"I trade and wear track pants, and you can too."
- Matt Hayes
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I spend most of my days researching small cap ASX stocks. Here's a report on those findings ...
(my investment strategy and track record is detailed at the end of this email)
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| Here's a summary of some of the stocks I've been researching this month. Not all of them are 'picks', some looked promising, but on a deeper look I decided to put on watch. The below outlines why I'm liking or not liking these stocks.
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AUTECO (ASX:AUT) Stock Pick of 2020
Key Points: High grade 637,000 oz 9.1g/t Canadian gold asset currently being converted to JORC
Price to buy: $0.05 or under
Sentiment: BUY
My price target for this stock is: $0.10. The Bellevue gold team are the largest shareholders and directors of Auteco. They recently acquired the Pickle Crow gold mine in Canada which has an existing inferred resource 637,000 ounces gold at 9.1g/t on the TSX. The high grade intersects including 2232.9 g/t at surface and 1325.73 g/t over 0.5m at 23.65m depth are among the highest I have ever seen. A brownfield historic producing mine of 1.5m ounces at 16 g/t in one of highest the grade gold regions in world, Red Lake mining district which produced over 25m oz of gold at 22g/t. AUT is in the process of converting the Canadian TSX compliant NI 43 101 resource to JORC. I believe the market is largely unaware of this existing resource and when announced on the ASX will cause a massive rerate. Additionally, the mine has an unused gravity mill, generators and man camp with 30,000 oz year production capacity. At 0.03 a share, current market cap of $35m is significantly less than the value of the asset. See the most recent Matt Report'top stock pick of 2020'for a deep dive into this company. |
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BELLEVUE GOLD (ASX:BGL)
Value re-entry opportunity
Key Points: Imminent resource upgrade, maybe 2.4m ounces.
Price to buy: $0.50 or under
Sentiment:WAIT FOR THE DOWN DIP
In my last email about BGL on 3 September 2018 (here), I valued their in ground resource at $200 - $250 AUD per ounce based on comparisons with peers and valuations provided by Geologist and analyst Xavier Baud. Since then, the gold price has risen over $1000 AUD per ounce and the AUD decreased nearly 25%. At that time, the resource was 500,000 Ounces at 8.2 g/t. Current resource is now widely regarded as commercial at 2.2M ounces 11.3g/t, with a fully diluted in ground ounce valuation of $192 per ounce, putting the current market cap at a $150m discount (in ground value of $250 per ounce based on 2018 valuations when net gold price has increased 78%). However, I see the in ground per ounce valuation to have increased to at least $300 oz considering the $AUD 25% decrease, the gold price 60% increase and the resource now being commercial and of higher grade with most major banks forecasting higher gold prices. Additionally, Bellevue have had a historical discovery rate of around 100K ounces per month, my guesstimate is next pending resource upgrade circa July/August 2.6m ounces at a similar grade of 11g/t. If this is the case, using a conservative $250 per ounce in ground valuation puts the total MC at $650M or $0.79 per share fully diluted. At $300 per ounce the fully diluted SP at 2.6M ounces would be $0.95.
With current global conditions, I see gold as a relatively safe mid to long term investment in the form of physical gold and producing companies being the obvious first option for safety and growth. BGL being an explorer transitioning to developer, the next down dip on the ASX likely bodes poorly for BGL in the short term, but in the mid term, quality gold developers will likely be the next refuge for dollars seeking security and growth. |
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PERTH MINT GOLD (ASX MGOLD)Insurance for the recession
Key Points: Government guaranteed, backed by physical gold.
Price to buy: Market
Sentiment: ACCUMULATE
Perth Mint Gold is re-known globally as a safe, tier one Gold ETF. Backed by physical gold held at the Perth mint, shares can be exchanged for physical gold at the mint at any time. In addition these shares are guaranteed by the Australian government. The Perth mint is the only government guaranteed gold storage in the world. It has high liquidity due to international funds in New York & London regurlarly day trading this ETF. In a world with rampant fear around Coronvirus & recession, holding physical gold is a universally accepted store of wealth in turbulent times. My outlook on gold the next 2 years is bullish, I anticipate the value of the Australian dollar to fall and gold prices to rise, providing a two fold investment opportunity. My price target for gold is $2900 AUD for 2020. |
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MEDUSA MINING (ASX:MML)
Value opportunity gold producer
Key Points: PE under 1, $75m in cash and bullion no debt
Price to buy: $0.50 or under
Sentiment: WATCH
While MML doesn’t fit my usual investment criteria (the directors and management team are not heavily invested, and the high historical AISC indicates mediocre performance), I am currently looking for producing gold companies with low market caps, low debt, large cash positions and high AISC. Companies meeting these criteria have the greatest profit margin gains should the gold price increase.
Medusa Mining has a total diluted Market Cap of $95m AUD. This is nearly equal to its current cash and gold bullion holdings of at least $75m AUD (possibly much more if the NPAT trajectory from December 31 is maintained). With no debt, the net enterprise value is between $0 - $25m.
