What is the driving force behind investment in exploration funding for juniors in Australia?
As a long-only fund, our primary concentration is on investing in junior resource businesses around the world. As a starting point, we often look into businesses that have a market cap of less than two hundred million Australian dollars. We are searching for the “mythical ten-bagger,” and we are attempting to concentrate on pre-developers, which are businesses that have a significant amount of exploratory upside. Because exploration is fraught with a great deal of danger, we must be able to identify the possibility of big profits.
Is there a particular sector of the economy, a particular crop, or a particular jurisdiction that you are particularly interested in?
Given that we are situated in Australia, it is only natural for us to be drawn to management teams that we are already familiar with. However, we do have a few companies that are listed abroad, primarily on the TSXV. The majority of our investments are listed on the Australian Securities Exchange (ASX). Additionally, we have a number of investments that are not publicly traded. If we are talking about niche regions, we have quite a bit of exposure to Guinea, which is located in West Africa. However, we have a significant number of investments in Australia. An excellent investment for the Fund has been made in businesses such as Predictive Discovery (ASX: PDI), which has performed exceptionally well in that market.
We are prepared to make investments in sovereign risk nations that are located further afield. With the condition that the prospective profits are commensurate with the risk, we are not concerned with the geographical location of the investment, and we cover the entire spectrum of commodities. We are currently involved in around thirty percent of the gold market, thirty percent of the battery materials market, and we also engage in virtually every other industry, all the way up to oil and gas.
The supply constraints that are occurring across all commodities, notably in battery metals, are currently one of the most prominent concerns on the industry’s radar. In what areas do you believe there are some of the most significant supply gaps in the industry at the moment?
It is intriguing since lithium is currently the most prevalent mineral in our battery minerals exposure, despite the fact that the prices of lithium have significantly decreased in recent years. However, there is still a significant demand for lithium into China, according to anecdotal evidence. It has been brought to our attention that the Chinese continue to import lepidolite, which is a mineral that contains a significant amount of lithium and is currently at the place on the cost curve where it is profitable to do so. It is also possible that it is slightly lower than what analysts consider to be the breakeven price. Therefore, the fact that China continues to import something like that, which is substantially more difficult to process, indicates that there is still a reasonable demand for lithium in China. It has also been brought to our attention that manganese is in great demand and has a promising future in terms of battery chemistry.
Longer term, we have a preference for copper, just like the majority of people do; nevertheless, we anticipate that there will be an excess of copper on the market from now until the end of 2024. This is because additional production is expected to enter the market, and there may be a relatively low demand coming from China. In contrast, we believe that copper will become an appealing fundamental commodity beyond the year 2024.
If we are able to achieve higher gold prices and trend upward rather than downward, then the sentiment of junior gold explorers will shift into a more positive direction.
In recent times, there has been a slight disparity between the pricing of metals and the valuations of junior sector stocks. I was wondering if you had any insight into why this is happening and if there are any viable solutions to this problem.
Indeed, without a doubt. While gold prices have been pretty high, the junior gold explorers have been neglected and very unloved as of late. This is the case despite the fact that gold prices have been very high. At the moment, the price of gold is more than three thousand Australian dollars per ounce. Now hovering between $1,925 and $1,930 per ounce, the price of gold in US dollars has recovered from its previous level of approximately $1,820 earlier in the month of October. Therefore, a very reasonable price. The producers are generating a lot of money, and they are the ones who are taking it easy and saying things like, “Okay, well, we can almost pick and choose the juniors that we want to acquire.” This is due to the fact that there is not a lot of competition or urgency in the mergers and acquisitions sector at the moment.
It should come as no surprise that a higher price is the answer to how gold explorers might improve their valuations. The price of gold skyrocketed to more than $2,000 per ounce at the beginning of May. Although it was only temporary, there was a rebirth of interest in the junior sector; nevertheless, this desire quickly dissipated as the price of gold returned to below $2,000 per ounce.
What factors are likely to force the price of gold to rise? In my opinion, there is a shift in the interest rate regime in the United States as well as the real interest rates. It is possible that the sentiment of junior gold explorers will shift if we are able to achieve higher gold prices that are trending upward rather than downward.
Let’s have a conversation about some of the most significant obstacles or issues that explorers face in this industry, particularly at the junior level. In the future, what are some ways that these problems can be addressed?
Geologists, drilling, and assays are the three most important components of junior exploration responsibilities. We are absolutely seeing that drill rigs are becoming more readily available, and a number of businesses are actually organizing drill for equity, which is a method in which drilling organizations will not be compensated all of their invoices in cash. On the other hand, they will receive a percentage of their costs in the form of shares. That is one of the challenges that has been reduced to a lesser extent. My opinion is that geologists are still relatively difficult to come by, and based on my personal experience, the cost of a competent geologist is not decreasing at all. In addition to this, we have observed that turnaround times for assays have decreased, and there is an increase in capacity.
Permitting and access are the most significant challenges, and they are becoming even more difficult to overcome. In spite of the fact that Western Australia is widely regarded as one of the most enticing locations in the world for exploration and mining, there are regions that are almost entirely restricted. There is a possibility that businesses will have to wait for a new tenement to be issued, after which they will be able to obtain access and complete the heritage agreements.
The market for some of these junior explorers does not reflect the fact that this places a premium on projects that are ready to be drilled when they are completed.
To what extent does a lack of money provide a challenge for businesses when it comes to further exploration?
When it comes to exploration, there are several exceptions, the most notable of which are uranium, rare earths to a lesser extent, and it goes without saying that lithium. Nevertheless, gold, which continues to be the favorite go-to target commodity for a great number of junior enterprises, has proven to be quite challenging to raise funding for throughout the course of 2023. De Grey Mining (ASX: DEG) recently raised $300 million, which is US$300 million, but that is a far more advanced project and possibly one of the best gold finds in Australia in the previous 20 years. We have seen some large raisings in gold, such as De Grey Mining. That stands out as an exception to the general rule. In spite of the fact that it has been challenging, there is a great deal of value available for investors to take advantage of.
Let me conclude by asking if there is anything that you are finding particularly fascinating about the sector at the moment, or if there are any things that you would recommend that we keep an eye out for.
There is a significant disparity in valuation between ASX explorers and TSX explorers, which may be a phenomenon that is gradually becoming more equitable but has been highly noticeable. It is reasonable to anticipate that valuations will be greater in North America than they are in Australia; yet, the situation is actually quite the opposite at the present. With that being said, for someone like me, it is almost like being a child in a candy store when I look at those values in North America and see firms sitting on wonderful ideas with valuations that are next to nothing.
There are a great number of them, which is the problem. It is impossible to invest in all of them; which one do you decide to go with? In example, there are some intriguing opportunities available in North American corporations that are working on projects in either North or South America simultaneously.
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