A year of strong outperformance for those who picked the better junior resources stocks

Argonaut’s analysis of the best undeveloped projects (BUPS) in the resources space has proved a reliable guide over the years on stocks likely to outperform the rest of the pack.

Over the past nine months, the share price of companies featured in the 2024 BUPs list increased an average of 38%, outperforming both the S&P/ASX200 (+7%) and S&P/ASX Small Resources (+12%) indices.

So the 12^th edition now available is set to be well thumbed through. As is the norm, the key criteria for BUPs projects are that they are shaping up as low cost, high margin assets with the potential capability to maintain strong financial returns through the commodity price cycle.

Argonaut believes that the quality of such projects enables a broader range of financing options and underpins likely development as well as increasing M&A appeal, with the latter point certainly coming to pass in the last crop of BUPs.

Eighteen BUPs made the cut this time around. The range of implied share price upside based on Argonaut’s valuation of the companies owning the BUPs and their current share prices was 23%-172%.

Too many to cover off on here but the top three were Magnetic (MAU, 172%), Wildcat (WC8, 152%) and WIA Gold (WIA, 152%). All up there were six with implied upside of more than 100% and 11 with more than 50% implied upside.

Encounter:

Argonaut’s latest BUPs analysis again includes a special mentions list for projects it expects to see graduate to its BUPs list in coming years.

One to collect a special mention was Encounter (ENR) on the appeal of its niobium success in the remote West Arunta region in Western Australia.

The stock was trading in Thursday’s market at 28.5c for a market cap of $142 million and Argonaut has a 70c valuation on the stock, with the firm keen on Encounter’s Aileron niobium success and the likelihood of the resource growing.

The West Arunta is of course where WA1 and Encounter both went looking for big-time copper deposits but found big-time niobium instead.

WA1 – it is on the BUPs list - was the first to taste success in late 2022 with its world-class Luni discovery (220Mt grading 1% niobium pentoxide) and it now has a $1.1 billion market cap.

Encounter followed with its Aileron discovery which is currently rated at 19Mt at 1.74% which in itself qualifies as world-class remembering that the $US5 billion market for the stuff is currently supplied by two mines in Brazil and one in Canada.

Encounter executive chairman Will Robinson gave the crowd at Diggers & Dealers during the week a good rev up on what else could come from the West Arunta.

He said a lot of niobium had been found in a hurry which is “indicative of being in a highly prospective minerals province with mantle tapping structures that are bringing some really interesting things to the surface”.

Apart from the niobium, the West Arunta is prospective for IOCG copper and orogenic gold.

“We think this is the beginning of a major new minerals province for Australia,” Robinson said.

A resource upgrade for Aileron is expected in early 2026. But the real excitement for Encounter in the months ahead is what will come from a big drilling program in the West Arunta it plans to kick off in October.

“We provide fabulous leverage to what is going to be something special at a significant discount to our neighbour (WA1),” Robinson said. “At least 15 targets are to be hit with the drill bit … could be niobium, rare earths, copper or gold.

“We think in time it is going to become a multi-belt commodity belt.”

For good measure, Encounter also has exposure to potentially high-impact copper/gold exploration starting in October in WA’s Paterson province and over in the Northern Territory at the Jessica project where South32 is farming-in.

All in all, the company’s newsflow in coming months is set to be extreme.

Minerals 260:

The lesson from the Tim Goyder-backed Minerals 260 (MI6) is buy big, and time it well.

This time last year MI6 was a $30 million explorer looking for a brighter future. Then earlier this year it bought the 2.3M oz Bullabulling gold project near Coolgardie from China’s Zijin for $156m plus $10m in shares.

The deal was funded by a $220m equity raising after which the company was left with about $50m in cash to launch an 80,000m drilling program of infill, deeper, and strike extension holes in the first push to have Bullabulling return to production in late 2028 after a 27 year lay-off.

Apart from the ability to pull off an acquisition seven times its market cap, the deal was nicely timed as the Aussie gold price has risen more than $800/oz, or 20%, since.

MI6 is now a $247m company with a share register that apart from Goyder with 7.3% now includes institutional names like Samual Terry (7.4%), BlackRock (6.8%) and Franklin Templeton (5.8%).

The company and Bullabulling are first-time entrants into Argonaut’s special mentions list. The firm has a 30c valuation on the stock compared with Thursday’s market in the stock of 11.5c.

Drill results from Bullabulling are starting to build up a head of steam and are confirming the earlier expectation that there is a lot more gold to be found at depth and along strike of the historical deposits that make up the project.

There has been limited drilling below 60m historically at the project and there is every chance that there are some juicy bits to be found at greater depths along the 8.5km of strike. It’s why those insitutions came on board.

The first taste of what the new Bullabulling will look like will come in December with a planned resource update. A final investment decision on a likely 150,000-200,000 operation is slated for the start of 2027.

Astral:

Sensing it’s a big ask to hold the attention of bar-weary delegates in the afternoon session of the third and final day of the D & D conference, Astral’s Marc Ducler opened up his presentation with six key points.

It was a kind of this-is-all-you-need-to-do moment that was greatly received, allowing the weary to drift off as Ducler went on to expand on the key points in his 15-minute allotted time slot.

Point one: Astral has a 1.8Moz resource base across three deposits in the heart of the Kalgoorlie goldfield.

Point2: It has been adding ounces at a rapid rate at a discovery cost of less than $20/oz.

Point 3: It now has a 1.1m ounce reserve which underpinned its recent preliminary feasibility study.

Point 4: The PFS (95,000oz annually) showed the project had a 100% internal rate of return, a one year payback and net present value of $1.4 billion using an Aussie gold price of $4,250/oz.

Point 5: The definitive feasibility study will be delivered by June neat year.

Point 6: It is still drilling with two rigs and the expectation is that more gold will be found at a sub-$20/oz finding cost.

This time last year Astral (AAR) was a 7c stock. It has since marched to 17c for a market cap of $242m.

Ducler delivered an even shorter rundown on Astral at the Discovery Capital Partners/Corporate Storytime Super Pitch event at the Beaten Track brewery during D & D. His five-minute spiel won the day against the competition. Both short and very entertaining, apparently.