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The Critical Investor was asked again by Streetwise Reports to provide his top 7 picks for the new year — at a point where the COVID-19 pandemic is playing out the Omicron variant, inflation is reaching levels not seen in decades, the Fed surprising the markets with a more hawkish stance than anticipated, with metal prices at very high levels although gold and silver seem to be consolidating and setting up for a breakout.
Since my portfolio usually consists of a mix of commodities, themes, and stages, this year is no different. For example uranium is a commodity that could gain momentum this year. I anticipate a potential run for 2022 in uranium related equities, as I view the Sprott Uranium Trust efforts to kickstart utility contract buying by cornering a significant part of the spot market not without merit, since I expect Sprott to have done their homework before they intend to spend US$1.3B on uranium oxide speculation. My uranium play of choice is an explorer, with in my opinion the single best uranium geologist at the helm, who among other discoveries found the Arrow deposit (owned by NexGen Energy): James Sykes.
Another interesting theme is the EV market, and its related metals like copper and lithium. Although lithium product prices are trending extremely high right now (US$34,000/t battery grade carbonate), and could correct soon, I expect them to remain well above US$20,000-25,000/t for the foreseeable future, still rendering lots of lithium projects extremely economic.
After watching the explosive run-up and crashing down of the iron ore price, it seems the bottom is in, and I selected the primary pure play on this metal to follow an eventual recovery.
The cornerstone of my holdings consists of a number of precious metals plays in various stages, although I must express some preference for advanced plays here, after running into a fair share of failures with binary, early-stage exploration narratives. So no swing-for-the-fences 20–50 baggers here for this year, but several (at least in my view) solid chances for 3–5 baggers.
Without further ado, here are my top seven picks for 2022.
Market cap C$44.68M, share price C$0.74, cash position C$5M
We kick off with World Copper, a copper developer, who owns 2 advanced copper projects, Escalones (oxides/sulfides) in Chile and Zonia (oxides) in Arizona, and a greenfields copper project, Cristal, also in Chile. Management and Board of Directors contain some heavyweights, like Executive Director Marcelo Awad (18 years with Codelco, 8 years CEO of Antofagasta), Roberto Fréraut (just retired early as Exploration Manager for Codelco Chile), and Patrick Burns (directly involved in the discovery of Escondida and Zaldivar). A 2018 PEA was completed on the Zonia oxide project, where a M&I resource of 77M short tons (@0.33% Cu) and Inferred resource of 27M short tonnes (@0.28%) result in an after-tax NPV8 of US$192M and IRR of 29% based on a copper price of US$3.00/lb Cu. At a US$4.00/lb Cu copper price the after-tax NPV8 increases to US$447M.
The Escalones project contains an Inferred 426Mt @0.47% Cu oxide resource, and when benchmarking this to the Marimaca oxide project (owned by Marimaca Copper > MARI.TO), a back-of-the-envelope NPV8 estimate of US$1B based on $4.00/lb Cu doesn’t seem unrealistic at all. The Escalones PEA is expected soon, at the end of January. There is also lots of exploration potential to expand the Escalones deposit. On top of this, World Copper is planning a small drill program at their Cristal project of 4-6 holes of 500-1,000m each, to test large porphyry potential.
Market cap C$14.29M, share price C$0.22, cash position C$2M
An interesting advanced explorer in the Americas is Aztec Minerals, founded by Chairman Bradford Cooke, who also founded (and is Executive Chairman of) Endeavour Silver (EDR.TO, C$835M market cap). Aztec is operating two JV-ed projects, Tombstone (65/35) in Arizona, and Cervantes (75/25) in Sonora, Mexico. Both projects have already seen enough drilling to calculate some back-of-the-envelope estimates, and for both projects potential estimates come in at 600-800koz Au.
The mineralization for both projects is hosted in heap leachable oxides, and intercepted grades so far for both projects indicate pretty economic potential. The wildcard for both projects is large scale exploration potential at depth: at Tombstone the company is focusing on CRD style mineralization, at Cervantes drilling is ongoing at porphyry gold-copper targets. Drill results for Cervantes are expected in the second half of February, another drill program for Tombstone is being planned.
Market cap C$74,79M, share price C$0.91, cash position C$20M
When people talk about uranium exploration in the Athabasca Basin, there is basically one name to rule them all: James Sykes. The CEO of Baselode Energy singlehandedly discovered the Tier I Arrow deposit of NexGen Energy (currently at a market cap of C$2.8B, just based on developing Arrow) against orders from management who told him to drill elsewhere, before this he expanded the Roughrider deposit of Hathor Exploration (sold to Rio Tinto for C$654M) by remodeling their data and showing a completely different strike direction of mineralization, and in turn caused Fission Energy to “discover” the high grade J-Zone directly adjacent to and on strike with this new strike direction of Roughrider, and this J-Zone was bought by Denison a few years later for C$70M.
A long story short: Sykes knows how to find uranium like no other, and he is now running his own show over at Baselode. Their flagship project is called Hook, with the current focus on the Ackio-GMX target, and they already made a near surface high grade discovery in a basement-hosted host rock environment, comparable to Arrow and Roughrider. The only difference is that Sykes is looking just outside the traditional boundaries of the Athabasca Basin, to see if he can avoid the technical challenges that a lot of the current Basin mines and deposits are facing. The company has strong institutional support, as 50% is owned by them, an equally strong cash position, and drilling is ongoing.
