Top of the last mining cycle? These five explorers show why they can still outperform

Liquidity and equity valuations for small mining stocks have fallen from their peaks early last year
Mining expert Hedley Widdup says a ‘liquidity crunch’ is having a bigger impact on higher risk stocks with smaller market caps
We talk to five promising small caps about what will be the secret sauce that helps them buck the trend

Liquidity is falling, equities are tetchy and micro caps are wading into uncertain waters when it comes to funding.

The long term story for miners is regarded as a bullish one, with the fundamentals for gold looking strong and the energy transition likely to see metals that go into batteries like nickel, lithium, copper and graphite enjoy a strong demand story in the years to come.

But, Superman aside, you can’t outrun a speeding train, and when the bear market hits there are always casualties.

While we have spent the past two years enjoying one of the strongest commodity booms since the China-led boom of the mid-2000s, mining stocks aren’t quite as ironclad as they were at the end of last year.

Lion Selection Group’s (ASX:LSX) Hedley Widdup told the Resources Rising Stars conference on the Gold Coast last week that the listed fund’s mining clock hit midnight as of April 19 2022.

READ: MoneyTalks: Hedley Widdup’s mining clock has hit midnight. Here’s how resources investors can keep the lights on

Followed by a liquidity crunch and mega scrip-based M & A like the recent Newcrest (ASX:NCM) and Newmont gold merger, it is an indication we are past the peak of the most recent cycle.

Micro caps have been the hardest hit, Widdup says:

“Ihe net performance (for micro caps since April 19 2022) has been down almost 50%.

“I think it’s 48% against the ASX small resources index, which itself is off 22%, and the headline index the ASX 100 Resources, is off about 4.8%.

“So you’re stepping down by almost an order of magnitude each time in terms of the performances that they’ve had in that short period.”

That may sound concerning. But it’s worth noting that while most micro caps have suffered, around 13% have risen in that same timeframe.

Investors big and small will be on the hunt for stocks that outperform in trying times such as these.

We spoke to five small caps at last week’s RRS conference about why think they will be the one to buck the trend and prosper.

Ora Banda Mining (ASX:OBM) managing director Luke Creagh

Ora Banda owns the Davyhurst gold plant 120km northwest of Kalgoorlie and 1.8Moz of gold resources at 2.6g/t, where it plans to almost double its production capacity to more than 100,000ozpa by FY25.

The key factor in that expansion will be the recently approved development of the high grade Riverina underground mine, which will carry a reserve grade of 4.3g/t, well in excess of the average resource grade of 2.6g/t across Ora Banda’s tenements.

Led by former Northern Star Resources (ASX:NST) executive Luke Creagh, OBM also sees the potential for a new underground beneath its historic Missouri pit and has tenure prospective for lithium and nickel.

“We’re in a really fortunate position where we’ve got our funding in place. So the recent raising of $30 million, plus the asset sale, so we’ve got $40 million coming in the tin,” Creagh said.

“We finished the quarter with over $11 million. So we’re funded to get the production of Riverina up and that catalyst is what will bring strong cash flow to the operation as we move forward.

“So (we’re) enjoying an exciting next 12-month period as we get the underground up and running, and the open pit metrics improve.

“So we won’t need to go to the markets for money but we think we’ve still got a lot of value to give after that, because once we start bringing cash flows in, we’ll be able to explore more, we’ll be able to find more mines and that sort of organic growth and it’s all internally funded.”

Ora Banda Mining (ASX:OBM) share price today:

New World Resources (ASX:NWC) managing director Mike Haynes

New World Resources owns the Antler copper mine in Arizona. Operated only on a small scale sporadically between 1916 and 1970 and virtually untouched in the five decades since, NWC has quickly outlined what is now one of the world’s highest grade undeveloped copper resources.

Antler contains a resource of 11.4Mt at 2.1% Cu, 5.0% Zn, 0.9% Pb, 32.9g/t Ag and 0.36g/t Au, or 11.4Mt at a copper equivalent of 4.1% copper.

That will generate $2b of free cash flow over a 13-year mine life, generating over 190,300t of copper metal in concentrate (381,400t CuEq with other metals included) at sector low costs of NEGATIVE US$0.50/lb.

“Our differentiating factor is grade — we’ve got one of the highest grade copper deposits in the world,” Haynes said.

“And so with higher grade, then we’re pretty well insulated from commodity prices – if commodity prices are low, our operating cost is still negative 50 cents a pound for copper.

“So we still make very good money, even in low commodity price cycles.

“But at negative 50 cents a pound, if we can be realising US$4-4.50 a pound copper, we make exceptionally good money.”

