ShareProphets

Andrew Monk's call on commodity prices and SIX small miners to buy

By Tom Winnifrith | Wednesday 10 January 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


After his (belated) return to his desk Andrew Monk of VSA Resources has sent out another big report today to those lucky enough to be on his private email list. This time it is mining stocks. Over to the Monkey... 

Now mining I split very much into 2 segments- Majors and Minors  There is a lot of fun to be had playing the Minors and you can make good money but I’ll l be honest it really is a bit of a casino and so many of them will never go into production – but of course the upside if they do can be absolutely huge which is why people will keep playing – I do try to differentiate and I do try and say when I am just playing the casino……….but first let’s have a quick look at the underlying commodities and my thoughts 

 

 

% Change

Start

End

PGMS

 

US$/oz

 

Gold

12%

           1,159

           1,303

Silver

4%

                 16

                 17

Platinum

-1%

               937

               928

Palladium

50%

               709

           1,064

Rhodium

123%

               770

           1,715

Bulks

 

 US$/t

 

Iron Ore

-9%

                 78

                 71

Met Coal

17%

               224

               262

Thermal Coal

15%

                 67

                 77

Metals

 

 US$/t

 

Cobalt

130%

         32,750

         75,250

Copper

32%

           5,500

           7,247

Lead

23%

           2,015

           2,488

Nickel

29%

           9,910

         12,760

Aluminium

34%

           1,687

           2,268

Zinc

32%

           2,521

           3,319

Vanadium

100%

         11,023

         22,046

Lithium Carbonate

40%

         10,000

         14,000

Lithium Hydroxide

5%

         20,500

         21,500

 

No surprises Battery Materials which I bang on and on about were the big winners – Cobalt, Lithium and Vanadium. Palladium was good but very niche – Copper was a success and the one I really pushed in the major metals

We often see commodities that had a good year then have a bad year and vice versa but I feel that 2018 may just be an extension of 2017. I have been a huge buyer of the Battery Materials space now for about 5 years and selectively I remain that way as it is going to run and run and it encompasses many different commodities – don t just think Lithium and Cobalt ! You have Copper , Nickel and Vanadium to name but a few 

Gold to me is basically a hedge but a hedge I quite like and I don’t see much downside as it has really done nothing for the last  5 years but it doesn’t drop out of bed and has a long term upward trend as a safe haven

I really don’t like Coal but it has had a surpirsing rally which I think has to run out of steam

 

 

And Iron ore is pretty similar but hasn’t rallied as much

 

So to the Majors

Anglo African , Antofagasta, Billiton , Fresnillo , Glencore, Rio and Randgold …………spoilt for choice !! And you could have Johnson Matthey but I will put them in the Energy section tomorrow They all did OK last year but the stars of the show were Glencore and Rio . Glencore is going through an amazing recovery and positioning itself as a Battery Materials company , it also does well in its Agri division and of course has an oil division …………..would I buy now ? No , I think we are back to where they should be and were before their troubles but can’t get excited 

 

 

Rio’s which has not been my favourite has done well as its underlying commodities have done well and surprised me …………but we are close to 20 year highs if you remove the very top spike at the start of 2008 and so I really don’t want to chase even though the divi is very attractive………..but it probably is a “core holding” and so you can’t be too negative and I was – mistake

 

I think Fresnillo and Anglo American are very much special sits which I don’t really get excited by. There’s a lot of good things about Billiton and Andrew McKenzie is doing a good job – I remember meeting him in 2007 , well before he was CEO , we had lunch together , and even then I was impressed , so I’m happy to buy Billiton and with the activists around it does no harm and you do have yield over 4% 

 If you think Copper will keep rallying which I do – then keep on with Antofagasta

 

And if you want to play Gold or have a hedge – there really is only one play and that Randgold as the quality play with Mark Bristow

Actually when you look at these 20 year price charts you wonder what all the Mining collapse was about – a mere blip !! Basically you buy these giants and just sit with them for 20 years !!!

Now a bit like in Oil yesterday , the Mid caps struggle to excite me but here are stocks like Centamin (good trading update today) , Vedanta and Kaz Minerals with market caps between £2bn and £4bn …………not really Mid caps but FTSE size and so shouldn’t be ignored but I struggle to get excited right now and the 10 year charts (haven’t all been listed 20 years show why )

Not quite the same are they , so you may as well stick with the majors. Which brings me onto the exciting small caps which we all just love !!

To me, despite there being more than 100 stocks out there in junior mining, there a re 3 probaly core holdings now and 3 that I like but handle with care 

My core 3 are : Central Asia Metals , Bacanora and Horizonte

 CAML as it  is knowm just has some brilliant management and they just do as they say on the tin and deliver year in and out  and they yield over 5% !!...........They are copper which I like too…………there’s never a right time to buy a good stock and today feels high but it has to be a core holding- the market cap is now over £500mn and so not a tiddler anymore. 

 

Bacanora – well in 2017 I had my doubts but they have now all been put to bed and this Lithium mine will be put into production and in my view will slowly rise throughout 2018 to about 200p  and it has basically done nothing in last 5 years and so a good time to get in (note again I pre wrote this and the share price is already rallying pretty strongly in fact it is already up about 45% but don’t worry you can still play  )

 

 

Now as an Institution Bacanora is the stock you want – just wait for a day the stock has come back – as a punter I can tell you how to buy as if the price hadn’t rallied 45%. Take a look at Cadence

Cadence owns 7% of Bacanora (has been selling down from 16% which probably explains the shape of the chart) and has 30% interest in the Mexilit JV (BCN holds remaining 70%). Therefore Cadence has a 35% effective interest in the Mexilit JV.

The Mexilit JV makes up 57% of the total Sonora resource with BCN owning 100% of the remainder – I’ve then adjusted this for the 705kt in Germany. If you back out the Mexilit resource from the current m’cap and apply Cadence 35% I get £43m, this is before including Cadence 20% stake in European Metals and Auroch Minerals.

So Cadence is currently at a 60% discount to NAV which is crazy . Now the debt is a Yorkville debt which will hold some people off and this is a Lenigas stock which will hold others off but a 30% discount would be fairer  - they should pay Yorkville off with their cash and that would help

 If it moved to a 30% discount you can double your money , so 0.37p today and it should trade at about 0.7p

  

 

Horizonte is quite a new one on my list and the smallest but everything seems to be pointing their way and I want Nickel exposure and they seem to be doing the right things and a great acquisition the other day with a small fund raise – they feel like the CAML of Nickel and 3 years behind …………

 So finally 1 more for you ………..a little special !!

The punters favourite – Asiamet , no need to repeat the story as I have now been pushing this for about 5 years but it could just keep going


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