Latest news with #NeroResourceFund
News.com.au
28-05-2025
- Business
- News.com.au
Counter Cycle: These takeover targets are glaringly obvious (but no one's talking about 'em)
Welcome to Counter Cycle with Nero Resource Fund founder and co-portfolio manager Rusty Delroy, a Cottesloe-based fund manager who has developed a reputation for taking the path less travelled in his investments. Today, Delroy muses on three miners who could fetch a takeover bid in the next 12 months. Mergers and acquisitions have been the name of the game on the ASX of late, with a confluence of coalescing factors coinciding to create new combinations across the resources space. Dealmaking partly comes from inefficiencies in the market. Aspects like access to capital, permitting and investor sentiment can undervalue companies against the fundamental cash generating potential of their key projects. Nero's contrarian portfolio manager Rusty Delroy looks for these inefficiencies, and identifying companies that could be subject to takeovers is one of the fund's key strategies. Big wins for Delroy's firm in recent years have come from the $385m sale of Lithium Power International to Chile's Codelco in 2023, and, in just the past fortnight, international copper juniors Xanadu Mines (ASX:XAM) and New World Resources (ASX:NWC), who have accepted respective $160m and $185m cash bids from overseas players. Add to that MAC Copper's (ASX:MAC) revelation of a $1.6bn cash offer from South Africa's Harmony Gold, snaring the mining giant the 50,000tpa CSA copper mine in Cobar, and it's clear strategics are ascribing value to projects well beyond that attributed by Aussie investors. M&A is often pro-cyclical (a synonym for bad) and the biggest takeover news in recent months has come in the hot, consensus pick, gold space. But bearish sentiment around other commodities means counter-cyclical M&A is on like Donkey Kong as well. While companies in the producing space are making strong cash flows, explorers, developers and single asset producers aren't getting credit for their potential earnings. "I think there's a robust enough forward outlook in the broader demand for commodities. At the same time, there are arguably quite distressed valuations down the curve," Delroy said. "Up the curve, the balance sheets are strong. In gold they're not just strong, they're extreme. "Anytime you've got a situation where up the curve has strong balance sheets and high margins, and down the curve has modest to low valuations, then that will precipitate M&A. And I think that's what we're seeing." The aforementioned deals have, barring any interlopers, come and gone. But Delroy thinks these other stocks are primed for corporate action in the next 12-18 months. Jupiter Mines (ASX:JMS) Jupiter Mines has been on the radar since Exxaro paid ~A$1bn to acquire the majority 50.1% stake in the Tshipi Borwa manganese mine in South Africa through the acquisition of shares held by Ntsimbintle Holdings and OM Holdings (ASX:OMH). At the same time it paid the equivalent of 31.7c a share to take a 19.99% stake in Jupiter, the owner of the other 49.9% of the mine, a regular dividend payer that has the cost base to survive down swings in the manganese cycle. Even with a 43% bump on the day the deal was announced, Jupiter's shares are still trading at just 19c today for a market cap of $363m. "It's so glaringly obvious," Delroy said. "(Exxaro have) just paid the same sort of value for the other part of the joint venture. " In order to operate that asset with full discretion, they need to take control of Jupiter. It's a glaringly obvious fact. "It's such an off-the-radar commodity in an off-the-radar jurisdiction at an off-the-radar company. That to me would be the absolute standout in this market." Delroy says JMS is trading "substantially below what the clear natural owner has indicated they are willing to pay". But even if he is "completely wrong", Delroy noted shareholders get to receive a dividend in the mean time if Exxaro takes its time. St Barbara (ASX:SBM) Don't be surprised if St Barbara sees some corporate interest, Delroy says. The gold company is the ugly, unloved orphan of a deal in 2024 that saw now $5bn capped Genesis Minerals (ASX:GMD) emerge with the prized Gwalia gold mine in WA's Leonora region and $330m-capped SBM walk away with the spoils of past M&A deals gone wrong at Simberi in Papua New Guinea and Atlantic Gold in Canada's Nova Scotia. It's looking to hive off the Canadian stuff into a separate vehicle and become purely focused on PNG, where regulatory squabbles have created noise around its proposed 200,000ozpa Simberi sulphide expansion project. The project would deliver 2.2Moz of gold between FY26 and FY38, with FID expected in Q2 or Q3 2026, pending the outcome of a tax assessment which is under dispute between SBM and the PNG Government. "I think St Barbara is a standout target with a 6 to 12-month view, I really do," Delroy said. "And I know that's a hard one, because it was the ugly stepsister after the Genesis process and it was spat out with such disgust. "But we're in a completely different landscape gold price-wise, there's a clear path there on both assets if you've got any degree of patience over a two or three year view to be meaningfully producing from them. "That is a corporate target and/or they've announced they're looking to spin out their Canadian asset. Does that precipitate and corporate piece? Who knows, it's possible." Delroy says Winsome, which owns the Adina lithium project in Canada's James Bay region, is a leftfield possibility. The battery metal is trading miles into the cost curve, which means prices are way too low to incentivise new production right now. But we've seen plenty of counter-cyclical M&A in the lithium space, notably Pilbara Minerals' (ASX:PLS) scrip takeover of Latin Resources last year and Rio Tinto's (ASX:RIO) $10bn cash splash on Allkem. Winsome's Adina in Quebec hosts 78Mt of spodumene ore at 1.15% Li2O, with a potentially lower cost pathway to production thanks to an option over the mothballed processing plant at the nearby Renard diamond operation. "If you're a lithium company that's got any ability to think outside the cycle you've got to be having a look at something like that and thinking maybe you tuck it away cheaply," Delroy said. "Now I think that's a real leftfield, off-the-radar, place to do some work. Whether or not (it happens), let's see. "Unfortunately, most mining executives are not counter-cyclical, they're pro-cyclical." Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
