Buy Hold Sell: Strong demand to power future-facing commodities (and 4 stocks to ride the wave)

Want access to commodities of the future? Lowell Resources’ John Forwood & Acorn Capital’s Rick Squire highlight some opportunities.
Buy Hold Sell

Livewire Markets

As the name would suggest, future-facing commodities are those that will carry humanity forward as we take on the momentous task of decarbonising the world.  

These are the commodities that are essential to the energy transition, including lithium, nickel, cobalt, manganese, graphite and copper. 

Much of the demand for these commodities is expected to be driven by the uptake of electric vehicles over the next two decades, with governments around the world - including Europe, China, the US and Australia - providing incentives for people to "go electric."

We have already seen spikes in demand (and subsequent supply responses) for many of these commodities. And while the journey will likely remain volatile, on the whole, the wind only seems to be blowing one way, after all: 

However you slice it, demand for these commodities is only going to grow and, in most instances, the question is whether or not supply will keep that. That will create a host of opportunities. 

As such, we sat down with Lowell Resources’ John Forwood and Acorn Capital’s Rick Squire to get their take on what's hot and what's not when it comes to future-facing metals. 

Note: This episode was recorded on Wednesday, 10 April 2024. You can watch the video, listen to the podcast, or read an edited transcript below.


Edited transcript

Chris Conway: Hello, and welcome to Livewire’s Buy Hold Sell. My name is Chris Conway, and this week, we are doing a deep dive into the commodity sector. This special is all about small resources and future-facing metals at that. To take you through the top emerging opportunities and the overcrowded darlings, we're joined by Lowell Resources' John Forwood and Acorn Capital's Rick Squire. Gents, welcome.

Rick Squire: Thank you.

John Forwood: Great to be here.

Lithium

Chris Conway: John, I'll come to you first. Let's talk lithium. It's been hot and cold, shall we say. Prices have been hammered since hitting that peak in late-2022. When prices are at these lows, we tend to see M&A activity. What are you seeing, and do you think lithium prices can recover from here?

John Forwood: We're definitely seeing a lack of interest in the equities, the junior lithium equities. But to counterbalance that, there is still really strong interest that I'm hearing and seeing from industry players and the big industry players. SQM came out the other day and said they're going to continue to aggressively invest in the Australian lithium bowl. There's still really good demand from other industry players as well. So it's still a very small market, and that's the cause of the volatility in my book. So we've had a lot of volatility on the downside, and I think that due to de-stocking in China, that supply chain pipeline has been emptied and there could be a significant bounce back in demand and in prices as early as this year.

Rare Earths

Chris Conway: Rare earth's prices, they have been equally volatile. Could we be in for a rebound in 2024.

Rick Squire: I think they certainly could be. We've seen the rare earth price really collapse in the last two years. It was probably $150 a kilogram for neodymium praseodymium, NdPr, and that dropped to just under $50 early this year. So a really big collapse. But we're seeing a small rebound just in the last few weeks. But, probably more impressive and a bigger impact, is that we've seen governments, the Australian government and the US government, offering large amounts of money to help projects getting up despite the rare earth price being down on the floor. So two great examples of that is the funding of up to about $840 million for Arafura (ASX: ARU) to get their Nolans project up and going, and the really impressive one was Meteoric Resources (ASX: MEI). There's an offer from the US government of up to US$250 million for a project that's actually in Brazil. So really significant signs of the urgency and the strategic importance of this, and I think that will really help drive the recovery of the commodity.

Copper

Chris Conway: John, let's turn to copper now. That's one that has been doing quite well. Many would argue that there's not a lot of great exposure on the ASX after BHP took out OZL. Is that something that you would agree with?

John Forwood: Yeah, indeed. I think there's quite a divergence between the offerings in copper on the ASX and what you can get in North America on an exchange like the TSX (Toronto Stock Exchange), and there's certainly a lot more opportunity on the TSX, in my view, for investing in junior and senior copper producers.

Chris Conway: Rick, anything to add there on the copper plays?

Rick Squire: Yeah, I really agree with John. We talk about that a lot, that difference between the TSX and ASX, and as a nerdy geologist, we actually recognise it being a geological bias. It's a bit like there are big iron ore deposits in Northern WA, but there are none here in Melbourne or in Victoria, and there's a geological reason for that. But there are geological reasons why you get so many big copper projects in North America, and that's why the TSX is a really good playing space. There are some good ones, some really interesting deposits in Queensland that have the potential to grow a bit bigger, but the space, the opportunity set is certainly larger in North America.

Risks and challenges

Chris Conway: Rick, I'll stay with you. Let's talk risks and challenges of investing in future-facing commodities.

