From further trawling in the micro-cap sector of the Australian Securities Exchange (ASX), here are four more potential gems hiding under 40 cents in share price.
Close the Loop (CLG, 33.5 cents)
Market capitalisation: $174 million
12-month total return: –21.2%
Analysts’ consensus target price: 67.5 cents (Stock Doctor/Refinitiv, one analyst), 70 cents (FN Arena, one analyst)
Close the Loop Group listed in December 2021, at 20 cents a share, after the merger of Victoria-based businesses Close the Loop Group and O F Packaging Group. Close the Loop Group started out in the early 2000s as a recycler of printer cartridges and toner, becoming the world’s largest take-back provider of ink and toner cartridges. O F Packaging was a flexible packaging group that supplied Australian and international customers of all sizes.
The merger established an end-to-end handler or hard-to-recycle materials that combines with product design and manufacturing. From e-waste to cosmetics to soft plastics, Close the Loop has an extensive resource recovery operation spanning Australia, the USA and Europe, and a packaging arm that operates in both Australia and South Africa.
The company provides flexible and carton packaging, flexographic print packaging, seafood packaging and bulk storage solutions, and the processing, recycling and refurbishment of print toner cartridges and other consumable products. The company sees future growth coming from breaking-down things such as batteries, electronic waste, power tools and cosmetics, and repurposing them.
It takes recycled soft plastics and flexible packaging and turns it into a road additive product called TonerPlas that prolongs the performance of asphalt while providing a solution for troublesome plastic waste. Using recycled plastics from various sources, CLG has a recycled plastic resin called rFlex that allows for the creation of new rigid plastic products using a high percentage of recycled content; the plastics are pelletised and sold back to manufacturers for use in new product. The company is not just mechanically recycling plastics, but making sure from origin that they are created to be easily recyclable, introducing mono-based polymer solutions for soft plastic packaging applications.
Close the Loop offers a variety of packaging films and formats, using varying percentages of recycled content. It works with key brands on the take-back of cosmetic packaging and phone cases to ensure these products are diverted from landfill. CLG also collects print consumables such as toner cartridges from its network, cleaning them for refill and reuse in a closed-loop system.
In the year to 30 June 2023, the first full financial year on the stock market, Close the Loop reported revenue that rose 52%, to $135.9 million, of which $74.3 million was from resource recovery and $61.6 million was from the packaging business; earnings before interest, tax, depreciation and amortisation (EBITDA) up 70%, to $24.3 million; and net profit that more than doubled, to $12.2 million. The company did not pay a dividend.
The performance surprised on the upside, and the company also gave a highly positive outlook: for FY24, Close the Loop forecasts revenue to increase by at least 47%, to $200 million, and the rate of EBITDA growth to increase to at least 76.9%, with earnings to be $43 million as a minimum. The company is seeing strong demand for recyclable-ready packaging and recycled content.
Close the Loop gives every sign of being a stock with high global growth potential, adding contracts steadily. It is also a company with regulatory tailwinds behind it, as governments mandate tougher requirements for effective recycling and waste management, and truly circular loops of materials lifecycles. And Close the Loop has excellent ESG credentials. All in all, I think CLG is a stock of the future.
AIC Mines (A1M, 31.5 cents)
Market capitalisation: $146 million
12-month total return: –37%
Three-year total return: –11.2% a year
Analysts’ consensus target price: 70 cents
Formed from the 2019 merger between Intrepid Mines and AIC Resources, AIC Mines owns and operates the Eloise copper mine – a high-grade underground mine located in North Queensland, south-east of Cloncurry. The mine commenced production in 1996 and has since mined more than 13.5 million tonnes of ore, grading 2.8% copper and 0.8 grams per tonne (g/t) of gold, producing more than 350,000 tonnes of copper and 180,000 ounces of gold. AIC Mines took ownership of Eloise in November 2021.
