The cracks are starting to show
Good Wednesday MINING AIM, and welcome to your thought of the day.
While this is a junior resource site, I think we do need to briefly talk about Nvidia. The reason for this is simple:
My thesis is that the large cap AI bubble is going to pop - smaller AI start-ups should be fine, but these ridiculous valuations seen by the magnificent seven are simply not sustainable. When the bubble goes pop, small caps will also be hit, but then will rise to far higher valuations - similar to the pandemic crash and its aftermath.
Until the large caps give up their gains, the small caps cannot recover.
And the poster child for the crash is going to be Nvidia, where the cracks are now starting to show.
Q2 results saw the chipmaker lose $200 billion in market value - it generated 122% more revenue year-over-year at $30 billion, well above analyst expectations of $28.9 billion. But beating expectations is not enough - it needs to massively beat every time.
And most importantly, it 'only' expects revenue to rise by 80% in Q3, which represents a steep drop-off in revenue growth.
Yesterday, the company fell by circa 10%, losing $278 billion in market cap - the highest one day value loss on record, potentially driven by fears over the US Department of Justice requiring the firm to give evidence over anti-trust issues, or else the Blackwell architecture chips which remain behind schedule due to a design flaw
US non-farm payrolls are out on Friday; this should determine the size of the Fed rate cut this month (if any) - but every time the Fed has cut going into a recession (which seems likely in the US), it's not ended well for the NASDAQ.
Four key pieces of small cap news to highlight today
First, President Xi Jinping witnessed the signing of the memorandum of understanding on the major Tanzania-Zambia railway project in the presence of the Tanzanian and Zambian presidents, who were in Beijing attending the Forum on China-Africa Cooperation.
Xi noted that 'China is willing to take this summit as an opportunity to make new progress in the activation of the Tanzania-Zambia railway, cooperate to improve the rail-sea intermodal transport network in East Africa, and build Tanzania into a demonstration zone for deepening high-quality China-Africa Belt and Road cooperation.'
Earlier in 2024, the World Bank approved $270 million in financing to help improve connectivity between neighbours Tanzania and Zambia and boost regional trade.
Zambian copper continues to heat up.
Second, Sovereign Metals has got its graphite test work back. This was essentially the only remaining major risk with Kasiya, and the results were simply outstanding.
The key quote is that:
'Very high quality Coated Spherical Purified Graphite (CSPG) anode material produced from Kasiya graphite concentrate has performance characteristics comparable to the highest quality natural graphite battery material produced by dominant Chinese anode manufacturers.'
This graphite is suitable for battery production, and most critically given China's graphite export controls, represents a single deposit that can provide enough of the material on an ex-China basis to the global economy.
In technical terms:
Electrochemical testing achieved very high first cycle efficiencies of 94.2% to 95.8% supporting long battery life
Excellent initial discharge capacities greater than 360mAh/g as required for highest quality natural graphite anode materials.
Very low specific surface areas (known as BET) of ≤2.0m2/g minimising the loss of lithium in the first battery charging cycle
Excellent tap densities of 1.11 to 1.18g/cm3 meaning higher electrical storage
The flakes are high purity with 'near perfect crystallinity' and very low levels of impurities. Additional optimisation test work is now to start using additonal concentrate being generated at the pilot.
MD Frank Eagar notes 'Kasiya has the potential to become a dominant source of graphite supply ex-China. Combining these excellent results with one of the largest graphite resources globally, industry low operating costs and lowest global warming potential, Kasiya is presenting significant advantages over its graphite peers.'
Of course, the market decided to dip slightly rather than roar; but in my mind Rio Tinto now has all the information it needs to make a bid. It is already at the max holding it can be without being forced to make an offer under ASX rules - get that pilot data back and a few months from now it'll be game over.
Which will be a shame for AIM, but very good for investors.
Third, Metals One has announced that project partner Kingsrose Mining has now earned a 51% interest in the Råna Project by incurring A$3 million of expenditure, and drilling at least 5,000 metres. Metals One's Råna Project ownership now stands at 39%.
In this most recent campaign, 706 metres over three drill holes has been completed, with core samples dispatched for analysis.
Kingsrose has also announced its intention to proceed to earn the third milestone interest, which equates to a 65% interest in the Råna Project, by incurring a further A$4 million of expenditure on the Råna Project.
In accordance with the agreement, Kingsrose has issued Metals One (via SRH) with 1,000,000 fully paid ordinary shares in Kingsrose as part consideration for the earn in.
CEO Jonathan Owen enthuses 'We're delighted that Kingsrose has achieved its Second Completion milestone - a strong endorsement of its commitment to the project. Kingsrose's continued investment has ensured drill work has been able to occur on schedule and we look forward to analysing the results of the recent core drilling programme which will help inform next steps for the project.'
Finally, you need to keep an eye on Rockfire Resources. It's had a good few days, but is still only trading at mid-July levels; and has suffered the classic post-pandemic slump.
But today it announced a 500% increase in resource at Molaoi in Greece, which now makes it a top 20 zinc deposit globally.
The new Inferred JORC Resource estimation for Molaoi is:
15.0 million tonnes @ 7.26 % Zn, 1.75 % Pb and 39.5 g/t Ag (9.96 % zinc equivalent)
Molaoi contains 1,090,000 tonnes of zinc, 260,000 tonnes of lead, and 19.1 million ounces of silver. This Resource equates to 1,500,000 tonnes of zinc equivalent metal content, with zinc currently trading at $2,881 per tonne.
Molaoi also contains one of the world's geologically rare critical metals, germanium. A preliminary germanium quantity, which does not comply with the requirements of the JORC Code has been calculated at:
4.8 million tonnes @ 21.9 g/t Ge (105,700 kilograms germanium)
Germanium is currently selling for $3,681 per kilogram.
CEO David Price also advises that 'here remains material upside potential for further expansion of the Resource at Molaoi, with 5.5 km of known zinc occurrences outside the upgraded Resource limits...In addition to extending the zinc north and south, significant upside also exists at depth, and by drilling out the 23 identified lodes both east and west to their full extent. Our goal now will be to move as many zinc tonnes into the "Indicated" category of the JORC Code, for input to a Scoping Study of mining and processing options...Molaoi is tracking well towards becoming a world-class zinc deposit.'
The stock has a hilarious £5.5 million market cap - I haven't looked much in depth, but the project will almost certainly be eligible for the new EU critical minerals 'strategic project' status (including grant funding), especially given China's export ban on Germanium.
One last note
ALS Laboratories are the gold standard in assaying, but the uptick in drilling worldwide seems to have taken them by surprise (or else, it's not worth expanding capacity given the boom-bust supercycle). Nevertheless, locations all over the world seem to be struggling with backlogs - and as the independent, globally trusted, assaying lab of choice - you simply have to use them.
But expect longer wait times than in the recent past.
- Charles Archer, 4/9/2024