Latest news with #DavidFranklyn
News.com.au
2 days ago
- Business
- News.com.au
Argonaut Algorithm: David Franklyn's pick to play bullish bauxite demand drivers
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. Aluminium smelters are in dire straits, with over capacity led from a commodity hungry China keeping a lid on prices and treatment charges at the same time as power prices elsewhere hobble the power munching processing plants. In recent days South32 (ASX:S32) has flagged plans to close its Mozal smelter in Mozambique by March 2026 after failing to come to terms with the southern African government on a new power supply deal. And back home, the majority Rio Tinto (ASX:RIO) owned Tomago smelter near Newcastle is communicating a doomsday scenario to its workforce with a power supply deal with AGL to run up in December 2028. Plans to supply the Tomago plant with renewables will not be viable without government subsidies, Tomago's CEO has previously warned. Yet demand for aluminium remains strong, mirroring the inflection of other commodities linked to decarbonisation and electrification like copper – for which it is often a lower cost alternative – and tin. With smelting on the nose, the best place to look for value could be at the very start of the alumina and aluminium production process. The key raw material used in the supply chain, bauxite, is having a renaissance, having seen prices in key market China run to record highs late last year. "China are the big buyer of of bauxite, but their production has been declining for some time, so they now import something like 70% of their bauxite requirements," Argonaut Funds Management's David Franklyn says. Around 74% of that now comes from Guinea in West Africa, the dominant supplier of high grade, low silica bauxite, with between 22-23% from Australia. Rising demand, uncertain supply Demand continues to increase. The International Aluminium Institute predicted in 2022 that usage will lift from 86.2Mt pre-Covid to 119.5Mt by 2030, around 40% higher. That's already playing out in China's hunger for bauxite imports. "In the first half of this calendar year, China imports increased by 33%. Right. So the dynamic is pretty good as far as emerging increasing demand from China," Franklyn said. At the same time, the status of key supplier Guinea is uncertain. There's around 220MT of producing capacity for bauxite in the country. But around 27Mt is sensitive to weather in a locale that gets close to 4000mm of rain a year, half of it in just two months in July and August. Close to 60Mt comes from licences that have been revoked by the country's ruling military junta in a crackdown on foreign producers. "There's the normal political gyrations that you see, which is causing some nervousness and buyers wanting alternative supplies," Franklyn noted. "But more recently, what they've done is they've been revoking a number of the mining licences and that's getting up to significant volume, we're talking about somewhere between 40 and 60 million tonnes." Prices in China climbed as high as US$125/t for Guinean bauxite, which typically grades over 45% Al2O3 and has ~3% silica. They've slipped to US$74/t with Guinea's bauxite exports hitting a first half record of 99.8Mt to June 30. But with the wet season upon us supplies could get ropy heading into September. The premium for Guinean over Australian bauxite has slipped, with high grade but also high silica Australian bauxite trading at US$69.50/t. "I just think that the demand-supply dynamics are looking pretty interesting, and you'd suggest that prices are likely to be supported around current levels." Argonaut's stock of the month Aluminium, alumina and bauxite options on the ASX include Rio Tinto (ASX:RIO) and South32 (ASX:S32), who capture the full value chain but as diversified producers are largely not priced on their aluminium business units. American-headquartered Alcoa Corporation (ASX:AAI) is a major alumina and aluminium producer in Australia and North America, but doesn't ship raw bauxite. At the smaller end of the market, there are a handful of junior explorers and developers such as Western Yilgarn (ASX:WYX) and the recently listed VBX (ASX:VBX). But it's the Queensland producer Metro Mining (ASX:MMI) that makes the grade as Argonaut's August stock pick. A recent purchase for the Argonaut natural resources fund, Franklyn says the business' rising production profile and reducing cost base make the Cape York producer an attractive proposition. "Simon Wensley is the MD. He came in three or four years ago when the business was in a bit of trouble, largely because of a lack of scale and its costs were too high," Franklyn said. "It was producing 3-4Mt per annum. Its, shipping was relatively small scale and