The mine produces a high-quality copper concentrate, with significant by-products of gold and silver. The mine is producing approximately 12,500 tonnes of copper and 5,000 ounces of gold in concentrate, per year.
In October, AIC Mines reported a record quarter for Eloise in the September 2023 quarter, with production of 3,402 tonnes of copper and 1,820 ounces of gold – a figure 18% higher than June 2023 quarter, and a 29% lift on the September 2022 quarter. In A$ terms, the copper price achieved was 15% higher, and the gold price achieved was 12% higher, than the September 2022 quarter.
Conversely, the all-in sustaining cost (AISC) in the September 2023 quarter was A$4.94 per produced pound of copper, the lowest AISC since the June 2022 quarter. (The AISC is a figure that incorporates not only the “cash cost” of production but all the costs that allow production to be sustained: it is the minimum price that allows a producer to break even.)
For the December 2023 quarter, the company is targeting in-concentrate production of approximately 3,000 tonnes–3,200 tonnes of copper, and 1,500 ounces of gold. For FY24, the production target is 12,500 tonnes of copper and 5,000 ounces of gold, at an AISC of A$5.00 a pound of copper.
Exploration and resource definition drilling at Eloise has been successfully replacing mining depletion each year. But the company’s plan for extending the life of the operation beyond 2030 is to bring further deposits online, and expand the processing plant at Eloise, initially to process ore from the nearby Jericho copper-gold deposit, four kilometres to the south of Eloise. AIC Mines expects its planned development of the Jericho mine and expansion of the Eloise processing plant to increase production to more than 20,000 tonnes of copper and 10,000 ounces of gold a year.
Further out, the company potentially has two advanced targets, each located about 20 kilometres from Eloise – the Sandy Creek copper-gold prospect and the Artemis polymetallic prospect. Both have seen only occasional – and never sustained – drilling work. AIM says Sandy Creek… hosts an historic near-surface resource of two million tonnes, at a grade of 1.32% copper and 0.30 grams per tonne (g/t) gold, but there has been no drilling there since 2012.
As things stand, Eloise has mineral resource of about 5.7 million tonnes, comprising of 137,200 tonnes of copper and 118,800 ounces of gold. But further resource definition will include Sandy Creek and Artemis.
And in September, AIM reported the discovery of a new high-grade copper deposit, named Swagman, at the Jericho North prospect. The company says Jericho North is ideally located midway between the Eloise Copper Mine and the Jericho copper deposit.
The world needs more copper; it is a vital component of technologies at the core of the energy transition, but there is a growing shortage of the metal. In that context, AIC Mines looks to be very well-positioned.
Opthea (OPT, 37 cents)
Market capitalisation: $245 million
12-month total return: –60.2%
Three-year total return: –43.5% a year
Analysts’ consensus target price: $1.20 (Stock Doctor/Refinitiv, five analysts)
Melbourne-based biotech Opthea is taking its lead drug candidate, OPT-302, through clinical trials: the drug targets the chronic eye disorder wet macular degeneration (wet AMD), an age-related condition that is the most common cause of blindness in people aged over 55. The drug is currently being evaluated in two Phase 3 clinical trials for the treatment of neovascular age-related macular degeneration (nAMD), for which it holds ‘fast track designation’ from the US Food and Drug Administration (FDA). Fast track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious conditions and fill an unmet medical need. OPT-302 was recently given the drug name Sozinibercept.
Opthea began OPT-302’s Phase 1 trials in 2015, progressed through Phase 2 trials in 2019 with good results, and began Phase 3 clinical trials in 2021; the company still has another couple of years of testing and regulatory filings to work through. The drug is intended to complement the current standard-of-care treatment, with the two clinical trials studying its effects on wet AMD in combination with the existing drugs on the market, Ranibizumab and Aflibercept (these drugs inhibit the VEGF-A proteins that are the cause of wet AMD.) Opthea’s objective is to provide patients with improved visual acuity outcomes on top of the standard-of-care. In a large Phase 2 study, OPT-302 showed improved efficacy above the existing standard-of-care: it has demonstrated a novel mechanism of action and a favourable safety profile.
