David Franklyn from Argonaut Funds Management has outlined his top themes and stock picks in the current economic climate.
The Argonaut Natural Resources Fund has gained 188% since inception and Franklyn gave delegates at the Tribeca Future Facing Commodities Conference in Singapore an overview of what he’s seeing in the mining space.
Battery minerals including lithium performed strongly in 2022 as the energy transition gathered pace.
“In the past 6-9 months that story has changed,” Franklyn said.
Franklyn said China was exerting its power in certain commodities, including rare earths and graphite.
Another key theme is the reconfiguration of supply chains.
“We’re seeing almost a duplication of supply chains so we can get security of supply,” Franklyn said.
Franklyn also noted that a surge in global defence spending would also be good for metals.
Looking at lithium, Franklyn said Pilbara Minerals’ December half 2023 financial results could be a good snapshot of how the sector could look in the future.
Pilbara produced 320,153 tonnes of spodumene in the period, achieving an average price of US$1645 per tonne.
Revenue was A$760 million and EBITDA was A$415 million for a margin of 55%, which Franklyn said could be an indicator of margins going forward.
Argonaut’s top pick in lithium is Patriot Battery Metals, which owns the Corvette lithium discovery in Canada.
“We’re looking for more tier one development assets,” Franklyn said.
Corvette has a resource estimate of 109.2 million tonnes at 1.42% lithium oxide.
Earlier in the conference, Patriot chief operating officer Blair Way said the company was aiming to report a resource update in the September 2024 quarter.
“It’s likely to grow to 150 million tonnes or more,” Franklyn said.
Former Pilbara managing director Ken Brinsden was chairman of Patriot but recently became MD and relocated to Canada.
“We think that’s pretty exciting,” said Franklyn.
Argonaut is also excited by uranium, which recently hit a 16-year high of more than US$106 per pound.
There are 62 nuclear reactors under construction around the world.
“Uranium is undoubtedly going to grow its market share,” Franklyn said.
“There’s really one company I think is a standout in the sector and that’s NexGen Energy.”
Franklyn cited NexGen’s large, high-grade Rook I project in Saskatchewan and provincial approval (with federal approval expected to follow later this year) as the reasons why the company was a standout.
In copper, newly listed Metals Acquisition is Franklyn’s top pick.
Argonaut head of research Hayden Bairstow has a buy rating on Metals Acquisition and a A$22.80 price target.
“It’s very high-grade, it’s got a very good management team,” Franklyn said.
“We think it will emerge as a key pick in the Australian copper space.”
Gold hit an all-time high of US$2265 an ounce on Sunday.
Franklyn said interest in gold was still lacking from generalist investors.
“We think we’ll see improving demand in that area,” he said.
Argonaut’s checklist for gold stocks is long mine life, production growth, low operating and capital costs, tier one location and strong management team.
Based on that criteria, Argonaut’s top picks in the gold space are Capricorn Metals and Genesis Minerals.