Could these small-cap stocks help future-proof your portfolio?

Paul Summers — Sun, 15 Oct 2017 07:35:43 +0000

Junior mining stocks have the ability to make early investors very wealthy indeed. So long as you can stand the higher levels of capital risk and possess a healthy amount of patience, I think there are a number of such opportunities on the market right now. Here are just two.

A play on clean energy

With the price of uranium at a 12-year low, it’s not all that surprising if Berkeley Energia (LSE: BKY) has been flying under many investors’ radars. However, it’s for this very reason — along with the huge potential of its wholly-owned and fully-funded Salamanca mine near Madrid — that I think the shares warrant closer inspection by those who believe the demand for clean energy can only go in one direction.

Once up and running, the mine is expected to churn out 4.4m lb of uranium concentrate every year, making Berkeley one of the top 10 global producers. What’s even more remarkable, however, is the fact that the £120m cap still expects to make a profit even if uranium prices don’t budge. According to the company, it will have one of the world’s lowest production costs at $15/lb — far cheaper than FTSE 100 mining giants Rio Tinto or BHP Billiton.

To be sure, there’s no knowing when — exactly — the price of uranium will recover. Nevertheless, there are a number of potential catalysts. China is expected to double its nuclear capacity in two years (and double again by 2035) and Japan is restarting its nuclear programme after it was brought to a sudden halt following the Fukushima disaster in 2011. With hundreds of US and EU utilities also re-contracting up to one billion pounds of uranium over the next five years, Berkeley believes we are approaching a major demand/supply tipping point.

Based on the notion that the only way to outperform the market is by doing the things that the majority of investors can’t or won’t, Berkeley looks a very interesting proposition at the current time.

Cop a load of this

Whether you like the idea of driving an electric vehicle or not, you’d better get used to the fact that the automotive industry is changing at a furious pace.

One potential way of profiting from this is to buy shares in copper-focused miners such as Asiamet Resources (LSE: ARS), particularly as the current oversupply of the metal won’t last forever.

The £54m cap’s shares have rallied over the last few days following the release of an encouraging update on recent drilling near the company’s Beruang Kanan Main (BKM) prospect on the island of Kalimantan. In addition to its huge feasibility-stage copper project, Asiamet now believes it has found a standalone polymetallic deposit with tests revealing high grades of zinc, lead, silver and gold.

Aside from its assets (which also include the Jelai Gold project and part-owned Beutong resource), one other thing worth bearing in mind is the track record of Asiamet’s management team. Chairman and significant shareholder Tony Manini, for example, built up a $20m miner (Oxiana Ltd) into a £6bn commodity giant in just eight years. Sounds to me like he’s a good person to have around.

Like Berkeley Energia, Asiamet isn’t a stock for those with short investing horizons. Nevertheless, the prize for those able to sit on their hands could be worth the wait.

The post Could these small-cap stocks help future-proof your portfolio? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is Berkeley Energia plc a better buy than BHP Billiton plc?

Prabhat Sakya — Thu, 09 Jun 2016 14:05:32 +0000

In the emerging energy economy, many people have talked about the rise of solar and wind power. And indeed these renewables are rapidly becoming cost-competitive with oil and gas, and will grab an increasingly large market share in the energy sector.

But in this energy revolution, there is relatively little mention of nuclear power. Yet most agree that this will be a crucial component of the future energy mix. The nuclear power industry is growing year on year, and China and India alone plan to build 300 new reactors.

The global nuclear industry is booming

That means this is a booming industry, and as well as growth in capital expenditure, there will be rising demand for uranium, the main fuel for these reactors.

And this is where firm Berkeley Energia (LSE: BKY) comes in. This little known company specialises in mining uranium. And it has made a discovery of a massive deposit in Western Spain. Yet this is a small cap with a value of just £63.8m, which doesn’t pay a dividend, and is not yet turning a profit. However, it seems to me to show particular promise.

The Salamanca project has the potential to power the whole of the UK’s electricity needs for five and a half years. EU, national and regional approvals have been received, and site works commenced in March 2016.

The main risk I see with this project is that uranium prices could slide as part of the falls in commodity prices as the mining and mineral bear market gets under way. Yet Berkeley argues that its low capital and operating costs cushion it from this; it plans to be one of the world’s lowest cost uranium producers.

What’s more, the sharply rising demand in uranium around the world suggests that spot prices won’t fall as low as other commodities. That’s why I think Berkeley Energia could well be worth looking into as a small cap growth play. But rather like fellow small cap Sirius Minerals, we will have to wait till mining starts to get an accurate picture of how much this firm is worth.

While metal and mineral demand is falling

In contrast, mining titan BHP Billiton (LSE: BLT) has seen its profits fall sharply as the commodities supercycle has ended. This is one of the world’s largest miners, and has operations across Africa, Latin America and Australia. Substantial over-investment during the boom years means that BHP will need to cut back severely to correct the global over-supply of metals and minerals.

China’s building boom is ending, which means that, in contrast to uranium, demand for commodities such as iron ore and copper is falling, while supply has increased.

Mining bulls will say that BHP Billiton has a dividend yield that is hard to ignore. Yes, that 9.07% income is high. But it is crucial to get a picture of the long-term viability of this dividend. High yields can sometimes be very deceptive, and it is highly unlikely that it will be maintained. Analysts estimate that it will be cut to just 2.61% in 2016, as the earnings that drive dividends dive.

So, the bottom line is that you should continue to avoid BHP Billiton, but, if you are not risk averse, Berkeley Energia may well be worth a closer look.

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