“Guy on Rocks” is a Stockhead series that takes a weekly look at important resource market events. Former geologist and experienced stockbroker Guy Le Page, director and chief executive of Perth-based financial services provider RM Corporate Finance, shares his high-conviction views on the market and his ‘hot stocks to watch’.
Market Ructions: From Russia Without Love
Ukraine Invasion Day (February 24, 2022), like the GFC that began on October 10, 2008, will ring in the ears of commodity analysts for years to come.
As shown in Figure 1, commodity performance has been nothing short of spectacular in calendar year 2022 for a range of commodities whose supply and demand metric was already on the rise.
LME inventories were at critical levels for copper and nickel in particular, as many end users restocked amid rising demand, which in many cases was driven by significant infrastructure spending.
Indeed, America’s $1 trillion bipartisan infrastructure package will prove to be a hungry beast to feed when it gets underway.
The desire for non-conflict metals and a strong ESG program was also a key driver.
The obvious laggard here is copper (Figures 2 & 3) which had already performed strongly in calendar year 2021 with stocks at historically low levels.
Canaccord Genuity (April 2022) thinks we expect a decade of high commodity prices as countries seek to strengthen supply chains, increase inventories and inflation continues unabated.
There has been reluctance on the part of the West to hit the jugular against Russia and ban imports of fossil fuels, nickel and palladium.
However, it seems that the focus is more on alternative supply.
The oil and gas sector, as well as the coal sector, seems well and truly back in favor, as even the most altruistic of ESG believers cannot do without power.
The short-term losers, however, were the foundries, whose increased energy inputs forced many to close.
As we all know there are winners and losers in wartime and it is no surprise that India is seeking Russian coal at an appropriate price, with Bloomberg reporting that India has bought 5,500 kcal/kg coal NAR to Russia at 160 US dollars. 165/tonne CFR India, which represents a discount of 65 USD/tonne compared to the same quality of ex-Newcastle coal.
While much of the junior segment’s recent market attention has been on lithium and rare earths, uranium (Figure 4) – one of the more obvious alternatives for those with a for green energy – is not far from reaching the magic price of 70 USD/USD. kg.
At this price, I think many of these deposits in the middle of the grade tonnage curve could be on the verge of being economically viable.
In a recent podcast, Sprott pointed out that the 400 reactors currently in operation consume about 180ml of uranium every year, with the rest coming from secondary sources that seem to be drying up.
A large proportion of recent purchases (around £50m in the last six months) have been made by non-public participants (hedge funds, Sprott etc).
Another interesting observation is that the listed uranium sector is only US$37 billion in market capitalization, a mere fraction of the oil and gas market.
Expect more uranium listings in Australia and North America!
This is all good news for Ozzie fighters here in the West who are involved in the resource sector.
After rereading Canaccord Genuity’s rating, I feel so optimistic, I’m moving forward with our North American ski vacation booking for January 2023 right now.
The normal rules apply of course; parents in business class and children in premium economy class.
New ideas
I think there’s a good chance this section will be dominated by uranium stories, with uranium IPOs very likely to take place at a high price given the strong performance of the metal that has been responsible for growing producers and developers such as Paladin Energy (ASX:PDN) and Deep Yellow (ASX:DYL) by more than 120% and 75% respectively over the past 12 months.
Aurora Energy Metals is set to hit the boards in mid-May 2022 and has been set up by West Perth-based project generator Mitchell River Group with former Deep Yellow MD Greg Cochran at the helm.
The main asset is the Oregon project (Figure 5) which includes 36.7 million pounds of uranium.
The project is located approximately 120 km from the nearest population center (Winnemucca, Nevada) and covers 207 granted mining claims. The Aurora Energy Metals Project contains an Indicated JORC Resource of 65.7 Mt @ 253 ppm eU3O8 (36.7 Mlb eU3O8) and an Inferred Resource of 3.6 Mt @ 151 ppm eU3O8 (1.2 Mlb eU3O8), for a total of 37.9 Mlb eU3O8.
This includes a high-grade core of 18.4 Mt at 444 ppm eU3O8 based on a cut-off grade of 300 ppm eU3O8 (Table 1).
Although the uranium resources are not high grade, the continuity appears to be good (Figure 6) and there appears to be a reasonable possibility that the overlying lithium mineralization (Table 2) contained within the hectorite clay minerals may be recovered, given that the nearby rhyolite ridge which is targeting the start of construction before the end of 2022.
With a junior market littered with overpriced explorers (a few have passed through our office in recent months), I think it’s a real amateur when it comes to market appeal.
With an EV of less than $9.0 million and an experienced board chaired by mining engineer Peter Lester, demand for this IPO should be strong…and more than likely strong aftermarket stock.
Having a real set of lithium and uranium in a deposit is almost as good as having a Scotch Balvenie in one hand and a Plasencia Late Hour cigar in the other.
My office overlooks the Mitchell River Group office, so I should go knock on the door and see what they’re up to.
I didn’t think there was intelligent life in this building due to the drab exterior (and some of the creatures seen entering the building), but I could be wrong….
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives ranging from mergers and acquisitions, IPOs to valuations, consulting and corporate advisory roles.
He was Head of Research at Morgan Stockbroking Limited (Perth) before joining Tolhurst Noall as a corporate adviser in July 1998. Prior to entering the brokerage industry he spent 10 years as a survey geologist exploration and mining in Australia, Canada and the United States. States. Any views, information or opinions expressed in the interview for this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed, or otherwise taken responsibility for the financial product advice contained in this article.
