MoneyTalks: How Canaccord’s Tim Hoff hunts for explorers in a market sapped of confidence

Persistence and a focus to 3 key components are keys to investor success in a battery metals sector down in confidence, says mining guru Tim Hoff.

The final time Canaccord Genuity senior mining analyst Hoff graced the MoneyTalks stage he delivered a sermon on investing in explorers making actual discoveries, and his picks didn’t disappoint.

Sure their discoveries had all been made, however the mining boffin nonetheless noticed the worth but to be crystallised in lithium driller Azure Minerals (ASX:AZS), niobium hopeful WA1 Assets (ASX:WA1) and gold digger Spartan Assets (ASX:SPR) once we caught up him eventually August’s Diggers and Sellers Mining Discussion board.

Since our chat within the huge tent subsequent to the Goldfields Arts Centre in Kalgoorlie, Azure is up 36 per cent (assuming your shares within the Andover undertaking JV proprietor are offered into the $3.70 a share takeover from Hancock Prospecting and SQM), WA1 is 82.5 per cent greater on its Luni niobium discovery and Spartan has stampeded an enormous 83.3 per cent after bolstering its excessive grade By no means By no means useful resource in WA to nearly 1Moz.

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This, sadly, isn’t the best way the world works and early traders within the three tales (apart from the recapped Spartan, relying in your entry level) had been already sitting on strong good points when Hoff made these picks.

However for those who had determined to chuck $10,000 on these bets evenly on the time, you’d be holding round $16,700 proper now.

We’re in an altogether totally different market now although, and Hoff says traders could have to point out extra persistence in present circumstances the place sentiment isn’t floating all boats because it did through the 2021-2023 growth in battery metals.

“I’m fairly commodity agnostic in relation to exploration as a result of by the point you discover one thing and develop it, the cycle will likely be fully totally different,” he stated.

“So pro-cyclical exploration very hardly ever pans out.

“Within the case of Azure it did, that was a discovery at in regards to the level the place costs had been fairly punchy.”

Keep a little bit longer

As a substitute, it’s about discovering firms with the administration groups and geology to capitalise on long-term tendencies.

A living proof is lithium, the place uncooked materials provide development all of the sudden overtook demand development final yr as battery makers piled up stock and China’s economic system failed to select up as many punters had hoped.

Onerous rock lithium costs have slid from over $US8000/t in the beginning of 2023 for six per cent Li2O spodumene focus to $US850/t, whereas downstream chemical costs are down from greater than $US80,000/t to the low $US10,000s over the identical time interval.

That has led Core Lithium (ASX:CXO) to halt mining at its Finniss undertaking within the NT, the house owners of the Greenbushes to mine cut back manufacturing, Sayona Mining (ASX:SYA) to eat losses at its North American Lithium operation in Quebec and Liontown Assets (ASX:LTR) to cut back enlargement plans for its upcoming Kathleen Valley mine.

However long run demand forecasts for EVs remaining robust, and nice discoveries are ones with the capability to succeed whatever the worth surroundings.

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“We’re seeing lots of people involved clearly with the value falling – a whole lot of pessimism round that,” Hoff stated.

“I believe we’re making an attempt to be real looking round it. And we’re saying, hey, look, costs may keep subdued for a while.

“However the thematic is in place. We’re seeing some worth begin to emerge throughout the house, however the kicker there’s who’s bought a powerful money steadiness and a administration group that has performed these types of cycles earlier than as a result of money preservation will likely be essential.”

Hoff stated that whatever the cycle, these three issues – administration, money and geology – would outline which firms can be long-term successes or which merely rode the waves.

“They continue to be to be keys always on the high or the underside and we’re nearer to the underside right now than we’re the highest,” Hoff stated.

“There’s not a powerful quantity of assist for lithium firms proper now. That being stated, it’s nonetheless the No.1 matter of inbound communication that we get.”

Majors investing in battery provides

Nickel firms are additionally affected by weak sentiment, after a halving of costs linked to an oversupply of nickel from Indonesia.

However Hoff sees some inexperienced shoots for the long-term outlook for battery metals which might be dealing with structural market modifications, corresponding to nickel and graphite.

Notably, a wave of funding may very well be coming from Japanese and South Korean battery gamers aiming to top off on future provide.