After recently raising US$57.6 million ($90 million) from investors – on top of financing of up to US$170 million from US investors Carlyle and Abingworth secured in 2022 – Opthea is fully funded to complete the ongoing Phase 3 trials, with a read-out (results) expected in mid-2024.
So far, Opthea has barely put a foot wrong in the long process of bringing a new drug to market. The treatment of wet AMD is crying out for a new approach, and Opthea looks like it may have exactly that. While the progress has been very good so far, drug trials can always fail; however, it is worth noting that broking firm Goldman Sachs has a buy recommendation on Opthea, with a target price of $2.80.
Peak Rare Earths (PEK, 39 cents)
Market capitalisation: $102 million
12-month total return: –18.1%
Three-year total return: –4.4% a year
Analysts’ consensus target price: 90 cents (Stock Doctor/Refinitiv, one analyst)
Peak Rare Earths wholly owns the Ngualla rare earths project in Tanzania, which contains rare earths, phosphate, base metals, niobium and tantalum – and in particular, neodymium and praseodymium (NdPr), which are two of the world’s most sought-after rare earth elements.
Ngualla is considered a world-class deposit of these critical minerals, with a mineral reserve that stands at 18.5 million tonnes grading at 4.80% rare earth oxide (REO), for 887,00 tonnes of REO, within a current resource of 214.4 million tonnes grading 2.15% REO, for 4.61 million tonnes of REO. Peak describes it as “one of the largest, highest-grade and lowest-cost NdPr oxide deposits in the world,” and there is plenty of exploration potential to expand that further. The bankable feasibility study (BFS), written in 2017 and updated in October 2022, envisages an initial mine-life of 24 years (the mining licence extends to 33 years.)
On its own, NdPr can be used for permanent magnet materials, as well as a non-ferrous metal alloy additive. The neodymium magnet made from praseodymium alloy is one of the most powerful and widely used rare earth magnets. The magnets are three times stronger, and one-tenth the size of conventional magnets.
The products gained from the NdPr mix are critical components of renewable energy and electric vehicles; and they are geopolitically critical, as currently China produces 85% of the world’s NdPr output. Global supply chains struggling with the COVID-19 pandemic have been further hammered by the Russia–Ukraine war, and gaining secure access to the commodities, and the magnets, has never been more important. Ngualla is one of the deposits that will help.
Ngualla is estimated to require a US$321 million investment, with average annual concentrate production of about 18,000 tonnes a year (contained total REO) over the first six years, and 16,000 tonnes a year over the remaining 18-year life of the project. That gives a post-tax net present value (NPV) of US$1.48 billion (A$2.35 billion) and an internal rate of return (IRR) of 37.3% a year, based on expected NdPr pricing.
Peak will build a mine, mill, beneficiation plant, community projects and associated infrastructure, creating more than 3,000 local jobs; at the beneficiation plant, ore with a grade of about 4.8% REO will be upgraded into a 45% REO high-grade concentrate The concentrate produced will initially be shipped to refineries that will produce NdPr oxide and other separated rare earths products. Longer-term, Peak and the Tanzanian government (which owns 16% of the Ngualla project) are evaluating the feasibility of building a mixed rare earth carbonate (MREC) refinery.
In August, Peak de-risked the project further, signing a binding offtake agreement with Chinese rare earths company Shenghe Resources (its largest shareholder, owning a 19.8% stake), under which Shenghe will take 100% of the rare earth concentrate produced, and a minimum of half of the intermediate and final rare earth products, for an initial term of seven years. Shenghe will also provide technical support.
If everything goes well, Peak is targeting final investment decision (FID) by May 2024, in which case, first concentrate production would be scheduled for April 2026, 24 months after FID.
Broker MST Access has a $1.13 valuation (September 2023) on PEK.
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