Argonaut has completed its 2021 review of the best undeveloped metals and mining projects (BUPs) that are majority owned by ASX listed companies.
Our ‘bottom-up’ approach uses defined selection criteria including:
- Development stage between scoping study and pre-commercial production
- An Internal Rate of Return (IRR) exceeding 25%
- Profitability through all market/commodity price cycles (assumed 7 years)
- A high likelihood of achieving >$100m project valuation within 24 months
- That the owner has a market capitalisation less than A$5b
The focus of this book is on project quality, not necessarily current value, and project advancement is an important outcome to monitor in coming years. Inclusion does not necessarily imply a corporate level opinion, recommendation, or valuation, although we provide this detail if the stock is covered.
Key criteria for BUPs projects are low cost, high margin assets with the capability to maintain strong financial returns through the commodity price cycle. The quality of such projects enables a broader range of financing options and underpins likely development as well as increasing M&A appeal. We introduce some flexibility with regard to the pricing of commodities emerging due to the recent shift to “clean energy”.
Our thematic discussion focuses on this decarbonisation trend. While future expectations over its pace are unrealistic, the trend is clearly entrenched, and we are early in this cycle in our view. Exploration, capex, and funding are increasingly being targeted at these commodities, potentially to the detriment of gold (where M&A may provide better growth opportunities). There are risks; apart from general risks, we expect costs and supply chain issues specifically to be a focus for developers in the coming period.
The stock selections in this year’s BUPs endeavour to provide exposure to those “cleaner energy” commodities that are likely to see strong growth in both percentage and absolute terms, like copper, nickel, lithium, and graphite. Uranium, and the nuclear energy option, is also expected to get a new lease on life as the difficult reality of reducing carbon emissions hits home. Gold continues to have a place in a portfolio, given a range of broad and specific risks and the precious metal’s weak correlation against other asset classes.
The following table highlights the key pick and special mention companies included in this report. Click on the link for comprehensive detail on the key themes and companies included in this year’s BUPs.
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