expensive and its operating costs reasonably high. "And so when prices came down, basically, I think it was squeezed." More recently, the Bauxite Hills operation has been expanded to a target production rate of 6.5-7Mtpa, with improved barge and trans shipping infrastructure cutting logistics costs. MMI is aiming to chase further improvements by shipping with capesize vessels, chasing a status as the 'lowest cost operator' in the seaborne market. It generated about $16m in cash during the June quarter, when shipments rose 19% YoY to 1.7Mt. Between 4.8-5.3Mt of the Weipa style bauxite is expected to be shipped in the second half of the year before the traditional December-March shutdown. "So you'd expect there's going to be an acceleration in free cash generation. They've still got a lot to do, they've still got some debt (which has) been coming down," Franklyn said. "But when things were very tough they had to get high cost debt. Ideally in the next 12 months, they should be able to pay that all off. "Their net debt is about $60m, market cap's about $420m."So I just think the business is turning around and I think on those kinds of numbers, it's looking attractive. "But there's always that scope where you get a spike in the bauxite price and then they'll do exceptionally well." 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. The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
AU Financial Review
12-08-2025
- Business
- AU Financial Review
Meet the investors cashing in on lithium's resurgence
A growing chorus of Australian fund managers are taking on the army of hedge funds targeting lithium stocks, betting that a resurgence in prices will force the short sellers to cover their positions, turbocharging the rally in the sector. David Franklyn of Perth-based Argonaut upped his exposure to lithium stocks in June despite prices of spodumene, the type of lithium that is mined in Australia, crashing to a four-year low of $US575 a tonne and the producers being among the most shorted stocks on the ASX.
News.com.au
21-07-2025
- Business
- News.com.au
Argonaut Algorithm: Copper's a long-term theme for fundie David Franklyn
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. When looking for inspiration as an investor it can pay to study the performance and philosophies of some of the masters. One whose work springs to mind for Argonaut's David Franklyn is Stanley Druckenmiller, a billionaire hedge fund manager whose legacy spans both sides of the political spectrum in the US. Druckenmiller worked with George Soros to bet against the British Pound in the 1990s and mentored current Republican Treasury Secretary Scott Bessent at the same firm. An interview recorded last year between Druckenmiller and Norges Bank CEO Nicolai Tangen has Franklyn thinking about the famous investor – reputed to have never had a down year – and his bias towards long-term strategic thinking. "He's looking at the key themes that are impacting the market and trying to identify those and then the other, I think, key point is he looks 12 to 24 months out," Franklyn said. "He's not really focused on what's happening today, but he's looking forward to say how is the world going to look in 12 or 24 months and how do I position my portfolio for that." That's where Franklyn is taking inspiration through a resources investing lens. Recent movements in the US under President Donald Trump have Franklyn thinking critical minerals and copper will be key themes to focus on in the years ahead, exemplified in the rare earths supply deal signed by the Department of Defense with MP Materials and the threat of a 50% tariff on copper not refined in the US. Copper is the key theme, where Argonaut likes the longer term view. "I think the outlook for critical minerals, and I think copper is really a key one there, is very good if you look through the noise of what's happening globally and the discussions around tariffs. "A lot of the copper stocks are kind of on hold because people can't really see what the implications are. "But if you look at copper dynamics, on the supply side you've got constraints. Most of the world's copper comes out of Chile, Peru and the DRC, countries that aren't particularly reliable as far as their annual production. "And then on the other side you've got demand really strong and driven by a broad range of demand drivers. That comes from energy transition to the electrification of everything, data centres, increasing demand from China. "There's a whole range of key drivers there on the demand side. It's a big market, it's hard to manipulate which is a positive in this day and age. So we're very bullish on that." Copper bull run The tariffs announced by US President Donald Trump were generally viewed as negative for non-US based