Strickland catches a dose of European takeover fever

Strickland (ASX:STK) has been a strong performer in the last four weeks, rising from 10.5c to 13.5c for a market cap of $305 million.

The rise coincides with fellow Eastern European metals group Adriatic (ASX:ADT) first flagging it was in takeover talks with Canada’s Dundee Precious Metals, and then later announcing an agreed bid from Dundee of $A1.93 billion.

Adriatic was a $1.2 billion company when the talks were first flagged based on its still in ramp-up mode Vares silver-lead-zinc project in Bosnia and Herzegovina, which at full tilt is good for 168,000ozpa of gold-equivalent.

Strickland’s focus is its Rogozna gold-dominant porphyries over in southern Serbia where the global resource has grown to a hard-to-ignore 7.4Moz of gold-equivalent. A scoping study by the end of the year could well point to a 200,000ozpa gold-equivalent production potential.

China’s Zijin – now one of the world’s biggest miners – likes the Rogozna story and earlier this year took up a 2.4% placement in Strickland which also comes with a gold project on WA’s prolific Yandal greenstone belt.

From all of the above it could be assumed that investors behind Strickland’s 28% share price rise in the last month are betting that corporate action involving one of the mining majors could also arrive at Strickland’s doorstep, with the Adriatic takeover serving to highlight the possibility.

While there is some truth in that, the more likely reason for the start of greater market recognition of Rogozna in Strickland’s market cap is the benefit of a string of resource upgrades (more to come), a local and overseas investor roadshow and of course, the arrival on the register of Zijin.

Uranium:

It has been a case of big gains all round for the ASX-listed uranium stocks in recent days in response to a break-out in the (spot) uranium price.

The price took off from $US70/lb to $US76/lb, which compares with the recent low of $64.23/lb back on March 31.

While the rise in the spot price is nice to have, it is the contract, term or long-term price between producers and nuclear utilities that really matters. And on that front, the contract price has been a rock solid $US80/lb since February.

In the intervening period, the bullish news on the outlook for uranium/nuclear power has been non-stop.

Ord Minnett analysts neatly summarised the most recent bullish points in a June 17 note - Trump’s executive orders accelerating nuclear approvals; Meta’s 20-year offtake deal of early June with the Clinton reactor in Illinois illustrating datacentre power hunger; and Germany now prepared to recognise nuclear as a renewable energy.

So in reality, the uranium price and by extension, the ASX-listed uranium stocks, should have been headed higher anyway. But until the utilities acknowledge that they need to be writing long-term supply contracts in a hurry, the upside to uranium pricing is limited.

The dam wall will break eventually and it may not be far off. As noted by Goldman Sachs earlier this month, it is forecasting a uranium supply deficit of roughly 17,500 tons by 2030.

“We anticipate this deficit to grow to roughly 100,000 tons by 2045 as new reactors come online,”the investment bank said.

While the wait for the nuclear utilities to start signing new supply contracts continues, the thematic of increasing supply deficits against a backdrop of a planned huge build out of new nuclear power plants is becoming more powerful by the day.

It is the very thematic which enabled the Sprott Physical Uranium Trust (SPUT) to pull in an upsized $US200 million last week on strong investor interest to add to its physical uranium stockpile. It was news of SPUT activity that powered up the spot uranium price, with traders front-running purchases by SPUT.

Ord Minnett said the SPUT activity supports its existing term price forecast of $US85/lb in DecH-25 and $US90/lb in 2026. Price targets on uranium stocks its covers suggest that there is more upside to be had despite the strong share price gains in response to the SPUT news.

It has buy recommendations on Boss (BOE) and Paladin (PDN) with price targets of $6 and $9.50 respectively. That compares with their respective Thursday market prices of $4.64 and $7.46. The firm has a speculative buy on Lotus (LOT) with a price target of 37c against a market price of 20.5c.

It is also worth mentioning that Boss announced during the week it had met its first-year production guidance for FY25 of 850,000lbs of uranium at its restarted Honeymoon operation in South Australia a couple of weeks ahead of schedule.

It is important in more ways than one. Restarts and new mine developments have a bad reputation in the uranium space, which has made the uranium stocks a prime target for short sellers.

Boss is one of the most shorted stocks on the ASX. But coming in ahead of schedule means the activity of the shorts has backfired, giving the stock an added impetus as the shorts get busy unwinding their positions.

Genesis (GMD):

It was mentioned here on April 11 that Raleigh Finlayson’s Genesis (ASX:GMD) was in line for a re-rating on the basis of it establishing a maiden reserve estimate for the Westralia deposit at Laverton.

The idea was that the reserve estimate would likely result in the ever can-do Genesis being in a position to achieve its aspirational target of becoming a 400,000ozpa gold producer ahead of time.

The aspirational target compares with a guided 190,000-210,000oz in FY2025. So Genesis is a growth stock which the market wants to see. But now it seems possible that come 2030, Genesis could well be at 450,000ozpa.

That’s thanks to the recent acquisition of the Laverton gold project from Focus Minerals (ASX:FML) for a cash consideration of $250 million. The project came with a global mineral resource of 4 million ounces at a handy 1.7g/t.

The acquisition equated to $A63 per resource ounce which is about as cheap as it gets for a resource of that scale in a $A5,200/oz gold market.

Genesis – trading at $4.51 a share compared with $3.89 back on April 11 - has not reset its 400,000ozpa aspirational target, nor its FY29 production target of 325,000oz.

But UBS for one thinks 450,000ozpa is now doable.

In a June 17 research note which set a $5.50 price target on the stock, UBS said with the acquisition, there is enough ore surrounding Genesis’ Laverton treatment plant to not only fill it, but to underpin an expansion to a processing rate of 4.5mtpa.

“Importantly, this avoids the logistics and associated costs of trucking the Tower Hill (near the company’s other processing hub at Leonora) material to Laverton by likely staying at Leonora (1km haulage rather than 120km) and be processed through an expanded 3mpta plant,” UBS said.

“This should see Leonora reach production levels of 280,000ozpa and Laverton about 175,000ozpa for a combined 450,000pa from FY30.”

There is a cost to getting there in terms of the required mill expansions, which UBS priced at $450 million. That trims near-term earnings expectations but on UBS figures the lift in production increases its NPV-based price target 22% to the $5.50 a share mentioned earlier.