicker pathway to cash flow to capitalise on strong gold prices.”

Discovery Capital Partners has provided services to Kingsland Minerals, Alvo Minerals, Great Boulder Resources and Cosmo Metals and been paid fees for these services in the past. The interviewees holds shares in KNG, ALV, GBR and CMO. The information in the article is general and opinions expressed are based on information that has not been independently verified. As such the reader should seek their own professional advice prior to making any investment decisions.

At Stockhead, we tell it like it is. While Kingsland Minerals, Alvo Minerals, and Cosmo Metals are Stockhead advertisers they did not sponsor this article.

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.
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