News.com.au
28-04-2025
- Business
- News.com.au
Counter Cycle: ‘Sex and violence' in the US could turn into gold for resources stocks
Welcome to Counter Cycle with Nero Resource Fund founder and co-portfolio manager Rusty Delroy, a Cottesloe-based fund manager who has developed a reputation for taking the path less travelled in his investments. Today, Delroy talks how Trump's tariff policies could trigger a long-term swing back into resources. Contrarian fund manager Rusty Delroy says he's growing more confident that the investor love-in with 'growth story' US equities will give way to a move back into resources and energy as "sex and violence" consume the US economy in the wake of Trump's tariff mania. The tech-heavy Nasdaq 100 has slid close over 7% this year, with the S&P 500 down around 6%, both rebounding from far more bearish positions in recent days as Donald Trump and his team softened their stance on a trade war with China and walked back talk of shafting US Fed Reserve chair Jerome Powell. But volatility has remained the name of the game in 2025, with Delroy saying investment flows are going to get more diverse. "That to me is the big picture thing that's playing out. There's lots of sex and violence all around that, but we've had an extreme concentration in US dollar and US equities globally and I think that's now changing," Delroy said. "It doesn't mean that the US is handing the baton over tomorrow to anybody else or that the reserve currency status is no longer, it just means that it's not as strong as it once was. "I expect that to continue to evolve and if anything what's happening now is accelerating that process and the US telling people in many ways you can't trust us like you thought you could." Around 75% of the Morgan Stanley Capital International World Index is concentrated in North American equities, a positioning Delroy says "doesn't make sense". "I think there is a fragility to these sorts of geared and extreme concentrations that are progressively having to unwind. We saw it in August last year as well, it's almost like the butterfly effect," he said. "They had this tiny thing and it's very hard to pick what it is, but you had the 25bps rise in the interest rate in Japan, and as a result global markets absolutely cratered. "Now that was a knock on effect and I think it's because of these hyper concentrated, very stretched positions, and I expect those to continue to unwind as change occurs. "The tricky part is that what the new administration in the US is doing is a lot of change all at once. And that's really hard for markets to stomach." The optimism for resources Trump last week indicated another 90-day pause on 'reciprocal tariffs', supposedly to allow negotiations to take place with affected trading partners, was 'unlikely'. Delroy says that unlike Trump 1.0, the performance of the US stock market was no longer the President's key barometer of economic performance. That means they could be prepared to accept some pain to achieve outcomes that would make US manufacturers more competitive. "I think ultimately there are some limitations to how much pain either side can tolerate," he said. "And so there are some natural places I think that the relationship should move to, and I think, as long as that doesn't go to a disorderly place in which all bets are off and we're in a global recession, then ultimately it should result in a lower USD, lower 10-year yield in the US and lower oil price. "And also a lower concentration of capital in US equities. And I think that's the real important one for us in resources land." An unwind in capital from US equities means it needs to placed somewhere, and Delroy believes hard currencies like gold will benefit. While initial fears about commodity demand may be negative in the short-term, in the long-term investment flows should head into emerging markets where consumption is more commodity intensive. "Our fundamental view here is it remains very volatile, very challenging. But ultimately this is the key, this unwind of concentration of capital in the US is the key first domino to fall towards something that is very beneficial towards commodity prices," he said. "It would have been worse for commodities over the medium and longer term if the status quo had just prevailed and the US had just kept kicking the can down the road fiscally." There remains the prospect that things get worse before they get better. But the need to pull hundreds of millions out of poverty in Southeast Asia and India means commodity demand will increase from those centres over the medium and long term. "It depends on how long your time horizon is in the investment that you're making," Delroy said. "I would argue you can buy any number of equities today at valuations that reflect very, very soft commodity price assumptions. "Maybe they get cheaper again, maybe things get worse in the short term. That's all possible. "But I'd say here and now there's clearly deep value with anything beyond the 12 month view. So if you can stomach that volatility and risk in the short term, I think you'll get rewarded." Which commodities and stocks does Nero favour? The obvious pick is gold, which is "playing out in front of our eyes", Delroy says. But with gold at close to US$3300/oz it's "no rocket science" to be positioned there. Delroy is looking looking closely also at commodities where prices are deep into the cost curve. They include met coal and thermal coal, where markets are well supplied in the short term but equity valuations "aren't demanding". Nero likes the long term dynamics for copper, but it's harder to find cheap valuations in the heavily hyped space. Nickel is also a commodity deep in the cost curve, though Nero is staying away from higher cost Australian players, most of whom have shut mines in the past two years. Nickel Industries (ASX:NIC) however, the ASX listed player with a major production base in the world's top nickel producing country Indonesia, is one on Delroy's radar. "You can go buy Nickel Industries as an equity example, I think that's a world-class business with an extremely long operating future ahead of it at the right end of the cost curve, and you can go buy that at 50% of what you were paying for it a number of months ago," he said.