copper stocks, with prices in the US domestic market opening up a wide arbitrage against the LME benchmark. So why is the intense focus on the red metal potentially a good signal for long term investment in copper miners? "If you stand back and you say, what is this all about? It's that copper is a critical metal and increasingly required," Franklyn said. "While the US has copper resources, it's been very hard to get new projects up and running. And they do very little of their own refining or processing. " I think ultimately what it's all about is to make sure they're in control of the refining and processing and then obviously give their domestic projects fast tracking so they can bring new projects on at a quicker pace. "But even in having said that, bringing new projects online is a long, slow process. It's still going to take time, so I don't think it's really going to have a material impact on the supply-demand dynamic for quite some time." So where does Argonaut see the best opportunity in ASX copper? Argonaut's stock pick of the month There aren't many copper growth stocks on the ASX, with a dearth of options leaving most of the big players looking pricy. " Sandfire Resources (ASX:SFR) has done very well, but it's probably fairly priced relative to its global peers. You've got MAC Copper (ASX:MAC) disappearing under takeover from Harmony," Franklyn said. But one that does stick out for Franklyn is FireFly Metals (ASX:FFM). It owns the Green Bay copper and gold project in Newfoundland and the Pickle Crow in Ontario, both in Canada. The real focus is Green Bay, which includes 24.4Mt of measured and indicated resources for 460,000t copper equivalent and 34.5Mt of inferred at 2% for 690,000t CuEq, the vast bulk of that at the Ming mine. Led by Steve Parsons of Bellevue Gold fame, Firefly is currently running at a $760m market cap. "They've just done a capital raise in the last month or so, raised $95 million bucks in Australia and another $10 million from retail shareholders. That's going to leave them with about $135 million in cash, that will fund a major drilling campaign to boost their resource," Franklyn said. "So I think the fourth quarter of this year you'll see a resource upgrade and they'll move into some feasibility studies next year. "They've already got a pretty decent sized resource, they've also got a lot of infrastructure already on site and and some of the improvements that are required. So I think that's a real standout." 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. The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
News.com.au
12-06-2025
- Business
- News.com.au
Argonaut Algorithm: Lithium stocks are getting cheaper, so you don't need to skimp on quality
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. Lithium prices have tumbled to a fresh four year low of late. After numerous dead cat bounces in the US$800/t range last year, 6% Li2O spodumene – the kind of lithium produced by WA's hard rock miners – is trading at US$620/t according to Fastmarkets. Those are levels that only Greenbushes in WA's South West, the highest grade hard rock lithium mine in the world, is really making money on. Prices last bottomed out at US$375/t in March 2020, before the EV boom that temporarily sent them as high as US$8000/t on the spot market in late 2022. It's impossible to predict if and when that could happen again. But fund manager David Franklyn has an important message. With lithium stocks all off the boil, it's the right time to trade out marginal players for true quality. It's like heading to a McDonalds only to find out the place next door is selling a porterhouse for only a couple bucks extra. "I think the advantage you have where you're looking at a sector where it's near the bottom of the cycle rather than near the top of the cycle, is you don't need to compromise on quality," he said. "What we tend to do is go, do we think we can double our money in the next three years? "You don't really know when that turn in the market is going to happen, whether it happens in the first three months that you own it or whether it happens in two years and nine months. "We're here for a medium-term investment and we're happy to wait and see when that return actually pays off." The turn It's impossible to really say where the top or bottom of any market is. Despite the hype around the battery metal, lithium remains small and immature, with price-setting opaque and futures markets in their infancy. It can make it hard to truly assess the role supply and demand plays in setting prices, especially with two of the market's biggest end users – dominant Chinese battery producer CATL and EV maker BYD stepping upstream into the raw materials space to secure their own supply chains. They