2020 production guidance prior to Coronavirus was 100,000 ounces at AISC between $1600 - $1875 AUD per ounce, current gold prices of $2650 AUD give a forecast NPAT of approximately $100m.
I view buying this stock as buying a producing gold company at nearly $0 cost.
With high grade resources of 1.6m ounces at 6.3g/t this company is positioned to rebound very strongly when the Philippines government allows operations to recommence. The company has not paid dividends and has multiple historical safety issues. This is a case of buyer beware. I do not view this as a long term quality hold, but a short to mid term large capital gain if current gold prices hold, or continue to rise, and if operations can recommence relatively smoothly once production is allowed to commence. |
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DECMIL GROUP (ASXCG)
High risk with 10 x upside mid term
Key Points: Chair bought $3.5m stock at $0.80, "bow wave" of further losses to potentially come.
Price to buy: High risk punt. $0.10 or under
Sentiment:WATCHOR USE MONEY TO LOSE
With a recent share price drop of over 90% due to losses totalling $75m on a failed contract and further potential contract issues to come, this business is at risk of going into administration.
But, should they survive, I believe they could go 10X current share price.
Why? At current market cap of $30M, $8.5m cash at bank, an $85m property in Gladstone QLD, $26m of debt, and being one of the largest WA based construction work forces in times of hard border closures and multiple mining and infrastructure projects, Decmil have opportunities abound to pull through the other-side of the recession. It should be noted that a number of large operators and usual clients have noticeably not been awarding DCG work in 2020 pre market crash when mining work was abundant (FMG, BHP, Rio) and all have contracts finishing or finished with outstanding claims unpaid. It is my view more of these outstanding claims will be disputed possibly resulting in further losses. What gives me some confidence Decmil might survive?
1. The new CFO Peter Thomas, is a highly regarded and competent mining executive. Previous commercial director at FMG and financially brilliant. His presence and guidance through this volatile period will serve Decmil well in negotiating with clients, suppliers banks and investors.
2. It is a 40 year run family business, the founders have considerable skin in the game, the founder (Chairman) purchased $3.5m of stock in late 2019 at $0.80. His son Scott Criddle now runs the company. They will do everything in their power to turn it around, and have considerable resources and assets to call upon if needed, including selling the $85m Gladstone property (worth nearly triple the current market cap).
3. Australians, Industry & government are determined to not let Coronavirus, destroy businesses and the economy. While Decmil's contractual matters of its own making, the turbulent times and huge nationwide response may actually be the support which keeps DCG afloat when in any other circumstance they would be allowed to fail.
With one of the largest order books in company history, If they can maintain profitability on their current contracts, the upside is potentially 10 x plus, think NRW 2016. If they fail, think FGE, BYL. |
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PERFORMANCE SUMMARY
Note: Last 2 stock picks by The Matt Report on 28 Jan 2020; BGL at $0.52 (up 4%) and PGX at $0.38 (down 47%) AUT at 0.017 (up 76%)
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MY INVESTMENT STRATEGY
I'm a value investor focusing on mid term trades. I invest primarily in ASX listed Resources, Tech & Industrials. I look for stocks with a minimum 200% upside and 20% downside. They must have a strong management team who are personally invested. I use my networks to thoroughly research the companies directors, management, reputation, their workplace culture & the quality of their product. On average, for every one hundred companies researched, I heavily invest in only one. Any company I invest in must meet all of my screening criteria. My leads come from regularly trawling through ASX company announcements and professional industry contacts I've spent decades developing. I then thoroughly read every announcement back several years trawling for risks & value that the rest of the market may have missed. So hit me up with any stocks you're liking or want an opinion on. This will be an irregular email summarising key stocks I'm considering (or in some cases, not liking) and a summary of why. As well as the occasional deep dive or alert report on a stock I'm investing heavily in. At the end of each email is a performance summary of all stocks I buy and how they are tracking, with my lowest entry price and highest exit price (note there may be buying and selling along the way in between!)
Pass it onto any mates who are keen to join in (subscribe here). Enjoy! |
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Matt Hayes is the Director ofGeronimo Executive Search, providing head hunting services within the West Australian resources sector. He has been an avid investor in the ASX since 2005. He was founding CEO ofRaisebook; online capital raising platform for resources and technology stocks.
He is also an artist, and co-owner ofKing SommWine Bar.Note: This report is for educational purposes only. While Matt Hayes, director of the Matt Report owns many of the stocks contained in the reports, he receives no brokerage fees or promotional fees for writing this content. By sharing this information and insight into how Matt invests, the purpose of this report is to connect a community of investors to interesting unsponsored and relatively unbiased opportunities (Except Matt believes in and often owns stocks covered in the report). This report IS NOT personal advice.This report is intended for 708 High Net Worth Investors only and subscription is intended for verified referrals only. These investments are HIGH RISK, If you are considering investing in any of these stocks, It is very important to refer to the ASX website for information on any companies / stocks that are contained in this report and as always please consult your financial adviser before acting. update your preferencesorunsubscribe |
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