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What have our portfolio companies been doing? (Part 1)

November 10, 2021

We’ve put together a quick “report card” on how our portfolio companies performed in the last quarter (1st July to 30th September).

We are splitting the portfolio update into two emails:

Today we are covering our green energy and battery materials investments (PRL, VUL, FYI, EMN, EMH, and AOU)

Tomorrow we will provide a similar update on our investments in other sectors (EXR, WHK, FOD, BOD and IRD)

At Wise-Owl we provide regular commentary on early stage ASX growth stocks that we are invested in.  

We aim for 1,000% plus returns over time and are comfortable to hold a position for 4 to 7 years, providing sufficient timeframe for the management teams to execute on the vision that they’ve presented to the market.

Whilst 3 months within a 7 year timeframe is relatively short, we still want to see progress on how our investments are executing their plans across each quarter.

For our quarterly report cards, we cover three areas for each investment, namely: 

  1. What the company has delivered
  2. How we think they’re going
  3. What we expect to happen next

Since May 2020 we have taken positions in 11 carefully researched small cap ASX stocks.

New portfolio addition coming soon: Evolution Energy Minerals (ASX: EV1) 

As we pointed out recently, we participated in the Evolution Energy Minerals (ASX: EV1) IPO and will be adding it to the Wise-Owl portfolio.

The IPO is now closed and we expect it to list on Tuesday 16th November – we will provide our full commentary on why we invested in EV1 when it lists. 

Our model is to carefully research and select what we think are the best quality companies and management teams, we share our opinions and commentary as each company delivers on its progress.

Here’s a recap of key events that have happened with our portfolio stocks since the new financial year began.

We have structured the information in the following way for each company: 

📋 Description of the company

🌏 Macro Investment Theme

Achievements in the last quarter

💬 Our commentary on the last quarter and what we expect next

💰Cash balance at the end of the quarter

So, how did our stocks go? Let’s take a look.

Province Resources (ASX: PRL)

📋 About: PRL is developing a green hydrogen project in Western Australia and is aiming to be Australia’s first truly Zero Carbon Hydrogen producer.

🌏 Macro Theme: We think that green hydrogen will play a big role as the clean energy of the future. 

✅ Feasibility Study with Global Energy Ventures: PRL signed a MoU with Global Energy Ventures to evaluate the feasibility of green hydrogen export. In order to sell green hydrogen, PRL needs to transport it, and that’s where this feasibility study comes in.

✅ Key Board Appointment (Roger Martin): Roger Martin was appointed as a Non-Executive Director. Roger brings some serious knowledge to the Board having previously worked in the WA government and for Woodside. 

🔄 Scoping Study In-Progress: PRL’s green Hydrogen project aims to deliver 8 GW in installed renewable energy capacity. With a Scoping Study in-progress, PRL is aiming to figure out all the necessary technical elements of the project.

💬 Our commentary  

  • It was a relatively quiet period for PRL, as the team is working in execution mode. 
  • PRL secured a MoU with Global Energy Ventures to evaluate the technical feasibility of green hydrogen export, this feasibility study will be entirely funded by the partner and has already been granted funding by the WA government. Basically, we believe PRL is planning ahead about how to ship the hydrogen, which is a good thing.  
  • There were also some loud noises made globally on the green hydrogen front with the current climate change negotiations (COP26) taking place in Glasgow.
  • In this context, in our eyes PRL shapes as a unique, genuine, green hydrogen play that could come in over the top of blue hydrogen projects on the hydrogen cost curve should the right pieces fall into place. PRL is one of our largest current holdings. We’re happy with the pace of PRL’s progress.
  • PRL also appointed Roger Martin, we think Roger will help with building relationships with key stakeholders given his experience as Chief of Staff to the former WA Treasurer and VP of corporate affairs at Woodside.
  • Share Price Commentary: PRL’s share price has been going sideways and range bound as investors wait to hear more about the Scoping Study. Our view is that the share price consolidation at the 13c to 15c level has been healthy. At the time of writing the PRL share price looks like it might be finally ready to break out of its sideways pattern from the last few months, jumping to 17.5c today.

