(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long HI.V, AU.V, CZX.V, BOW.V, TGL.TO, POE.V, LLG.TO, NLC.V, and CRE.V)
On Monday, Ikkuma Resources (IKM.V, $0.66) announced the results of a resource study on its emerging Cardium light oil play (called Narraway) in the Alberta Foothills that showed roughly 485 million boe in petroleum initially in place -- clearly a big number. This followed an announcement in late May where Ikkuma announced that it had arranged for a $45 million second-lien credit facility with Alberta Investment Management Corporation, leaving the company with about $35 million in liquidity going forward. You would think that the stock might have rallied on this combination of news, but the general malaise in the oil market has made sure that embers of hope don't turn into sizzling returns easily, especially in junior companies. The market's excitement may also have been tempered by the realization that nearly $420 million in capital is required to capture the identified contingent and prospective resources (about 55 mmboe combined) between now and 2024. Dependent upon future well results at Narraway, Ikkuma suggested a potential path to becoming "near self-funding" by late 2019. Clearly the results of the third and fourth wells into the play are even more important as the company looks to show that Narraway economics can look not just "good, but "great". Time will tell, but with the next batch of test results expected this summer (I'm defining summer as somewhere between June 21st and September 22nd) I still think that IKM offers a very attractive risk-reward. It's worth noting that the new AIMCO facility does give the company more rope to hang themselves with in the event that Narraway proves to be trickier than expected, but such is life as a company trying to make a break-out play. At this stage, IKM is actually looking like a reasonable take-out target to me. That will be especially true if the next set of results is positive but the market interest still lags. After all, industry is the great equalizer when markets are in a funk and with the stock trading at about one-third of its 2P NAV there's room for a buyer to pay a nice premium without even paying a dime for Narraway.
Well-backed Highland Copper (HI on the TSX Venture, $0.10) signed a nicely staged deal at the end of May to acquire all of Rio Tinto's exploration properties in the Upper Peninsula of the State of Michigan. The initial capital requirements are limited and the deal adds a new element of optionality to the story. The real event that the market is waiting for here is the Copperwood feasibility study expected by the end of June 2018, which is about a 6-month push from initial guidance. Highland is fully cashed up, so it's just a hurry-up-and-wait story at this point, but if you're bullish on copper, this is a story to know.
Golden-hopeful Aurion Resources (AU.V, $1.95) should be getting its field season underway this month as the snow melts, hopefully revealing even more gold-rich boulders in the moss-covered forest floors of Finland. It will be a busy year for Aurion, which has barely scratched the surface of its concessions to date. Drills will probably be turning at the Aurora zone in August after a little more prospecting and some geophysics. The data is very supportive of this being a major gold discovery in the making and the stock chart says it all. Market confidence is high.
To some, Aurion is just "that company with the boulders". Not all boulders are created equal however... in Aurion's case, the boulders are believed to be representative of vein material that is very nearby and a gold system that is very near surface, both of which should make the "hunt for the source" a little less nail-biting of an exercise than usual. There's also a decent chance that Aurion turns up more sexy gold targets with a little more boots-on-the-ground prospecting this summer, so this little company may end up having a few companies-worth of projects in it. While Aurion isn't cheap as far as exploration stories go, sometimes you get what you pay for...
Little-known Canada Zinc Metals (CZX.V, $0.265) should start drilling infill (metallurgical) and expansion holes at its Cardiac Creek zinc-lead-silver deposit this month. I like the way the stock is trading, so as long as zinc cooperates (or at least doesn't collapse) I think CZX is a money-maker from these levels. It's always nice to buy a company like this going into a drill program. Few people know the story, but a lot of people know they like the zinc market fundamentals. When CZX starts pulling eyebrow-raising holes this summer it may finally get some of the attention that I think it deserves.
Also in the zinc vein (pun intended), I would be remiss in not pointing out that Bowmore Exploration (BOW.V, $0.275), is slated to be rebranded as Osisko Metals in conjunction with a 3 for 1 rollback of the stock and the refocussing of the company on zinc assets in eastern Canada. Given the strength of the Osisko team and franchise, I have a hard time seeing any reason not to tuck away a little of this one for the long haul. The Osisko group are proven value creators, full stop. Stay tuned for more from this group as they go on a shopping spree.
Lithium Americas (LAC.TO, $0.99) has finalized its investment deal with Gangfeng Lithium out of China. This is a key milestone for the stock and should be followed by green-lighting by industry-leader, and partner, SQM. If you believe in lithium, LAC is a core holding now in my mind. The stock trades at around half of NAV and, assuming SQM gives it the final go-ahead, there should be some more near-term upside as the story is further derisked. I was fortunate enough to attend the Canaccord-Genuity battery materials conference last week and the keynote speaker was from Volkswagen. In no uncertain terms, Volkswagen is gearing up for electric vehicles to hit the mainstream and that means lithium is here to stay. Volkswagen alone expects that it could use the entire output from 5 Tesla Gigafactoies by 2025 just to meet its own projected demand volumes.
For those who still poo-poo electric vehicles, it's time to get with the program. EV's are coming and they are coming in a big way. The move to electric is being driven by performance, reliability, and government emissions targets. Norway expects that it may have all electric cars on its roads by 2025. A bit optimistic perhaps, but the trend couldn't be more clear. Just eliminating gas stations and oil changes from your life is pretty sweet and for those who still suffer from range anxiety, I would point out that the only time EV range becomes an issue is for long road trips. Sure, EVs are likely to have slow adoption in rural areas (small numbers of people), but for anyone doing pretty much any commute near or into a city of any size (large numbers of people), EV ranges for any car brought to market going forward will be more than enough 98% of the time. If you really need to do a Mad Max road trip, you can always rent a Yukon and reminisce about the good old days of smog and stink.
If you want to round out the EV trade mix, I might suggest looking at Mason Graphite (LLG.TO, $1.71) and Cobalt 27 (KBLT.V, halted pending financing) for exposure to graphite and cobalt respectively. Critical Elements (CRE.V, $0.92) and Neo Lithium (NLC.V, $1.21) both get honourable mention in the lithium category as well, though neither are as advanced as LAC.
Transglobe Energy (TGL.TO, last at $1.86) must be getting very close to total depth on the Boraq-5 appraisal well in the South Alamein concession in Egypt's Western Desert. While the market has a hate on for oil right now, there's nothing like the smell of new, low-cost, light oil to remind investors of what money smells like. Transglobe has drifted to a 52-week low on very light volume lately and represents one of the best risk-reward situations that I follow given its already discounted valuation and potential for value creation through the drill bit in the Western Desert.
And lastly, speaking of the potential for value creation through the drill bit, June "should" finally see the spudding of the now-mythical Ayu-1 well for Pan Orient (POE.V, last at $1.50). Wet weather had delayed this well again earlier this year, but even snails eventually get to their destinations. POE actually has a nice war chest of cash and if I look at the EV of the company relative to the size of the prize on the table I'd have to say that this doesn't look too shabby. Of course, by their nature, exploration wells usually miss, but unless you're an optimist you have no business being in small cap stocks to begin with...