Market cap C$29.38M, share price C$0.40, cash position C$6.5M
As a member of the Grosso Group, Argentina Lithium is firmly focused on Argentina for doing business. Joe Grosso and his people have been conducting exploration and development for decades in the LatAm country, and as such know exactly how to successfully navigate the sometimes complex processes in Argentina. After a period of relative inactivity due to lowering lithium sentiment, Argentina Lithium acquired several prospective brine lithium properties in the so-called Lithium Triangle, raised almost C$6M, and is completing surveys and exploration permitting at the moment, as preparation for drill programs at 2 of their projects later this year.
One of these projects is the Rincon West project, and interestingly the next door Rincon project (owned by Rincon Mining, a private company owned by Sentient Equity Partners) was recently acquired by Rio Tinto for $825M. With lithium product prices at all time highs and over 4 times the levels needed to render 300-400Mg/L Li grades for brines economic, there seems to be a pretty good chance at exploration success this summer.
Market cap C$2.72B, share price C$5.38, cash position net positive C$182.9M
Champion Iron is the largest listed pure play iron ore producer in the world and also managed very well, and as such for me the best possible proxy for the iron ore price. The company is looking to meaningfully expand their production (from 7.4Mt to 15Mt per annum), while the iron ore price is recovering again. Flagship project Bloom Lake is projected to double production after the ongoing Phase II expansion is completed. Over fiscal year 2021 Champion Ore realized C$819.5M in EBITDA, but already C$605.8M in EBITDA over the first 6 months of fiscal year 2022 (ending Sept 30, 2021).
Champion Iron has some of the best quality iron ore at Bloom Lake, and is one of the lowest cost producers in the world. The company also owns the nearby 7.8Mtpa Kami project (once explored and developed by Alderon Iron Ore, which defaulted on debt repayments, seeing creditor Sprott seizing the asset, followed by the acquisition by Champion in 2021), planning to update the FS by the end of 2022. Fun part is Champion also acquired Bloom Lake out of bankruptcy protection years ago. Another large project is their former flagship 9.3Mtpa Fire Lake North project.
Market cap C$82.46M, share price C$0.63, cash position C$15M
After acquiring the Homestake Ridge project from Fury Gold Mines for C$50M (C$5M in cash and C$45M in equity, causing the pro forma market cap to increase by 58% after closing of the transaction), Dolly Varden Silver gained almost 1Moz high grade Au, and 20Moz Ag, next door to their namesake Dolly Varden project which already contained 32.9Moz Ag Ind and 11.4Moz Ag Inf. The combined project will be called Kitsault Valley project, and will benefit from synergies when developed into a mine.
The Homestake Ridge project had a PEA completed in 2020, providing already sound economics at an after-tax NPV5 of US$173M at conservative metal prices. At current spot prices I estimate the NPV5 to increase to over US$300M. When combining the two projects, a back-of-the-envelope estimate of economics generated a hypothetical NPV5 of US$500M. Dolly Varden management is looking at a season of exploration first, in order to unlock the size and potential of the deposits, providing a solid base for the combined PEA. Eric Sprott owns 11% of the company.
Market cap C$72.74M, share price C$0.63, cash position C$16M
Goldshore Resources is a relatively new explorer/developer that listed in the summer of last year. Their Moss Lake project was acquired from Wesdome for about C$52M in staged payments, of which C$32M has been completed now, and the balance is due in shares only. The Moss Lake deposit has a 2013 historic resource of 4Moz Au, with most of it being open pit potential, at an average historic grade of 1.1g/t. The 2013 PEA resulted in an after-tax NPV5 of US$444M based on a gold price of US$1700/oz Au.
Management aims at proving up 6-8 Moz Au, which would mean a Tier I deposit. As it is a large project, this means a lot of drilling, and management doesn’t shy away from the task, and initiated a 100,000m drill program, planned to be completed at the end of Q2, 2022, and is looking to go on full force with 4-5 drill rigs after this, of course depending on drill results and market conditions which will determine pricing and timing of capital raises.
Management is looking to prove up and meaningfully expand the resource and as a consequence the open pit size and depth as well, and is looking at lots of other parameters to improve. For example recoveries in the 2013 PEA were just 80-85%, management thinks it could improve them to maybe even as high as 95%. Other items are strip ratio, average grade, processing and mine production.
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This concludes my article about my top picks for 2022, I hope you found some interesting starting points for doing your own due diligence, as always. To never miss a thing, please subscribe to my free newsletter at http://www.criticalinvestor.eu/, in order to get an email notice of my new articles soon after they are published.
The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high-quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value.
Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.
The author is not a registered investment advisor, and currently has a position in these stocks: World Copper Ltd., Aztec Minerals Inc., Baselode Energy Corp., Argentina Lithium and Energy Corp., Champion Iron Ltd, Dolly Varden Silver Corp., and Goldshore Resources Inc.
Aztec Minerals Inc., Argentina Lithium and Energy Corp., and Dolly Varden Silver Corp. are sponsoring companies. All facts are to be checked by the reader. For more information go to the company’s website and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
All charts and graphics provided by the author.
All pictures are company material, unless stated otherwise.
All currencies are in U.S. dollars, unless stated otherwise.
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