MoneyTalks: Hedley Widdup says junior resources stocks are the best counter-cyclical play around
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 Lion Selection Group’s Hedley Widdup in a recent webinar for Reach Markets.
A couple of years ago junior resources stocks were all the rage as the mining boom heated up and money moved from the safe bets at the top of the sector down to the risky microcaps who could make you a pauper or a millionaire.
It’s an area where you have to be if you want to see the sort of extraordinary gains we’ve seen from the mining industry’s best rags to riches stories.
Take Liontown Resources (ASX:LTR) for example, up 9100% over the past five years, or even this year’s breakout performer Azure Minerals (ASX:AZS), which has made investors some 12 times their money in 2023 alone on the massive Andover lithium discovery in WA’s Pilbara.
That microcap side of the ASX is the largest by number of companies, meaning there is plenty of mullock to sift through before you hit gold.
But it is where Lion Selection Group mining guru Hedley Widdup told investors in a recent webcast for Reach Markets those gains are normally found.
“There’s huge upside in this sector. It’s not uncommon to come across something which is doubling or tripling, but this is one of the only sectors on the ASX, the micro cap resources space, where you can net 10 times or 100 times return,” he said.
“Sometimes you need to be in prior to a listing, certainly you need to be in prior to a seminal event. But that’s where stock picking becomes crucially important to be able to capture those kinds of returns.”
Widdup says at the end of the day it’s not about promotion, but project success which ultimately determines whether a micro cap miner can shoot for the moon.
He says Lion, a listed investment fund that focuses on mining assets and small caps, screens for the people involved in a stock or project, the upside and the risk, with the aim of having 10-20 investments.
Its chosen field of junior resources, he says, is the most contrarian asset class on the market right now.
“Equities at the moment, broadly, are very strongly influenced by inflation and micro caps are feeling that the hardest. It makes it really hard for developing companies, particularly resources companies, to raise money,” Widdup said.
“The junior resources market, that’s the most contrarian asset class that exists at the moment in the world.
“To go in there you have to be able to say we think we’re going to be able to defend this long term. So the opportunity presented by that, knowing that normal mining cyclicity will bring that up again, is contrarian, but it’s very, very compelling.
“And the long term outlook for mining is bright. We know that most commodities have an extremely good outlook. It’s just at the moment trend is trumping that so those fundamentals remain in place.”
In particular, copper’s long-term fundamentals are exciting for Widdup.
“I’d say that probably the best fundamental getting around in commodities at the moment is copper,” he said.
“Enormous market so it’s not subject to short term pricing issues like the tiny market that lithium is.
“I think copper probably has more down before it goes up again, but you can see where the peaks of copper have been.
“So you will know I think in the next cycle those peaks should be at or above that level, driven by things like electrification. But copper has a wonderful old world economy demand growth going forward as well.
“Just as a great snapshot, in copper, I think every 25 years, we’ve doubled demand for copper.
“So in the last 25 years, we’ve consumed more copper in the world than was consumed in the entirety of history and before that, so you know, when you think about that, there’s a real squeeze to come into the price of copper and it’s a big market, well understood.”
Widdup was kind enough to add some top picks into the mix, two of them listed on the ASX.
Located in a well services part of WA close to infrastructure including a number of processing plants, Widdup has long been a fan of the $33 million capped Great Boulder.
It controls around 518,000oz of gold as its Side Well project near the town of Meekatharra in WA’s Mid West.
“Meekatharra has a currently fairly substantial gold processing facility just to the south of it and there’s a historic gold mine just off the north … called Andy Well, with parts of an old mill there as well,” Widdup said.
“It’s possible to conceive the sorts of deals that might combine resources with existing processing equipment, and in this case, they’re discovering gold … they continue to.
“So they established a maiden resource of just over half a million ounces, all fairly close to the surface sitting within open pit shapes recently and they’ve continued to drill since.
“One of the most exciting things about this though is that if you just allow your eye to drift from where Meekatharra is on the map, head up and slightly to the right, it describes the shape of a fold.
“It’s been very extensively mined on the left hand side, the western side of that fold. The right hand side of it has never been historically seriously explored.”
Widdup says Great Boulder’s work suggests the fold is mineralised on both sides, presenting “a great deal of potential upside there”.
One name Widdup also likes is Alto Metals, which owns the Sandstone gold project in WA and has a market cap of around $35 million.
“These guys have been discovering gold as well, so they have a very well established 800 or so thousand ounces. This is in a place called Sandstone,” he said.
“It’s a bit further south and a bit further inland from Meekatharra. This is a historic mining area. Sandstone was a very, very rich and high grade mining centre historically and there hasn’t been any mining there since circa the 90s.
“Alto have control of almost all of the greenstone belt.
“Gold in Western Australia is found in Greenstone belts and the more of them you control, the better possibility you have of discovering things.”
Alto, which has Zeta Resources and Horizon Gold (ASX:HRN) on its register, the latter the owner of the nearby Gum Creek gold project, could well be a candidate for consolidation in the WA gold sector. (Acquisitive gold miner Westgold (ASX:WGX) recently sold its stake to parties including Horizon.)
“There’s something to be dug out of the ground, it’s a question of where it gets processed,” Widdup said.
This one isn’t ASX-listed at the moment, but the private company is a bet Lion has taken on epithermal gold exploration in the Northern Territory.
“It’s an area where not much exploration has happened before — the GL Survey’s been there — and there have been noted quartz in pegmatites, quartz in veins, white things that might be limestones,” Widdup said.
“This company has gone out there, I’ve gone out there with them, and they’ve found they’re not pegmatites, they’re not limestone, they are quartz veins and these things stick out of the ground, but more interestingly than that they hope they have epithermal vein textures.
“I think about a third of the gold which has ever been mined came out of South Africa’s Witswatersrand Basin, after that the most significant producer of gold has been epithermal gold fields.
“So here’s a style of mineralisation which had never ever been recognised and the footprint of this field is enormous. It’s larger, you would fit 10 Pajingos (a mine in North Queensland) inside of this just in terms of footprint.”