The Argonaut Algorithm: Fundie David Franklyn's key takeaways from March reporting season

News.com.au

23-04-2025

Argonaut Funds Management's David Franklyn joins Stockhead to share investing secrets from the high-conviction resource sector investing fund, including his junior stock pick of the month.
While the market's attention has been inexorably turned to the Trump-China trade war, global economic fears, tariffs and war, the world has kept turning.
That includes those of miners, who are deep in one of the key reporting seasons of the year, delivering results to the market peeling back the layers on how their operations performed in the March quarter.
These are key moments for analysts and fund managers, who get to assess which stocks surprised to the upside and downside, or have hidden info that could provide clues about future performance.
This month, Argonaut's David Franklyn joined Stockhead to share some of his highlights from the first week of the ASX mining sector's reporting season.
Pilbara Minerals (ASX:PLS)
Franklyn says there was nothing 'dramatic' in the March quarter result posted by the leading lithium stock on the ASX.
But it continues to show that we're "bouncing along the bottom in the lithium market.
Franklyn noted Pilbara shares, as of mid-week, were down 41% in the past three months and 63% over the past year.
"It just took another step down with the recent pull back in the market. If you look at the results, I think they're doing everything right operationally," he added.
Production was chopped from 188,000t to 125,000t after PLS shut its secondary Ngungaju plant, but that's only stemming cash outflows.
"Unit costs were reported at about US$500/t, but the all in cost was something around US$800/t once you strip out growth capex," Franklyn said.
"It just highlights, you've got one of the most efficient producers of hard rock lithium really struggling to make money.
"There's obviously some headwinds on the demand side of things slowing down a bit, and still a lot of supply.
"But it doesn't look sustainable that prices can stay where they are for any meaningful length of time if one of your main, low cost producers is struggling."
Franklyn says it's still a little early to call a rotation back into lithium, but that value is emerging with the sector significantly sold off.
Genesis Minerals (ASX:GMD)
ASX gold stocks may have been carted yesterday as Trump's aboutface on China reversed bullion's gains.
But at current prices margins are screaming.
Franklyn said Raleigh Finlayson led Genesis delivered a "cracking result" in the March quarter, producing just shy of 60,000oz across the Leonora and Laverton hubs.
"They realised prices of about $4500/oz Australian and their costs were around $2300/oz Australian," Franklyn said.
" So a very good margin there, they added over $100 million for the quarter, which is strong. And they're also just ... fleshing out their growth profile."
" This year they'll produce about 210,000oz of gold by '27 that should be 300,000oz, and then moving to 400,000oz and higher the further you go out."
Franklyn said Genesis was attractive because it can achieve that growth organically.
"I think it still looks one of the better value gold producers," he said.
Greatland Gold (LSE:GGP)
Greatland Gold is a major position for Argonaut in both the Natural Resources Fund and Gold Fund.
And its first full quarter in charge of the formerly Newmont owned Telfer gold mine in WA's Pilbara delivered with around 90,000oz of gold and 3000t of copper, the latter a handy by-product credit to reduce costs.
"The big issue with this asset was what kind of production can they drag out of the Telfer asset while they're waiting for Havieron to come on stream in sort of '28-29 and they gave some guidance there as well," Franklyn said.
"They're looking between the 300-340,000oz in '26, 260-300,000oz in '27, which really fills that gap, and we think there's still work to do on exploration and increasing the reserve base."
While the US$475m acquisition price seemed hefty last year, GGP is set to pay for the acquisition within 12-18 months given current gold prices.
But Franklyn says Telfer and the nearby Havieron development will be one of the "great long term assets" in the Australian market, with a mid-year secondary listing on the ASX to put the ~$4bn capped Andrew Forrest backed company on the radar of even more institutions.
Capricorn Metals (ASX:CMM)
The third gold miner that piqued Franklyn's interest was Mark Clark's Capricorn Metals, owner of the Karlawinda and Mt Gibson gold projects.
Karlawinda produced around 30,600oz in the March quarter with all in sustaining costs still guided for FY25 of $1370-1470/oz, well into the bottom quartile for the gold industry.
"They're looking to increase production from Karlawinda and they're also bringing on their Mt Gibson project over the next couple years," he said.
"Their production is going to something around 120,000oz to around 300,000oz or a little bit more.
"It's going to be 10 year mine lives, low operating costs, strong balance sheet, limited hedging, we think it looks pretty good."*
*This interview took place before news broke that CEO Paul Criddle would go on leave after being charged by a Perth court with assault. Executive chairman Mark Clark will take on day to day management of the gold miner.
Franklyn has previously touched on Amplitude before, naming the east coast gas explorer his stock of the month in March.
"Their March quarter was very good, production was in line with guidance at about 6.1 petajoules," he said.
"The average realised gas price increased to over $10/GJ, which was good."
But Franklyn said the key developments of Amplitude came on the corporate end.
"The two key things we were looking for from Amplitude were 1) the Orbost plant providing some consistency on its production output, and that's happened," he said.
"And then secondly they've got an east coast gas project which is their growth project. Mitsui said they didn't want to proceed with that, they've now got OG Energy that has come in as a partner, which is a very good partner.
"So that project can now proceed and is funded. So we think that story continues to look good. It's on an EV/EBIT multiple of less than 4x in 2026.
"So it's the cheap, it's defensive. And I think the issues they've had over the past couple of years are starting to be resolved under the management team."
Stock of the month
While producers in gold and energy caught the eye in reporting season, rare earth companies have stood out in recent weeks in spite of mild pricing that has persisted for well over a year.
"What you're seeing at the moment with the trade issues that are taking place is China seeing an opportunity to restrict supply into the West, and so there's a real focus now on how we get these rare earths that are critical for magnets and where they're going to come from," he said.
While Lynas (ASX:LYC) is the standout producer in the ASX, Franklyn is also turning his attention to more speculative stocks with clay-based deposits in Brazil.
He thinks they have the prospect of coming into production relatively quickly and at low cost.
"The Brazilian rare earth players look like they can produce and still make money at something around current levels," Franklyn said.
"The one we like is Meteoric Resources (ASX:MEI).
"It's got the Caldeira ionic clay project in Minas Gerais in Brazil, which is a well-established mining area, they've got a PFS which is due out in the next quarter and we think that they can develop it and become producer in the medium term."
Meteoric is up 65% in the month to date but down 52% over the past 12 months to Tuesday this week, suggesting there's still value in what Argonaut sees as a standout in the sector.
Caldeira is both high grade and rich in heavy rare earths, making it a strategic asset for the US and Brazil, Franklyn said.
Argonaut Funds Management is a high conviction resource sector investor managing the Argonaut Natural Resources Fund and the Argonaut Global Gold Fund. David Franklyn is the Fund Manager for the Argonaut Natural Resources Fund.