Rick Squire: The biggest risk is the technical risk around those projects. So, if you take yourself back two years into the midst of the lithium boom, that companies are running out talking about these DLE or direct lithium extraction projects, and some of those companies grew enormously, like Lake Resources (ASX: LKE) made it into the top 200 on a DLE development project, and then there's been a huge collapse in particularly those more technically challenging projects. And John mentioned that the price has come back in lithium, and there's a couple of projects that have sprung back and performed well, like Winsome, Patriot, Wildcat, but they've got conventional, simple projects, and they're the ones that have actually survived the cycle quite well, whereas those with the technically challenging projects, the timelines to get them into production are much longer. And for investors, it's not just the size and the grade that's important, it's the ability to get it into production, and just to be aware of that, not just for lithium, but for all those future-facing metals. Particular ones that we're not that familiar with.

Chris Conway: We've asked both the gents to think about some metals and some stocks that they both like and don't like. John, I'll come to you first. We're talking a future-facing metal that you think has big upside over the next 12 months. What have you got for us?

Key metals for the next 12 months

John Forwood: Almost everyone probably would say copper, so I'm certainly in that camp as well, but something that's perhaps a bit more straw hats in winter, is nickel. One of the better-known and more respected nickel analysts out of Macquarie Bank, Jim Lennon, is saying there could be a bounce back in nickel in the second half of the year. We've seen a lot of production shut down, so that's probably my left field call.

Chris Conway: Rick, what about you? What's a metal that you think has lots of upside over the next 12 months?

Rick Squire: I really like copper, like John. I think that's a great one. But also rare earths. I think just having gone so low that we're actually starting to see signs of curtailment of production out of China. There was a good report that came out from Macquarie only yesterday saying that there was signs that there was a tightening of the supply, and that one is right off the radar, but given the government push strategically into that space, that I think a small uplift in the price will see a really powerful driver in equity prices.

Overvalued stocks

Chris Conway: Rick, I'll stay with you. Let's talk about a stock that is overvalued, one that the market has maybe got a little bit ahead of itself and that you would be selling.

Azure Minerals (ASX: AZS)

Rick Squire: Well, I'd be selling Azure, which is probably the obvious one - that it's really overvalued for where it is, but there's a takeover bit, so it's just a simple thing. So if you've got any Azure left, I'll just get rid of it now.

Chris Conway: Fair enough. John, what about you? What's an overpriced stock that you would be selling in this space?

WA1 Resources (ASX: WA1)

John Forwood: One that has made a fantastic discovery but has had a really, really good run and perhaps has got a bit past the stage of where it's at, particularly for a very niche commodity like Niobium, is WA1.

What are you buying?

Chris Conway: All right. John, let's talk about the stocks that you do like now. Can you name two future-facing metal stocks that you maybe have been buying recently?

Alma Metals (ASX: ALM)

John Forwood: On the copper theme, we participated in a placement for a company called Alma Metals, which is a small company, $10 million market cap, with the rights to earn a majority interest in a project just outside Gladstone in Queensland, where the infrastructure is second to none. It's a very low-grade project, it's got copper and moly, but a lot of tonnes. So some really good leverage, in my view, to upside on the copper price.

Talon Metals (TSX: TLO)

The other one is in the nickel space. Following my theme of straw hats in winter, we've also been buying a TSX, Toronto Stock Exchange, company called Talon Metals, which has got a nickel-copper project in Minnesota in the US. So that has already attracted government funding from the US, from the Department of Defence in more than a $100 million worth, and it's a really nice high-grade project with some really excellent-looking exploration upside.

Chris Conway: Great. Some exciting sounding picks there. Rick, we'll finish with you. Two names that you're liking at the moment?

Winsome Resources (ASX: WR1)

Rick Squire: Really like Winsome Resources. They've got a really interesting project. It's not the highest grade of the lithium projects out there, and at the moment it's not the biggest, but there's a runway for them to grow that resource from around 50 million tonnes to perhaps as large as a 100 million tonnes. But I think their recent announcement of their option to buy the Renard diamond mine in Canada, which is just down the road, has really changed the whole dynamic of that project. That ,with building a road about 80 kilometres, they could quickly be into production at a really modest CapEx and, therefore, leapfrog a lot of their competitors - and that's given them a really good opportunity.

Firefly Metals (ASX: FFM)

A second company that we like is Firefly, Firefly Metals. They've got a really interesting project in Newfoundland in Eastern Canada. It's got excellent management team. They bought a mine out of administration. It's on care and maintenance, but they're really focusing on growing that resource, thinking about the size of that resource, and then building a mine that will actually be the right size for the actual asset - and I think it's the team that developed Bellevue (ASX: BGL) initially, and that was a great success, so it's something that we're really excited about.

Chris Conway: If you enjoyed that battery metals episode of Buy Hold Sell as much as I did, make sure to give it a like and don't forget to follow our YouTube channel because we're adding lots of great content every single week.

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