SmallCapInvestor Portfolio Update - February 2023
Markets have been pretty quiet over the last week so I have decided to do a quick recap of everything I am currently holding. My portfolio is still heavily concentrated in the junior resource sector, particularly in copper, uranium, gold as well as one alternative sector.
The metal I am most bullish on at the moment is copper, mainly due to the looming supply deficit which is set to inundate the global copper market over the next couple of years and beyond.
Copper is a key metal in the clean energy transition — the electrification of the global vehicle fleet and the switch to renewable energy for power generation will both require massive amounts of copper. There is practically no alternative to copper as an effective electrical and thermal conductor (only silver is a better conductor but costs preclude it from being feasibly used). Additionally, copper content is particularly high in numerous key technologies required for decarbonization.
PENDING SUPPLY CRUNCH
As outlined above, the demand for copper is rising rapidly. So much so, that copper supply will be unable to keep up.
A lack of new discoveries geopolitical risk factors and environmental, social and governance concerns, and declining ore grades are all set to impact the future supply of copper. There is no clear solution as to how the supply gap for copper will be filled, thus, I believe copper prices will continue to rise over the coming years.
My top copper pick is Atex Resources (TSXV:ATX) but I have also been building a small starter position in Faraday Copper (TSXV:FDY).
ATEX RESOURCES (TSXV:ATX)
Atex Resources is currently my largest holding and top copper pick.
The company is focused on exploring and developing the Valeriano Project, which is located right in the heart of elephant country (The Link Belt), near the likes of some major copper deposits including Filo Mining’s Filo de Sol project.
Valeriano is a large porphyry-style copper deposit with an inferred resource of: 3.90 B lbs. Cu and 1.84 M oz Au, but more importantly has massive exploration upside.
Valeriano has already shown some incredible drill intersections including:
VALDD-14: 1,194 metres grading 0.73% copper equivalent including 272m of 1.00% CuEq
ATXD-17: 1,160 metres grading 0.78% copper equivalent including 550 metres of 1.03% CuEq
ATXD-17 in particular ranks highly among the top copper intercepts over the last three years, even better than Solaris Resources, which currently has a market cap over $900M.
The cherry on top for me with Atex Resources is that the company is backed by gold billionaire Pierre Lassonde, who is one of the most highly respected entrepreneurs in the mining industry and a +10% shareholder in Atex.
I have had a lot of success in resource investing by following smart money and this is another great opportunity to invest alongside the best of ‘em.
FARADAY COPPER (TSXV:FDY)
My position here is very light but may increase depending on the results of the upcoming drill program.
Faraday Copper is exploring and developing the Copper Creek copper project in Arizona, which is one the largest undeveloped copper projects in North America. Copper Creek has over 3.9 Blbs of copper M&I Mineral Resources, and potential for a 30+ year mine life.
The company is well funded and backed by BIG money. Pierre Lassonde, Murray Edwards, and the Lundin family are all strategic shareholders in this deal. Another opportunity to invest alongside some very successful resource investors.
As for the metrics, Faraday is pretty undervalued compared with peers on an EV/M&I Resource and P/NAV resource basis as evidenced by the graph below.
As for upcoming catalysts, Faraday Copper is set to release an updated PEA for Copper Creek this year and is also cashed up for a massive drill program, as the company just closed on a $40M bought deal priced at $0.80.
My bullish thesis on Uranium is backed by the fact that Uranium is one of the cleanest and safest sources of energy out there and if we as a society plan to transition to a green economy, nuclear energy will need to play a bigger role. The electricity and power needs of the world cannot be met with solar, wind, and geothermal energy sources alone as these sources simply cannot produce enough power.
Governments around the world seem to be coming to this realization as the US Department of Energy purchased 300 thousand pounds of U3O8, kicking off its earlier solicitation to buy 1 million pounds with up to $75 million in contracts for the strategic uranium reserve. Also, Japan ordered the development of new power plants and approved the restart of 17 shut-down reactors, marking a historical pivot of confidence in the sector since the 2011 Fukushima meltdown. Further, China’s nuclear authorities expanded construction capacity to increase their power plant building objectives to 10 new reactors per year. All of these events are pointing towards an increase in future uranium demand.
STRATHMORE PLUS URANIUM (TSXV:SUU)
In a previous article last month, I highlighted the potential for Strathmore Plus and made a 10x prediction on the stock, and as of today, my prediction still stands. The market cap on SUU is still only $17M, so it is still very cheap. The CEO of Strathmore Plus, Dev Randhawa, has done an incredible job of keeping the float very tight (under 35M shares outstanding) while assembling a great portfolio of projects. A 10-bagger from here would imply a ~$170M cap on SUU. Looking at his other company FUU, I don’t believe this is out of reach. All it would take is one great drill hole from the Night Owl project and I think the stock could see a huge jump in price.
