Moonshots, growth, and core portfolio stocks
Good morning MINING AIM. Today I'm going to talk about how I organise my junior resource portfolio - note that as ever, this is not advice, but it does add colour to coverage on this site.
Broadly, I categorise companies into three segments:
Core Portfolio - e.g., Jubilee Metals, Sovereign Metals, Amaroq Minerals...
Growth - e.g., Guardian Metal, Power Metal, Asiamet...
Moonshot -e.g., Rome Resources, Helix Exploration, Metals One, Panther Metals...
Core Portfolio stocks are either revenue generating, or have very significant financial firepower, backed by an exceptional asset. These speak for themselves, and there can be huge potential upside but over a number of years.
For example, Jubilee has unmatchable processing power. Sovereign's Kasiya rutile-graphite deposit is internationally strategically important. Amaroq's Nalunaq is a massive gold asset - these three companies are fundamentally underpinned by their market assets. Could all three add hundreds of millions to their market caps? Yes. But this will take time. The positive is that the risk is also substantially lower at this level.
Growth stocks are perhaps higher risk, but are also underpinned by some external value. However, potential growth is in my mind capped to 3-5x in a year because of previous gains - Guardian has PM and likely grant funding soon, and a rise to £100m+ mcap is very possible. I don't think it will get to £300 million+ within 12 months though.
At POW, it seems a 3x return appears eminently achievable, but a 10x return not anytime soon. In fact, Power's shareholding in GMET now covers its entire market cap.
Asiamet has serious assets, one of which I believe is on the verge of project financing. But the bottom line is that these companies all tend to share two characteristics in common:
like core portfolio stocks, they enjoy decent assets that have fundamental value.
they have cash in the bank, but not enough to do everything they want, and will need a partner to drive further value over the longer-term. Core portfolio stocks will have stacks of cash and are able to finance everything themselves.
Growing a growth stock to a core portfolio stock is harder than going from a moonshot to a growth stock, especially as the best companies tend to have their assets bought out long before they get to full production.
Moonshots are higher risk, higher reward, with 10x gains possible in a year. They require much more research and you have to very carefully select them as there are plenty of very high risk companies with not much upside.
I really think that Rome will find world-class tin in DROC, Helix will get commercial helium in Montana, Metals One will attract a partner within the next 12 months, and Panther will sell an asset for an outrageous amount.
But despite excellent assets and quality management, you are exposed to exploration risk - and if the future drill bit goes against you, then the stock will suffer.
Success means they will be upgraded to growth stocks because their market caps will then be underpinned by their discoveries. It's worth noting I have very carefully selected these companies after copious amounts of research, and the four mentioned have significant exploration results already.
Portfolio balance
I encourage anyone getting started to begin with core portfolio stocks, and then explore growth shares, and finally moonshots. Most go the other way and this is never a good idea - because either you make a 10x return and you think it's easy, or the drill bit goes against you and you give up on the sector.
In terms of structure, a key facet to consider is the extent to which your wider wealth is planned. If you already own a house outright, and have a decent pension, then you can invest in more moonshots and fewer stable companies to attempt to grow your money faster.
If not, then it generally makes sense to build up financial resilience using blue chip stocks, and then enter the MINING AIM world with some core portfolio stock investments.
But the cardinal rule remains this: I never go all-in on anything, and I try not to get emotionally attached.
- Charles Archer, 2/8/24