operate higher cost lepidolite mines, a lower grade, lower quality form of hard rock lithium, that counts as a major swing factor for lithium supply – a market otherwise dominated by Australian and African spodumene and South American brines. "The industry is dominated by CATL and BYD. They produce about over 55% of global batteries. And therefore they're the biggest buyer of lithium," Franklyn said. "You could argue they're bringing on high cost lepidolite a time the market's slightly oversupplied to force the price down, because ultimately they're a big buyer of lithium and by doing that they're reducing their purchase price. "It reflects the fact that lithium is still a small market, it's dominated by a small number of major players and therefore it is open to some form of manipulation." Yet feedback from lithium suppliers suggests demand remains strong. "You've got a doubling of (demand in) the industry in the next five years and you have prices that are going down," Franklyn said. "I think we're getting near the bottom of the market and the question is do you start to chip away at some of these good quality lithium stocks." There are four serious players in the lithium mining space – Pilbara Minerals (ASX:PLS), IGO (ASX:IGO), which owns ~25% of Greenbushes, Mineral Resources (ASX:MIN) and Liontown Resources (ASX:LTR). MinRes and Liontown are "very good businesses" but still have debt concerns to address. "At this point in the cycle, do you want to take on the additional risk? And our view is, I don't think you need to," Franklyn said. With IGO saddled by two troublesome lithium refining plants and a nickel business that's winding down, that makes the cashed up Pilbara the standout option for Argonaut. "The benefit of Pilbara is it's got net cash of about $700m and it's very well positioned," Franklyn said. "I'd probably put Pilbara slightly ahead of IGO." PLS shares rose a heady 5.6% on Wednesday to $1.425 after a 23% increase in lithium resources at its flagship Pilgangoora mine in WA's North West to 446Mt at 1.28% Li2O. It remains some way of its $5.31 boom time highs. Junior stock of the month Patriot Battery Metals (ASX:PMT) For Franklyn, the Canadian developer led by former PLS MD Ken Brinsden remains the standout junior stock in the lithium market. "At the developer level the benefit you've got is you can focus on quality," Franklynsaid. "It's got a market cap of $420m, it's the largest hard rock lithium asset in the Americas, it's high grade, simple mineralogy, it's got VW's as a strategic partner, it has got 4.8 million tonnes of contained LCE, so it's huge. " It kind of ticks all the boxes as a high-quality emerging player in the lithium space. And being in North America also makes some sense as, as you see what's happenin with the US and Canada, where Canada's making projects easy to get up and running, and the US is really pushing for critical minerals supply coming from areas close by." 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. The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
News.com.au
13-05-2025
- Business
- News.com.au
Argonaut Algorithm: Why uranium stocks could be back in investors' good books
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. Uranium is back on the up, with a move to US$70/lb for spot prices in recent weeks breaking several months of malaise. While contract prices have remained stubborn, circling around the US$80/lb range for some time, spot prices have been under pressure since hitting decade highs of US$107/lb in January last year. That's come despite positivity around the long-term future for nuclear energy, with around 65 new reactors currently under construction worldwide and the World Nuclear Association tipping a doubling of demand out to 2040. The uranium market is already in a 50-60Mlb deficit, with ~156Mlb produced last year. In part that is because utilities have been well-supplied, and until recently were able to rely on bargain basement pounds from the spot market. 2024 was the strongest contracting year in over a decade. But this year has seen utilities nervous to deal, with potential tariffs hurting market confidence. Argonaut Funds Management's David Franklyn said the utilities had been holding on for a better deal, but that a supply rush was now looking too slow to come online. "They've had enough stocks to see it through, but there's been an expectation that then you've got a whole lot of new projects coming on stream, whether it's NexGen or Denison or Paladin or Boss," he said. "The expectation was that there was this emerging wave of production coming through. I think what we're seeing is that most of those projects have probably been pushed out a little bit. "The ones that have come on stream, they haven't delivered the