Half a billion in cash to buy the bottom | Australian Markets

Today in Fat Tail Daily we’re going to verify in on the gold market.

After a scorching run earlier in the 12 months, each gold and gold stocks are consolidating.

However, we simply received a clear instance of the place one mining staff thinks the massive alternative nonetheless lies.

Discover Mt Gibson’s ($MGX) latest transfer…

This miner is an outdated advice of mine.

For years its principal operation has been the high grade Mt Koolan iron ore mine up in Northern Western Australia.

(Believe it or not, the late Queen of England visited there as soon as.)

It’s been a good money spinner for MGX.

At final accounts, they’d $460 million in cash on the books, and that will probably be greater when the subsequent set of numbers hit the market later this month.

However, like all miners, MGX have a perennial downside.

Eventually, the useful resource base is exhausted. The Mt Koolan operation has been in manufacturing for many years, and its days are numbered.

By 2028, it is going to be dusted, solely a massive gap and recollections remaining.

MGX has a alternative, and $500 million to spend.

Does it buy one other iron ore project? Lithium? Copper?

We know the means management are considering now.

They’ve simply purchased a 50% stake in a gold development project for $50 million.

Yep, MGX’s prime brass assume gold is the means to go.

It’s known as the Central Tanami project, and it is going to be a three way partnership (JV) with one other company.

It’s positioned in WA on an current mining lease, with infrastructure close by. It might be in manufacturing within 2 years.

It’s this type of behaviour that tells me that the treasured metals bull run has a long means to go, with tons of alternative to revenue for buyers such as you and me.

Let’s replicate for a second…

In the share market, you may make money in alternative ways.

One means is theory. Occasionally a share will rise means past what fundamentals would seemingly dictate.

We chatted about $EOS yesterday.

It’s added about $600 million in market cap in the final 6 months, based mostly off one definitive order (for the second).

Clearly, there’s a speculative ingredient to the price rise right here, as the market positions round defence spending.

However, a completely different method to shopping for and holding shares – more sure footed over the long time period – is using together with corporations as they construct out an operation…and create worth.

In the case of MGX, it will be their gold mining operation. In this case, you’re not speculating on a greater gold price (although that’s all the time good).

You’re collaborating in the course of that turns a recognized deposit into a producing mine.

That’s a long journey. Approvals are needed. Infrastructure will get constructed or restored. Staff employed. Gold patrons organized. Then there’s the business of operating all of it easily and safely.

You’re not trading a stock. You’re in the gold business, in different phrases.

That’s what MGX goes to do with its cash hoard.

It’s going to construct a portfolio of shares throughout the mining space.

Think of it as a cash for equity swap.

MGX will change into a mini-holding company for a vary of companies, based mostly round treasured metals.

As it occurs, the final advice for my advisory Australian Small Cap Investigator is alongside a comparable thought.

You see…

One factor about commodity producers is that, when costs are high, it may give them monumental free cash stream.

That offers them firepower to buy into different corporations and tasks if their current operation doesn’t need or deserve more investment.

Clearly, the staff at MGX assume there may be more potential in gold than iron ore over the long run.

Here’s one other factor about MGX.

Currently its market cap is round $350 million. That’s $100 million much less than the cash in its accounts!

The market can see Mt Koolan is dying, and is not sure of the place the business goes from right here…therefore the low cost.

However, it’s potential over the subsequent 1-2 years that MGX acquires a juicy portfolio of junior mining tasks…and also you may have the ability to buy them – by way of MGX – at much less than their price.

You can already buy $450 million in cash at a low cost as we speak.

However, this sort of play requires two issues:

1. Patience. It’s not all going to occur in the subsequent week, month and even 12 months.

2. Trust. We can’t be sure management at MGX will use their cash hoard successfully. It’s potential they buy a bunch of dud tasks, or at the unsuitable price or time.

I don’t own MGX.

But I do plan to keep an eye on it.

If gold actually does go towards $10,000 an ounce, they may be shopping for into the junior gold market at exactly the proper time.

Those with cash all the time have a shot at the best property at the bottom of the market. Gold juniors, in contrast to the producers, are nonetheless lifting off the flooring.

I recommend you keep an eye on MGX with this in thoughts too.

Best needs,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Make no mistake, the strikes Trump is making at the second to shore up important metallic provide chains is massive.

The chart above reveals you the current strikes in uncommon earth miner MP Materials.

Trump has made an investment of $400m into the company and likewise underwritten demand for NdPr (Neodymium (Nd) and Praseodymium (Pr)) at a a lot greater price than present ranges.

This is the second when the US is preventing back towards China’s ways to keep a stranglehold on provide chains.

I’ve stated for a long time that I assumed China had intentionally crashed many markets, comparable to graphite, nickel, and uncommon earths to scare off or ship broke any western competitors.

The 50% tariff on copper and the strikes made in uncommon earths are a stake in the ground for the US that they may no longer enable these ways to triumph.

Australia has one of solely two ex-China uncommon earth producers in Lynas Rare Earths [ASX:LYC]. But we even have a few corporations which can be working in the direction of project completion and have struggled to get the essential funding.

That could also be about to change as the US counteracts China’s ways.

It might be time to run the ruler over the uncommon earth tasks on the market to determine which of them will come online the soonest and have the best prospect of raising funding.

Arafura Rare Earths [ASX:ARU] seems to be attention-grabbing on the charts..

Regards,

Murray Dawes,
Editor, Retirement Trader