MoneyTalks: Discovery Capital’s five small-cap picks ready for gold, graphite and copper exploration

MoneyTalks is Stockhead’s regular analysis of what stock investors are currently looking at. We tap into our extensive list of experts to hear what’s trending, their top picks, and what they’re looking for.

Today we hear from Discovery Capital Partners, Founder and Managing Director Adam Miethke and Director Kale Pervan.

Discovery Capital Partners is an independent business advisor specializing in small to medium-sized companies within the metals, mining and other identified growth sectors.

Miethke has worked for Tier 1 mining companies and on the buy and sell side of companies and understands the value drivers for commodity stocks at all stages of their life cycle.

Despite the lack of interest and liquidity in the commodities sector over the past 24 months, he believes the market is on the rise for gold, copper and graphite – the commodities people have been reluctant to talk about in recent years.

“When interest comes back into sectors like metals and mining, it usually goes to the larger side first,” he says.

“Once the big part of the city becomes more expensive and fully appreciated, that interest starts to trickle down the curve into the small cap stocks, which is what we’re starting to see now.

“It is a very good and healthy sign to see the volume of liquidity returning,” he says.

“It has allowed us to raise money for our target audience so they can go out, make more discoveries and build their projects.”

ASX juniors with promising assets

Pervan’s experience in the resources sector includes a stint as a mining engineer for mid-tier producer Regis Resources (ASX:RRL), the third largest gold miner on the ASX.

He says there is a wider gap and value difference between the small cap stocks and the larger end of the market.

“The middle component of the market, which typically includes the developers and high-end assets, is virtually barren due to opportunistic mergers and acquisitions by larger producers in the down cycle, and this creates a small opportunity for small-cap stocks,” he says.

“We believe there are not enough junior companies in the ASX space to develop, so if we see an earlier stage project with promising assets we are keen to get behind it.”

This graphite share has a leading role in the game

One such company is Kingsland Minerals (ASX:KNG), owners of Australia’s largest graphite project, ‘Leliyn’ in the Northern Territory.

KNG significantly de-risked the project last week after producing commercial grade concentrate with +94% total graphitic carbon.

The company now plans to conduct tests to assess the production of spherical graphite, the product consumed as an anode in lithium-ion batteries.

“Graphite is a metal that is not often talked about, even though more graphite is used in an electric vehicle than in any other metal,” says Miethke.

“Companies like Kingsland are filling that gap in the market with their new discovery, and we think exciting times are ahead.

“It’s a very simple, large project with all the infrastructure. It’s close to the Port of Darwin, which means it’s an alternative outside Africa for end users who want graphite from Australia,” he says.

“The directors are also very knowledgeable and hold around 21% of the shares and they are about to drill their lithium project at Lake Johnston – close to Wesfarmer’s Earl Gray asset – which also looks exciting .”

Copper with a bit of REEs on the side

On the copper front, Discovery Capital has its eye on one particular stock that’s flying under the radar, and that’s Alvo Minerals (ASX:ALV) with assets in Brazil.

“They actually have their own +70 km VMS band that lends itself to high-quality copper, zinc and related metals,” says Pervan.

“The company’s IPO took place about three years ago, just as the junior market was starting to drain, so it was never able to have a real market presence.

“They are currently drilling some of their key copper targets to build on their 4.6 million tonnes of inferred resource under an initial 5,000 meter diamond drill programme,” he says.

“Alvo also has some rare earth potential after picking up some very promising areas during the strike of Serra Verde, the only REE ionic clay project in commercial production outside of China.

“And it’s worth noting that they just had a strategic investor from Brazil buy into the company, which now owns a 19.9% ​​stake at a premium of 17.5 cents,” says Pervan.

“The shares are currently trading around 10-12c so that’s a significant premium and they have around $5m cash in the bank to carry out aggressive drilling campaigns at both projects.”

A TSX copper play

Further abroad on the TSX, Miethke says Discovery Capital Partners likes Mogotes Metals (TSX.V:MOG) with copper and gold projects in the Vicuña district of Argentina and Chile.

“The sellers are Australian and their flagship Filo Sir project comes from the discovery of Filo del Sol, in the same district as NGEx Minerals Lunahuasi and Los Helados reserves,” he says.

“It’s a huge porphyry district, which means that – more often than not – there is more than one chance for a discovery.”

ASX Gold

But one commodity that Miethke believes investors should look at is gold.

“If it gets beat up it provides value and if gold rebounds it rebounds quite hard, so maybe we’re at the beginning of that right now,” he says.

“The market also rewards exploration – it supports companies that actively explore and one company that fits that bill is Great Boulder Resources.”

Great Boulder Resources (ASX:GBR) owns the Side Well gold project near Meekatharra in WA, where recent drilling at the Mulga Bill project and the emerging Saltbush discovery have produced a number of excellent high-grade gold intersections, including 32m by 8.38g /t gold from 104m including 18m at 13.76g/t gold and 26m at 3.31g/t gold from 88m including 8m at 10.02g/t gold.

“They are in a good location, 25km away from the Bluebird Mill, owned by Westgold, which operates in the region and recently invested $6 million in neighboring junior Ora Gold,” says Pervan.

“The project hosts a resource of 668,000 oz at 2.8 g/t gold, so there are some clear growth benefits to that resource, but also some exciting discovery targets.

“It has fallen into obscurity over the past two years due to weak market sentiment towards gold, but they are well funded and there is a lot of value to be added.”

Cosmo shoots for the stars in Kanowna

Another Discovery Capital Partners stock is Cosmo Metals (ASX:CMO), owners of the large and promising Kanowna gold project.

Kanowna covers >20 km2 in 12 contiguous prospecting licenses with heritage agreements just 13 km from Kalgoorlie.

“What we like about that project is that it’s not greenfields, there are some existing hits that they can follow up on, such as 44m at 2.4g/t gold from 24m and 18m at 5.3g/t gold from 18 million,” says Pervan.

“It is a stone’s throw from Northern Star’s +5Moz Kanowna Belle mine, giving them a bit of choice of a factory nearby, plus there are two other factories within a 15km radius.

“Because this processing option is very important, investors on the ASX are willing to pay a premium as it lowers the threshold for resources required for development and provides a faster path to cash flow to take advantage of strong gold prices.”

Discovery Capital Partners has provided services to Kingsland Minerals, Alvo Minerals, Great Boulder Resources and Cosmo Metals and has received compensation for these services in the past. The interviewees have shares in KNG, ALV, GBR and CMO. The information in the article is general and the opinions expressed are based on information that has not been independently verified. As such, the reader should seek their own professional advice before making any investment decisions.

At Stockhead we tell it like it is. Although Kingsland Minerals, Alvo Minerals and Cosmo Metals are Stockhead advertisers, they did not sponsor this article.

The views, information or opinions expressed in the interviews contained in this article are solely those of the interviewees and do not represent the views of Stockhead.
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