MoneyTalks: Sit down for a commodity masterclass with Far East Capital's Warwick Grigor

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 Far East Capital executive chairman Warwick Grigor.

Australia’s first specialist gold mining analyst, Warwick Grigor has seen peaks and troughs through more than three decades in the mining industry.

Famously establishing Far East Capital with iron ore billionaire Andrew Forrest in the 1990s as a specialist financier and corporate advisor for small cap mining companies, Grigor remains the executive chairman of Far East Capital to this day.

Known for his frank opinions on commodities and mining companies, we reached out to Warwick to get his 360 degree perspective on the state of the resources investment market in 2023.

He gave us his takes on the best commodities for long term plays, which gold company will keep you warm in your bed at night and why investors should be cautious around uranium bulls.

Looking long term? Try copper and nickel

You probably won’t be surprised to hear Grigor favours nickel and copper as the commodities with the best long term outlook.

“Copper and nickel are the best longer term plays, partly because of demand but also because supply chains are well established, without a rush of new ones planned,” he said.

“The reality is that it takes a long time to get mines permitted and ready for production. There is no quick fix.

“The environmentalists that want more alternative energy instead of hydrocarbons seem to also want to make it more difficult to permit a mine, thereby strangling a supply response.”

Grigor says rare earths and specialty metals like antimony may provide more volatility and short term trading opportunities, while he thinks growth in demand will stimulate new mines in a host of battery metals outside copper and nickel in cobalt, graphite, lithium, tin and more.

“But there is another factor that is gathering momentum, and that is de-globalisation,” he says.

“The USA in particular acknowledges that it is too vulnerable to the Chinese control of many commodities and so the IRA Act is promoting development of Western world supplies of what it calls critical metals, including the downstream processing facilities.

“Some of these are metals for strategic purposes such as antimony, for which the world relies on 85% of supplies from China, Russia and Tajikistan. Rare earths is another specialised sector dominated by China. There are many others on the list.

“The shift away from reliance on China is a thematic that will continue (for) years as it will take that long to establish reliable supply lines.”

Gold, an emotional commodity

In recent months gold has outperformed shellshocked industrial and battery metals, providing a safe haven investment opportunity as the US economy has wobbled and Chinese metals demand has softened.

That has sent prices up above US$2000/oz, around 10% higher YTD, with Aussie equities even better off, up 26.53% YTD off an admittedly low base.

But Grigor warns gold is the “most emotional of all commodities” saying which stocks you like should not hinge on the current gold prices, but whether you are more defensive or adventurous.

“Gold is the most emotional of all commodities. Everyone has a view but no-one seems to get it right,” he comments.

“Traders tend to dominate gold markets and without the relevance of supply and demand the price is very dependent upon thematics and their variability. Picking the gold price is a mug’s game, but one that many people play.

“In terms of picking gold stocks, you can chose more defensive stops that can withstand dips in the gold price — if you want to be conservative — or you can pick very low grade companies and projects that offer enormous leverage to higher gold prices. Pick one that suits your outlook.”

It also pays to be sceptical given the number of gold operations that seem to struggle on opening.

“You would think that by now we know how to develop a profitable gold mine from the get go, but look around and you will see that a surprising number of gold mines go off half-cocked,” he says.

“Perhaps that is due to a shortage of qualified management.”

A gold stock that helps you sleep at night

While Grigor says the gold sector is diverse, the experienced analysts has a few stocks he likes. Chief amongst them is Emerald Resources (ASX:EMR).

Chaired by Equigold’s Simon Lee and led by former Equigold and Regis Resources (ASX:RRL) COO Morgan Hart, the $1.15 billion company is one of the lowest cost gold miners on the market at its Okvau operation in Cambodia.

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“My favourite gold stock for some time has been Emerald Resources,” Grigor says.

“That offers a combination of excellent management and a good, growing resource base. It is an inspirational company. It is the type of gold stock you can buy and forget, and sleep at night.”

At the smaller end of the spectrum Grigor has just joined the boards of Nagambie Resources (ASX:NAG) and West Wits Mining (ASX:WWI). Victorian explorer Nagambie is in its early stages, but Grigor says it may be drilling out a Costerfield or Fosterville style high grade gold and antimony system.

West Wits is in the financing stage with a 4.2Moz resource in South Africa’s Witwatersrand Basin, one of the world’s great gold fields.

Outside of those, Grigor says South Australian explorer Barton Gold (ASX:BGD), which has 1.3Moz of gold resources in the Gawler Craton, is a “junior company with good management focus and a growing portfolio of gold assets”.

Don’t talk to uranium bulls at parties

Last month’s top performing major commodity was uranium, which in the last week of April appeared to wake up from a slumber that has seen it laze about the house eating Doritos and watching a marathon of The Office at US$50/lb for most of the year.

Grigor agrees with the idea uranium will benefit in the transition from fossil fuels as nuclear power is increasingly mooted as a form of clean energy. But be wary of pushers who say the only way is up.

“Uranium has been pushed aggressively by brokers over the last couple of years, with the thematic that it is clean energy,” he says.

“They are right, but too many people have selective deafness on this topic. I don’t expect the uranium price to outperform because if it does, there are plenty of stockpiles and mines that can be reopened.”

Grigor says the market is “roughly in balance” and doesn’t think that will change for some time.

“Maybe traders could add another US$10/lb to the price, but don’t expect anything more than that,” he said. “Kazakhstan always has the potential to ramp up supply from low cost ISL mines.”

He has a couple of buyer beware labels to stick on when it comes to uranium stocks.

“There is still a high level of technical ignorance amongst prospective uranium companies, so don’t be too optimistic about new companies coming through with projects that have previously failed,” Grigor notes. “Starting, or restarting, a mine is tougher than most people know.”

He says to be careful when it comes to companies with low grades in the 200-300ppm U3O8 range.

“That level of grade is very challenging, unless there can be a significant beneficiation to lift the head grade,” he says.

“Personally, I prefer exploration companies in the high grade Athabasca Basin in Canada, such as 92 Energy (ASX:92E).”

Grigor is also positive on Peninsula Energy (ASX:PEN), which expects to restart commercial production by mid-2023 at its Lance ISR project in Wyoming in the US.

“It developed a mine in Wyoming in the last uranium boom and experienced disappointing results due to metallurgy, but this time round is has changed the treatment route to a low pH method,” Grigor says.

“It has made mistakes previously but it is now on the rebound.

Another is Aussie explorer Alligator Energy (ASX:AGE).

“Alligator Energy offers both high grade unconformity projects in the NT as well as a good grade ISL project in South Australia,” Grigor says.

“The current management seems to be building on the knowledge base of prior management.”

Don’t let FOMO force your hand

Are there any new investing themes emerging in the resources space in 2023?

Expect to see the same thematics as recent years on less exaggerated volumes.

Grigor says it’s a stock picker’s market instead.

“We need to be alert to news flow as it happens and act quickly if we see outstanding results that may not have been anticipated. That is a strategy for traders,” he says.

“Investors can take longer to sift through the myriad of companies on the bourse and quickly pick up stocks that suit their investment criteria without the risk of FOMO forcing their hand too soon.”

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. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

At Stockhead, we tell it like it is. While West Wits Mining is a Stockhead advertiser, it did not sponsor this article.