We are seeing the best equity investment period since the 1980s
2020 has been one of major upheavals throughout the world. Amidst the chaos, we are now finally seeing the bright lights at the end of the tunnel. Noel Ong from Samso has been keeping a cool head on solid shoulders and he assures us that the lights are bright. He has been giving Brilliant-Online his classic insight into the mind boggling world of numbers and graphs.
For investors or traders within the Australian Stock Exchange (ASX), they have experienced one of the greatest shows of the last thirty years.
Get ready for the ASX show
Bonus: Samso managed to secure 30 passes for our investor followers and friends so that you can attend this RIU Sydney Resources Round-Up conference on 4, 5 & 6 May for free. Each conference ticket is $1,375.
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The recent GameStop squeeze in the US market is an example of how retail investors are swamping markets all over the world.
Believe it or not, this has been the best time to take that punt in a stock. From an investment point of view. It is certainly not something anyone would have expected while in the midst of battling a pandemic. There may be that rare few who have had an inkling of what was to come. With all that was happening due to COVID-19, this certainly comes as a surprise to know that it is a fertile time for investments.
Figure 2: Stock Exchange Index (source: www.igmarkets.com)
The charts in Figure 2 show why the equity markets have been a spectacular place to grow some money. Be careful though, as the trend may still be going up but the gold sector has not performed too well in certain weeks.
Noel explained to us about the charts in Figure 4, where one can see that the gold companies were almost at the same level as 12 months ago. And that was when the whole COVID-19 pandemic was starting to turn ugly. The gold equities have retreated and may be time for re-entry.
Go for Gold … or Not?
In the precious metals sector, there is a definite pullback for gold equities, but when we look at the physical gold price, it has not pulled back that much (Figure 3). Interestingly enough, the gold price in AUD may have dropped, but the producers are still making a lot of margins. At the most expensive AISC, we are still looking at a margin of around AUD$800 per ounce. Even at AUD$500, they are making good money.
Figure 3: Price of spot gold since 2019.
Noel's take on gold is that its movement is going to be dependent on how the market views all the stimulus that has been happening. It also pays to keep an open mind on what is in store in the coming years.
Simply put, the pandemic has made free-flowing money seem like an everyday occurrence.
For those of you who are more of a traditionalist, this is a sure sign of inflationary issues. In this case, you would hedge your bet that the gold price should rise.
Figure 4: The share price journey of Mid-Tier Australian gold producers and a
near-to-production company (ASX: CAI).
Gold has been in the spotlight in the market for the last 12 months. Perhaps it is time for it to take a step back from the limelight. Noel remembers a golden nugget of wisdom from a technical trader who once told him that sometimes the markets need to take a breather before being able to break into a new high.
Going by this piece of advice, perhaps this would be a great time to look for good positions.
Do not fret if you had missed out on stocks that had taken a run previously. This is a great opportunity to position yourself for the next run. There are still many companies out there with real value and which have been neglected by the market.
At the moment, Noel has spotted a few companies that have a great story with some exciting discoveries waiting to be revealed. It is the market that is keeping these companies in the shadows.
If you listen to the experts, they always say, invest from the top down. That means betting on the bigger "safer" counters first, like the producers and work your way down.
Figure 4a: The share price journey of Lefroy Exploration Limited (ASX: LEX).
The precious metal may have taken a step back, but it is good to see that exploration successes are still being rewarded. Many companies that are explorers now and have discovered some great intercepts are being happily rewarded (See Figure 4a).
One such company has been Lefroy Exploration Limited (ASX: LEX). They have recently announced, "Outstanding High-Grade Gold and Copper Mineralisation Intersected at Burns" and this has made their investors very happy. We are looking at a clear case of solid management and rewarding projects that have gained the trust of their investors.
In one of Noel's Coffee with Samso episodes with Rick Rule in 2020, Markets and Commodities with Rick Rule, Rick made a keen observation - gold is sought after as insurance and when people start talking about silver, greed is in the air.
Taking that as a basis for an investment, one cannot help but feel that the precious metal will continue to be in our favour.
Commodities to Look Out For
According to Noel, this one is actually very simple.
Basically, what with the coming of the electric vehicles, it is clear that we are looking at the next industrial revolution. Noel calls this the "Green Evolution" i.e. to have all manufacturing and mining to be green, being aware of the effects on the environment.
Take note of this - ¨green mining¨ is going to be the hottest catch phrase and you are going to be seeing this everywhere.
What is needed with this EV Revolution is lithium, graphite, nickel, copper, tin, tungsten, and even uranium. Noel points out that this list is only the predominant ones in the spotlight. For Noel, the mining of these metals is the lowest form of the EV Revolution. He believes that the main players would be the ones with processes that make anything the EV Revolution requires.
Here are some examples:
Andromeda Metals Limited (ASX: ADN) with their Halloysite,
Altech Chemicals Limited (ASX: ATC) with their HPA applications,
EcoGraft Limited (ASX: EGR) with the graphite recycling,
FYI Resources Limited (ASX: FYI) with their HPA applications
There are still many others that have not been mentioned. And each point in time reveals more. We are looking at a very organic situation where new companies could come to mind.
Figure 5: Share price chart of EGR and FYI. (source: commsec.com.au)
Companies like EcoGraft and FYI Resources (Figure 5) have created a lot of attention, so much so that their share prices have taken a run. Whether this trend will continue depends on how well they execute their business plans. What is noteworthy is that they represent another part of this EV Revolution that does not involve assays, drilling and geologists.
What about Nickel and Copper?
We are looking at two metals, nickel and copper, that are showing strong signs of a serious supply shortage for many years. Read Noel's article "Is the Commodities Shortage a Mirage?" which highlighted this issue at a time when it had not happened yet. Noel followed it up with another article nine months later with "Shortages in Metals".
