Who’s due for a re-rate? Small cap explorers to keep your eye on in 2019
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The second half of 2018 was particularly rough for small cap resources stocks.
Only 94 stocks on our list came out ahead, with about 445 stocks finishing the year in negative territory.
Uncertainty about the global economic outlook, partly due to the ongoing China v US trade war, has kept investors away from the speculative end of the market.
But despite this global (non) growth story, there’s a number of rough diamonds that could get a ‘cut and polish’ over the next 12 months.
We asked these two experts which small cap miners they believe are due for a re-rate.
Gavin Wendt is director and senior resources analyst at MineLife, which provides independent coverage of resources stocks specialising in the small cap sector. Mr Wendt has no financial interest in any of these companies.
AUSTRALIAN POTASH (ASX:APC)
Market Cap: $36.6m
Focus: Lake Wells potash project, Western Australia.
“[Australian Potash] has front-runner status as a potential Australian potash producer.
At the moment we don’t really have any sulphate of potash producers in Australia. There are a number of hopefuls, but Australian Potash is probably at the forefront of what could be a very significant WA industry.
Sulphate of potash is unlike most other commodities, where companies sell most of what they produce into a metals exchange.
In this type of business, it’s very important to demonstrate the product to potential end users.
These guys are doing exactly that as we speak.”
ORION MINERALS (ASX:ORN)
Market Cap: $51 million
Focus: Prieska zinc-copper project, South Africa
“Orion’s market cap is only about $50m, yet they have this word-class VMS style deposit in South Africa.
It’s been mined before, so they aren’t reinventing the wheel.
Orion is upgrading some of the infrastructure with a target of getting into production within a couple of years.
Orion’s other recent exploration successes also reinforce the theory that VMS deposits don’t just occur in isolation.
When you find one, you typically find others.
They have definite potential for a re-rating now.”
OKLO RESOURCES (ASX:OKU)
Market Cap: $83 million
Focus: Dandoko gold project in Mali
“I think this is going to be a big year for them.
They have spent the last 12 to 18 months doing a lot of aggressive drilling at Dandoko and have identified what appears to be a significant mineralised system.
They have a bunch of gold targets, but they have concentrated on the ones that stand out the most.
One that they have been drilling a lot over the past 12 months is called Seko, which has mineralisation starting from surface and extending down to around 200m deep.
They are now undertaking a massive program totalling about 60,000m of drilling which could add big ounces to a resource estimate.”
CAPRICORN METALS (ASX:CMM)
Market Cap: $53 million
Focus: Karlawinda gold project in Western Australia
“The current Australian dollar gold price, above $US1800 an ounce, is great for any company that’s currently producing or has ambitions of getting into production.
Capricorn falls into that latter category.
They are at the point where they must come up with project funding.
They announced in late 2018 that they had put together a [$107 million] debt package to cover the bulk of the costs of getting their operation up and running.
What they need to find is the equity funding to close the gap.
I think that their share price was punished because of a takeover offer by [gold miner] Regis Resources in the second half of last year.
That generated a fair bit of interest and pushed the share price up. Management in their wisdom decided not to pursue further discussions with Regis and to go on their own.
Once the spectre of the takeover had been removed, naturally the share price dropped.
But where you get one company knocking on the door it shows the project is of interest to existing producers.
With corporate interest that’s not going to go away, plus a strong gold price, it could be a significant year for Capricorn.”
Hedley Widdup is a former senior mine geologist and current director at specialist mining investment team Lion Manager. Some of these stocks are held by Lion, or Mr Widdup has a personal affiliation.
KIDMAN RESOURCES (ASX:KDR)
Market Cap: $485 million
Focus: Mt Holland Lithium joint venture, Western Australia
“I really admire the way these guys have funded their progress and sidled up to an industry champion [in major lithium producer SQM].
There is a “subject to” which is what happens to lithium prices, however I like their approach and they are well positioned to be re-viewed by the market on the basis of moving toward being a producer.”
EGAN STREET RESOURCES (ASX:EGA)
Market Cap: $30 million
Focus: Rothsay gold project, Western Australia
“Egan Street holds a high grade underground gold mine [454,000oz grading 9.2 grams per tonne] moving toward production, with a low capex spend [$36.1 million] to get there.
[Rothsay] is in WA, four hours’ drive from Perth at a previously disturbed site so all the usual concerns about permitting and jurisdiction are absent.”
Market Cap: $4.7 million
Focus: Chaketma Phosphate project, Tunisia
“Celamin has been in dispute with their partner in Tunisia for several years, over shares in the project company that the partner seems to have misappropriated.
The project is a tidy phosphate project.
The company is capitalised at next to nothing, so there isn’t any pricing of upside yet.
Their releases paint a picture of having got the upper hand legally, so [we] would expect movement on their situation soon.
They haven’t stood still and have picked up zinc exploration permits where resources had historically been estimated.
Its been a sleeper – waking up I hope.”