F3 URANIUM (TSXV:FUU)
F3 Uranium, previously known as Fission 3.0, is one I have written a lot about recently. The company is run by the same management team as Strathmore Plus and this team has a strong track record of discoveries in the uranium space. At the beginning of the year, F3 announced a 20-hole drill program which will start to delineate the resource and give us a better understand of how big this deposit really is. So far, we have seen the results of the first eight holes of this program and they have continued to intersect high-grade as well as ultra high-grade uranium mineralization — very positive. Out of the eight reported drill holes so far, seven are mineralized and five have high grade mineralization with radioactivity >10,000 cps. Hole PLN23-048 hit 14.0m total composite mineralization with 4.0m of >40,000 cps, including 0.5m of "offscale" or >65,535 cps. In addition, the URA Uranium ETF bought 14 million shares of F3 at a price of $0.40 just a few weeks ago.
Although I am slightly less bullish on gold than copper and uranium, I do expect prices to rise throughout the year as the U.S. dollar continues to soften and the central banks of countries like Russia and China continue to add to their gold stockpiles.
I only have one gold stock in my portfolio at the moment and that stock is Augusta Gold.
AUGUSTA GOLD (TSX:G)
Augusta Gold is focused on developing the Reward and Bullfrog gold projects just outside of Beatty, Nevada, one of the most top gold districts on the entire planet.
The Bullfrog project is located in the prolific Walker Lane district of Nevada, an area that is very active with junior and senior gold companies involved in exploration, development, and asset consolidation. The project has M&I resources (December 2021 at $1,550/oz) of 1,209 koz Au at 0.53 g/t (94%oxide) and Inferred resources of 258 koz Au at 0.48 g/t (91% oxide). I expect to see a completed PFS on the bullfrog project within the next few months. Augusta is also currently advancing a multi-target exploration program at Bullfrog.
The Reward Project is a shovel ready, oxide gold project in close proximity to Augusta's Bullfrog Project and will likely be going into production sometime in 2024. Augusta has all major permits in hand to commence construction and operations. Resources are presently defined by 427 koz Au at 0.75 g/t M&I and 27 koz Au at 0.68 g/t Inferred.
With regards to the share price, Augusta’s stock has not performed well in 2023. The company announced a $10M bought-deal at CAD$1.70 while the stock was trading closer to CAD$2.00 and it seems the market was not happy about it. To be honest, neither was I which is why I traded out of the majority of my position in order to wait for the dust to settle, and I think it is starting to now.
Since the bought deal announcement, the stock has fallen off a cliff and looks to have bottomed around $1.25 — more than a 35% drop in about a month. Rather than being angry at short-term share price performance, I see this drop as a nice opportunity to get back in even lower than the initial price that management was able to get in at.
TD has a $3.50 price target on the stock, implying a 170% return on Augusta’s share. The price target was derived by applying a 0.8x multiple to NAV, so it is quite reasonable as G is currently trading around 0.35x NAV, a huge discount to peers.
While I don’t expect this price target to hit anytime soon, I do expect the target to be met over the long term as the assets go into production.
With Augusta Gold, I am not betting on the resource, rather I am betting on the jockey.
Augusta Gold is backed by billionaire, Richard Warke, and is led by a management team that knows resource exploration and development better than anyone in the business. I have made a lot of money investing in this group in the past and I believe they are going to repeat their success with Augusta Gold. This management team is also very talented and creative when it comes to M&A so I would not be surprised to see another asset get added to their portfolio this year to boost the number of oz in the ground.
NEXE INNOVATIONS (TSXV:NEXE)
NEXE Innovations is the only non-resource stock in my portfolio.
Long story short, NEXE makes compostable coffee-pods. It is a very simple story but has immense potential. NEXE has solid fundamentals and is solving a real-world issue. The stock actually hit $6 after its IPO a few years ago and the structure has not changed much since. However, the company has made a ton of solid progress recently and is on the verge of opening its 54,000 sq.ft. production facility in Windsor, Ontario which I believe will act as a major catalyst for incoming sales contracts and ultimately, for the share price.
In the company’s most recent MD&A, they stated this: "The Company expects that private label and co-manufacturing contracts will reliably fill the production capacity of the Windsor Facility (defined below) as it comes online." This is key as the company is basically implying that they already have sales contracts lined up as production comes online.
The Windsor facility will have a total production capacity of 500 million pods by 2024, which would translate to about $150 million in annual revenue and $30 million annual gross profit, assuming a $0.30/pod wholesale price and 20% marg
This is where my portfolio stands as of February 2023, but l am always on the hunt for new deals and new opportunities to capitalize on. There are a couple of things that I am looking into at the moment, one of them is a very early-stage gold exploration company with a ton of upside … so stay tuned.