New World Resources (ASX:NWC) share price today:

Delta Lithium (ASX:DLI) executive chairman David Flanagan

$300 million capped Delta Lithium owns the Mt Ida and Yinnetharra lithium projects in WA.

The latter will be producing low grade direct shipping ore lithium this year from its 12.7Mt resource grading a handy 1.2% Li2O at Mt Ida.

“Everything does go in these cycles. And within these bigger cycles, there’s little cycles, and there’s different cycles that intersect and you can be in a different commodity that’s counter-cyclical, right? So for us it feels like we are in a bit of a sweet spot,” Flanagan said.

“The reasons why we think we can access capital are all the same reasons why I think people should invest in us. We’ve got a project that’s going into production, we’ve got another one that’s pre-resource, we’ve got scoping studies, we’re (spending) $1.5 million a week on drilling at the moment.

“So all of these things will come, all of this news flow, and we’ve got oodles of cash, and we’ve got all sorts of corporates who want to transact with us to get offtake or whatever it is, they’re all reasons to invest in us.

“And because we’ve got so many stacked up in a pile, there’s quite a bit of honey there to bring the bees and the lithium price is running hard.

“Lithium prices can run up for a while, then they might flatline, they could even dip for a bit. But I think the long term trend is up. People know there’s a two-year wait for some really high quality electric cars.

“They know the world’s shifting that way. They know there are plants being built everywhere. And this all sucks product and draws money in so they’re kind of the reasons why I’m so excited about it.”

Delta Lithium (ASX:DLI) share price today:

Astral Resources (ASX:AAR) managing director Marc Ducler

Run by Marc Ducler, who built EganStreet Resources before its $68 million scrip sale to mid-tier gold miner Silver Lake Resources (ASX:SLR), Astral has built an enviable gold inventory at its Mandilla project near Kambalda in the heart of the Eastern Goldfields.

Astral has added 1Moz at Mandilla in just three years, a near surface gold deposit surrounded by some of Australia’s biggest processing facilities on the doorstep of Gold Fields’ 350,000ozpa St Ives gold mine and a JORC 2012 resource of 30Mt at 1.1g/t Au for 1.034Moz.

“We raised some money a couple of weeks ago on a 13% discount, I see our peers have had to raise at a 25% discount with free attaching options,” Ducler said.

“So I think there’s a genuine understanding this is a real story. I’m not saying that my peers don’t have a real story, but (it’s) strong enough to sustain that.

“And also, given our location in the Kalgoorlie-Kambalda area, it’s infrastructure rich, the producers in that area have been in that area for a long, long time, and the cupboard is becoming relatively bare.

“We’ve got something that is really profitable and near surface. So I think that allows us to get through this next stage, which from a market perspective looks as if the funding could be pretty tough.

“We’ve got $5 million in the bank now, we have been drilling hard, we’ve done 22,000m already at Mandilla in four to five months.

“So we’ll probably pull the rigs up in June and by that stage we would have done about 30,000m.

“We’ll take about four weeks off, and then start drilling again third week of July but we’ll put out a resource estimate early July and then start our work on our scoping study and look for something for the end of the September quarter.

“So more drilling, resource estimate and a scoping study that’s what we’re focusing on.”

Astral Resources (ASX:AAR) share price today:

Rox Resources (ASX:RXL) managing director Rob Ryan

Rox Resources owns the Youanmi gold project 480km northeast of Perth, where a pre-feasibility study is in the works based off a gold resource of 3.2Moz Au at 3.57g/t.

It has been developed before, producing 667,000oz of gold grading 5.42g/t as an open pit between 1987 and 1993, and shutting in 1997 as an underground at a time of low gold prices of just US$400/oz with a final parcel of ore at over 14g/t.

The current underground resource at Youanmi is impressive by any measure, including 9.9Mt at 6.9g/t Au for 2.2Moz.

“As a development story Rox is genuine high grade story — we had a scoping study where the mine plan was over five grams a tonne and high grade projects will be able to wear the peaks and troughs of market ups and downs,” Ryan said.

“You will still be able to make money at any gold price.

“We’re in a very good position, because we’ve still got a lot of cash in the bank. We’ve still got $8 million at the end of last quarter and that sort of sees us through a lot of potential short term challenges.

“Longer term, I think the prospects of a much larger development story than what we had in our scoping study at Rox will set us apart from our peers.

“In market uncertainty, gold tends to be a safe haven.

“You talk about a debt crisis in the US and a few other things that are starting to happen. Inflation, that’s still not really in control with rising interest rates, I still think there’s a lot of value in gold in the longer term as well.”