volumes as quickly as the market was expecting." Franklyn said what Argonaut was hearing from the industry was that utilities were starting to put out expressions of interest for new contract volumes. More drivers Franklyn sees other positive drivers for uranium, underpinning the recent shift back to positive sentiment. Uranium has remained exempt from US tariffs, while the White House has also been rumoured to be preparing Executive Orders to induce quicker reactor builds and approvals, using the Department of Defense as a mechanism to circumvent historic bureaucratic processes. "That's very positive for future demand," Franklyn said. The European Commission is also looking at developing a roadmap that would restrict deals with Russia on enriched uranium, while tech giants are turning to nuclear to power their AI data centres, which are energy hungry and in need of low emissions, baseload power. "There's just this confluence of events with lots of positive news saying the demand for uranium is going to continue to increase and the market's, more and more conducive to that," Franklyn said. The Sprott Physical Uranium Trust also boosted market confidence on Monday night after committing to a US$25.55m non-brokered private placement. That meant it avoided having to sell uranium into the market to preserve its balance sheet, removing a key overhang for uranium equities. Franklyn thinks over the long-term prices will settle into a range of US$75-80/lb, but sees real risks of a run up to over US$100/lb as the market rebalances in the short term. Once NexGen Energy (ASX:NXG) has developed its Rook I project in Canada, there will be three major producers on the listed market – Kazakhstan's London-listed Kazatomprom, Canada's Cameco and the Canadian-Australian NexGen. Behind them are a number of Australian and Canadian companies who are smaller in scale and either still in the study phase or ramping up operational restarts. Many, notably Honeymoon mine owner Boss Energy (ASX:BOE) and Langer Heinrich operator Paladin Energy (ASX:PDN), remain heavily shorted, with close to a quarter of Boss' shares held short. Franklyn said there may be doubts from the market that ASX companies can keep their costs down and generate a strong margin if prices remain around US$70/lb. It should be noted both produced solid March quarters, with Boss generating 295,819lb of drummed uranium at a C1 cost of US$21/lb, while Paladin produced 745,484lb at US$40.6/lb at its Langer Heinrich mine in Namibia. Boss also has the majority 30% stake in enCore Energy's Alta Mesa project in Texas, which produced 130,015lb at a cost of US$36.11/lb in the first quarter. Argonaut's stock pick of the month Staying in the uranium space, and Franklyn sees two standouts. Both are listed in Canada, though the first one comes with a shared Australian listing as well. That's NexGen Energy (ASX:NXG), which owns the mammoth Rook I project in Saskatchewan's famously well-endowed and high-grade Athabasca Basin. "NexGen looks pretty compelling," Franklyn said. "It's got scale, it is going to be low cost. And you've got a view as to how the market might value it by looking at Cameco. " I think that is a standout in the sector." Rook I includes the Arrow project, which contains 3.75Mt of measured and indicated resources at a grade of 3.1% U3O8, for 257Mlb of uranium oxide. Its probable mineral reserves have been estimated at 240Mlb within 4.6Mt of ore at 2.37% U3O8, with Arrow to cost an estimated US$1.3bn to develop but run at costs of just US$7.58/lb U3O8, producing a monstrous 29Mlbpa over its first five years. NXG has had to navigate a complex permitting route for Rook I, but has line of sight now with hearing before the Canadian Nuclear Safety Commission now set for November this year and February 2026. Franklyn also likes the look of TSX-listed ISO Energy. NXG holds close to 32% of the Canadian firm's shares, which are currently trading at C$9.28 for a market cap of C$446m. ISO holds the Hurricane Zone project in the Eastern Athabasca Basin, which contains an indicated resource of 63,800t at an obscene 34.5% U3O8 for 48.6Mlb. An inferred resource outside that contains 54,300t at 2.2% for 2.7Mlb of yellowcake, with the project around 40km from Orano's Maclean Lake mill. "To put that into context. Paladin is 0.07%, Boss is 0.04%, Deep Yellow is 0.03% and Bannerman is 0.02%," Franklyn said. "Cameco's Cigar Lake is about 15%, McArthur River is about 5% and NexGen, their overall project is about 3% but they've got high areas at about 15%. "So you can just see it's pretty unique, relatively good scale ... very high grade in an area with good infrastructure." 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. The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