Simply final week Alliance Nickel (ASX:AXN) revealed a non-binding MOU on nickel and cobalt sulphate provides from its NiWest nickel laterite undertaking in WA with Samsung, and Novonix (ASX:NVX) introduced plans to provide artificial graphite from a proposed US plant to Panasonic.

“That’s very fascinating that at this stage nickel is being checked out by these majors, and it tells us that they nonetheless have issues to resolve within the late 2020s,” he stated.

“We is likely to be on the backside of cycle pricing, however these firms which have plans to construct battery factories want materials for them.

“I’m most likely on the document for saying I don’t essentially purchase into the IRA (US Inflation Discount Act) provide chain and that it’s going to make an enormous distinction.

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“And my angle on that has been we’ve seen an entire lack of curiosity of inbound funding – onerous {dollars} within the floor. That is the primary little sniff we’ve bought.

“Indonesia’s had $14 billion of funding in its nickel trade, and the way a lot have we invested in our nickel trade? They’ve modified the dynamic via funding and we simply haven’t matched that.

“Don’t purchase into this calling it soiled nickel … the auto trade desires low-priced bulk nickel models and Indonesia is giving it to them.

“The signalling we get from a Samsung coming into the image says okay, nicely possibly they’re going to care a little bit bit about this.”

Hoff cautions that for thematics like this, traders could have to look previous the straightforward good points they noticed within the sizzling battery metals market of the previous couple years.

“You could have to stretch your funding horizon and take a look at what is going to this trade be doing in 5 years time and realize it’s not going to be a linear return,” he stated.

“You may need nothing for a very long time. And then you definately may need lots at a very sudden second.

“So it’s actually a technique once we’re out searching for names … we’re searching for a man who can survive that lengthy interval, put their undertaking right into a place of some form of energy after which once we see these upticks or we see these agreements, they’re those entrance and centre.”

Who’s bought a little bit of potential?

Hoff’s feedback come on the eve of Tuesday’s RIU Explorers Convention in Fremantle, the place dozens of junior explorers will meet to supply a barometer of how the small finish of city is travelling.

He says there are nonetheless good points that be present in junior sources, however the focus will shift to firms who’ve already made discoveries realising worth via their useful resource estimation and examine phases.

“We’re nonetheless following these tales like Meteoric (ASX:MEI), like WA1, like Brazilian Uncommon Earths (ASX:BRE), which floated in the beginning of this yr,” Hoff stated.

“These are all nonetheless very a lot early stage exploration tales, we’re nonetheless discovering out about these deposits.

“In a few of these instances, there’ll be worth crystallisation as they undergo the method.”

Among the many different firms with an exploration story to inform, Hoff talked about two specifically he’s monitoring.

One is Hillgrove Assets (ASX:HGO).

The corporate restarted bulk mining from underground at its Kanmantoo mine in South Australia in January, the place it plans to supply 43,500t of copper in focus over an preliminary four-year interval.

The mine plan relies off a JORC useful resource of simply 6.4Mt at 1.09 per cent copper and 0.12g/t gold.

However an exploration goal of 60-100Mt at 0.9-1.2 per cent Cu and 0.1-0.2g/t Au suggests a bigger prize is ready to be discovered.

“They’ve bought established infrastructure, a longtime mining space, in the event that they uncover that it modifications that firm from having a five-year profile of 15,000 tonnes each year of copper, to probably pushing out to twenty years at 30,000t,” Hoff stated.

“We don’t have too a lot of these tales.”

Together with WA1’s success within the frontier West Arunta area, Hoff can be watching neighbour Encounter Assets (ASX:ENR), which has proven early indicators it may discover one thing of word at its close by Aileron undertaking.

“Encounter sources is one other title that would stand out,” he stated.

“The outcomes that they’ve had, they’ve bought just a few sniffs across the niobium.

“Clearly they don’t have fairly the size that WA1 has bought proper now, however they’ve bought some floor up there with some targets that I believe folks may most likely take a look at and have a take into consideration.”

This content material first appeared on stockhead.com.au

The views, data, or opinions expressed on this article are solely these of the interviewee and don’t signify the views of Stockhead. Stockhead doesn’t present, endorse or in any other case assume accountability for any monetary product recommendation contained on this article.

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Initially printed as MoneyTalks: How Canaccord’s Tim Hoff hunts for explorers in a market sapped of confidence