IPOs could come flooding back in the next couple years. Pic: Getty Images
Open the gates? Hedley Widdup says exploration IPO market could revive in 2025
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- Lion Selection Group’s Hedley Widdup sees potential IPO market revival in 2025
- Time to deploy cash in junior resources is coming
- Gold names take centre stage for stock picker
Lion Selection Group (ASX:LSX) CEO Hedley Widdup is widely known for his mining clock, a symbolic tool that tells investors where they are in the mining cycle.
Having recently pointed the arms of the patented Lion Clock at 4 a couple months ago, a flood of countercyclical M&A deals, especially from Rio Tinto (ASX:RIO) and Pilbara Minerals (ASX:PLS) in the battered lithium space, seemed to confirm that point in the rotation of the cycle.
Now, Widdup says, is when the next phase could emerge, with the listed fund manager looking to deploy cash as capital from these deals begins to shift back to the sold-off junior end of the market.
The bellwether for risk appetite is exploration IPOs, and after a precipitous fall from a decade high 104 ASX resources floats in 2021 to a trickle in 2024, he thinks the window will reopen within the next two years.
“2024 is probably a write off for most IPOs, however that’s where my question mark is and I think 2025 we could see the reopening of the IPO market,” Widdup told Stockhead.
“That’s a market of moving past 6 o’clock.
“Taking a read straight off the clock, it’s the best time to be buying resources stocks because they are going to tend to be at their cheapest. There’s going to be all sorts of stock-specific reasons that might push them up or down.
“But if you’re sitting there thinking am I in the market or am I not, I think the answer to that is when you see the clock go through six it’s a great time to start deploying.”
Start your engines
That’s been reflected in Lion’s strategy, Widdup said. Having developed a large cash backing on the sale of an Indonesian gold project during the boom, keeping its powder dry at the peak of the resources bull run in 2021 and 2022, LSX has loosened the purse strings in the past couple of years.
It’s spent $27m on investments in recent times, holding $50.4m of net cash and $56m of equity investments as of October 31, with LSX’s ASX shares up 22% over the past 12 months.
“We’ve been investing reasonably aggressively, say between three and four (o’clock), and I think we would expect to continue to do that until just past six,” Widdup said.
“We’re happy to follow our money after then.”
One cause for optimism is that gold prices are providing a tailwind for explorers, with prices at healthy levels of US$2624/oz, not far off records of close to US$2800/oz seen in October before the US Election.
Trump’s return to the White House will bring uncertainty. Widdup thinks the strength of equity markets is also a potential hangover, with a bubble pop for tech stocks that have driven the US equity boom a risk factor for a market reset.
But at the same time he’d be “very surprised” if IPOs didn’t begin to reemerge in 2025.
Gold stocks in favour
With that in mind, Widdup’s top junior ASX picks tend to operate in the gold space at the moment.
“I like gold and it’s not because of the gold price,” Widdup said.
“It’s because if the gold price stayed right where it is now, there are a lot of companies with very well established resource positions which are are in a very strong position to be able to either deal or build.”
One of Widdup’s top picks, held by LSX, is an obvious small cap in Brightstar Resources (ASX:BTR), which is on track to build a 3Moz resource base after shareholders in Alto Metals (ASX:AME) voted to approve an all scrip takeover that will consolidate most of the Sandstone gold district in WA under BTR.
BTR is up 30% YTD and has a market cap of close to $215 million.
“Brightstar has a huge resource position, particularly after they’ve finished consolidating Alto Metals shortly,” Widdup said.
“They’ll have 3Moz in resources and they’ll be in cash flow very shortly, starting with small scale production.
“That cash flow pays for the rest of the resources to be assessed and then potentially built so they can turn themselves into a big company by not having to do one big raising.”
“I think that’s very, very encouraging and there are some very high quality ounces within that business.”
Saturn Metals (ASX:STN) is another company in focus for Widdup, with 1.8Moz at a grade of 0.6g/t in the Apollo Hill deposit in WA’s Goldfields.
That’s low by most standards, but Widdup thinks investors underestimate value of heap leach processing technology for deposits of that nature.
“It’s going over 6500 ounces per vertical metre.
“So it’s a very high metal density deposit, even though it’s low grade at half a gram. This will come out of the ground into a heap leach over the next few years and the economics on that look wonderful.
“That also strikes me as something that could probably be scragged into production by starting smaller scale and potentially expanding your way up to full scale from there.
“And I think the market is looking at them and saying low grade, one big capital slug and that’s what’s putting them off. There’s a reality that that may well adjust there as time goes on.”
The other he likes is Antipa Minerals (ASX:AZY), which owns the 2.3Moz Minyari Dome deposit near the ageing Telfer gold mine. Greatland Gold is acquiring Telfer and the Havieron development from Newmont for US$475 million, but will need more ore to feed the mill long term.
“The solution for anyone who wants to buy Telfer is Antipa,” Widdup said.
Mission critical
Widdup is also looking at the contrarian play in rare earths and lithium, where the dramatic break-up between investors and juniors could create pockets of value.
“The essential nature of rare earths hasn’t really changed, but the market has fallen out of love dramatically with critical minerals.”
Widdup says he’s been assessing “everything at the exploration stage” in Australian spodumene.
“It’s a horrible time to have a DFS in hand, so I’d like to be doing something with someone that doesn’t have a lithium project to develop but they’re looking to find one.”
Dynamic Metals (ASX:DYM), in which LSX doesn’t have a stake, is one that has caught Widdup’s eye.
Despite lithium’s struggles, DYM is up almost 12% YTD, having pulled in Mt Marion owner Mineral Resources (ASX:MIN) into a $20 million exploration JV at its unheralded Widgiemooltha project this year.
“I’ve seen enough predictive models of lithium now where people have said, where can you create the biggest thickness of a pegmatite?” Widdup said.
“That might be the right sort of pegmatite. It looks as if the area that (MD) Karen (Wellman)’s exploring there could have a lot going for it other than just the geochem.”
At Stockhead, we tell it like it is. While Brightstar Resources and Antipa Minerals are Stockhead advertisers, they did not sponsor this article.