Figure 6: Copper Price Chart.
Noel thinks the recent run in copper and nickel will keep many companies like Hot Chili Limited (ASX: HCH), Blackstone Minerals Limited (ASX; BSX), Galileo Mining Limited (ASX: GAL), Cyprium Metals Limited (ASX: CYM) and even the likes of aspiring explorers such as Adavale Resources Limited (ASX: ADD) in the spotlight.
Another thing to take note of is the introduction of the Environmental, Social, and Governance (ESG) factors. This is something that is going to drive the market.
Having that ¨green¨ touch has become a major requirement for projects nowadays. What is going to happen is that this will create more work in order to achieve this aim, and as end-users demand for this, we are looking at an inevitable rise in CAPEX and OPEX. To facilitate all of these requirements, the metal price has to be at a level that is consistent with the demands of the users.
Not Forgetting Zinc
Noel has a soft spot for zinc. It is one of this favourite metals and he is seeing this slowly coming to fruition. Zinc is also looking to break new highs (Figure 7). Noel has kept his eye on zinc for the last 5 years and it has been touting a global shortage. The chart shows movement in zinc, even if it is not as impressive as the others mentioned. Prior to the break out, the pattern was not overly impressive. Perhaps this is why they call it a break-out.
Figure 7: Tin and Zinc Price Chart.
Let's Talk about Tin
Tin is another metal you want to take note of. Noel's recent Coffee with Samso with Venture Minerals Limited (ASX; VMS) entitled "Time for Critical Metals - Tin and Tungsten: Venture Minerals Limited (ASX:VMS)" explains how this can become impactful for its shareholders if they are allowed to mine their Mount Lindsay Tin and Tungsten project in Tasmania, Australia.
We need to look at how tin positions itself with the EV Revolution to determine how durable this price rise is going to be. For many in the industry, it is not rocket science to realise that something may be arising. A durable run like this will make a company like Venture Minerals re-rate easily by the markets. We may be looking at a double benefit for Venture Minerals because historically, tungsten prices have followed the rise in tin. Could this therefore be a dark horse in this sector?
Noel does not see the market slowing down. A near term correction may happen, but for the long term visionaries, Noel is seeing a good story. Even though the gold sector has slowed down, there are still many rewarding opportunities.
The ASX growth is not restricted to commodities. Everything is flying and there is a lot of professional information out there that would support the buoyancy seen in world markets.
Caution is key in investing in this market. The fund management concept of a balanced portfolio at this time could make a lot more sense to all levels of investors, especially the retail investor.
Check out the Pros
Noel follows the likes of Warren Buffett to further understand how to invest and what is the safest way to do things. Small retail players would do well to adopt this same policy for investing in the small-cap industry. Professional investors are looking for steady management, good business models and the rising sector, so we should also look for similar things in the small-cap sector.
Warren Buffet has often said that if he does not understand what the business is and how they are generating the appreciation in capital he does not get into the stock. That is a gem of wisdom to keep in one's mind.
This can prevent people from getting into too many "Casino Investments”, driven by FOMO (Fear of Missing Out). This is essentially what drives all the bad investing decisions into "Hot Stocks". Many years ago, a very smart man, Geoff Donahue, held this same attitude. For Noel, this has been the game-changer in how he looks at this market.
What is to Come?
Noel believes this run over the last 12 months has more legs to come. The EV Revolution is going to bring in even more money into the sector, at least for the next 12 months. Another thing to note is the uncertainty in the supply of nickel and the EV metals. This will create concerns from producers and end-users of these metals.
Scott Williamson in one of Noel's Coffees with Samso mentioned that his conversations with end-users revealed that they were uncertain about the supply equation. End-users were not sure if the upcoming demand was going to be slow, a run or skyrocket. If it skyrockets, there are going to be major problems. The feeling is swinging more towards skyrocketing. That may well be a likely scenario to come.
The current rise in copper pricing seems to be pointing to a buoyant world economy. As this is an indicator of world economic growth, we are looking at exciting times for all industries that are here to stay. For Noel, the sudden tin price rise may be the clue that the so-called new economy is going to bring all metals back in fashion.
The new world has to be more efficient and slimmer in costings. The pandemic has also made us realise that economies could become less dependent on human interaction. Robotics and AI are going to be the focus which will mean more innovative thinking on raw materials used.
The isolation of China may bring down the monopoly on metals such as REE, tungsten, and tin. If this were to happen, there would be many companies that will benefit. And the effect of this? The sector will get a continued injection of cash which will continue the resurgence in the mineral resource sector.
Conversations with Rick Rule, Senior Managing Director, Sprott Inc.; President & CEO, Sprott U.S. Holdings
Listening well to Rick Rule pays off as he shares insightful advice on REE and Lithium and where to position yourself. He also points out the importance of understanding and believing the story of the company.
I find it interesting that Rick is not jumping on the bandwagon in excitement at the recent news hot off the press on REE and Silver which the market is talking about.
Tune in to understand why.
Rick Rule is a leading resource investor specialising in mining, energy, water utilities, forest products and agriculture. He has originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.
As a bonus, Rick offers to review your resource share portfolio here - https://sprottusa.com/brokerage-services/rankings/
Look out for the part where Rick offers to review your resource share portfolio. All you need to do is go to the link below and list your resource stocks and he will personally rank them from 1 to 10 (1 = best and 10 = worst). He will personally make comments on stocks that he knows as well. If you include charts in the question line, he will include Barron's gold mining chart which is a 50-year gold equities chart and a 100-year chart on commodities chart.
The information contained on this website is the writer’s personal opinion and is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. Read full Disclaimer.
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