What we want to see next: We want to see supportive government policy and legislation announced supporting green hydrogen in Australia, and we want to see the PRL Scoping Study. PRL is well-funded for the immediate future. 

💰Cash Balance at the end of the Quarter: $23.3M

Vulcan Energy Resources (ASX:VUL, FRA:6KO)

📋 About: Developing Zero Carbon Lithium to supply Europe’s rapid shift to battery metals.

🌏 Macro Themes: Europe’s shift to Electric Vehicles and enforced ethical, low carbon, local sourcing of battery metals. Strong interest emerging in the EV/battery/battery raw materials sector from individual and institutional investors, and particularly ESG funds.

Offtake Agreement 2: Renault Offtake for between 6,000 and 17,000 metric tonnes per year of battery grade lithium.

Offtake Agreement 3: Umicore Offtake was for  a minimum of 28,000 tonnes and a maximum of 42,000 tonnes of battery grade lithium hydroxide over the duration of the agreement for 5 years starting 2025. Another string to VUL’s bow and should help with future financing arrangements post-DFS.

$220M Capital Raise @ $13.50 ($200M Insto, $20M SPP) Post-capital raise – VUL has €187M (AU$293M) in cash  for the period ended 30 September 2021 following a $220M capital raise ($200M institutional was completed and a $20M target SPP was partially filled).

First Production of Battery Grade Lithium VUL successfully produced its first battery quality lithium hydroxide monohydrate from its direct lithium extraction pilot plant. A major milestone for the company and we want to see the DLE plant ramp up.

✅ Lithium Production Plant Secured  VUL signed an agreement with chemical park management company Infraserv, to secure a site for its planned Central Lithium Plant. This is foundational to VUL’s long-term vision.

🔄 Definitive Feasibility Study – Consultants Hatch Ltd. and GLJ Ltd joined to help deliver DFS.  Lithium process expert Dr Stephen Harrison as well as the appointment as Chief Technical Officer. We think these additions to the VUL team will aid delivery of the DFS.

🔄 Commence Trading on Main German Stock Exchange VUL announced an application to dual list on the regulated market of the Frankfurt Stock Exchange which we think will help it access more capital in Europe.

💬Our commentary  

  • A very busy quarter for VUL and the company is cashed-up post-capital raise with major offtakes in place. VUL has big names involved, one of the most powerful macro themes we’ve ever seen behind it and presents a compelling case to become Europe’s premier ESG-oriented lithium project
  • Binding Offtake in place with Umicore to add to the ones with LG Energy Solution and Renault means companies are really keen for VUL’s Zero Carbon Lithium
  • First lithium produced, main plant site secured, key consultants assigned to DFS.
  • Share Price Commentary: After a strong run up in the start of the quarter, The VUL share price has come off its recent highs of around $15 back to around the $11-$13 range.

What we want to see next: The big milestone we want to see is delivery of the Definitive Feasibility Study (DFS) followed by ramp up of the DLE pilot plant. We think that the DFS ‘calling card’ is essential to VUL’s roadmap. More lithium from the DLE pilot plant will only help.

💰Cash Balance at the end of the Quarter: $293M

FYI Resources (ASX: FYI)

📋 About: FYI is seeking to be the first to market to deliver High Purity Alumina (HPA) utilising an innovative kaolin clay-based process that is cleaner, purer, and much less expensive than traditional production methods. 

🌏 Macro Theme: With electric vehicle demand continuing to grow, so too the demand for HPA as a key component of lithium ion batteries

[Post End of Quarter] Binding term sheet agreement with Alcoa: A key milestone achieved that drastically de-risks the flagship asset. The binding term sheet provides a critical plank on the pathway to commercialisation.

Appointment of experienced ESG expert to board: Enhancing credibility of company.

Partnership to develop HPA Enhanced Anode Coatings: With graphite developer EcoGraf, investigating opportunities for high margin, vertically integrated products.

💬 Our commentary  

  • Whilst the path to the Binding Term Sheet with world’s leading aluminium producer Alcoa took longer than expected, we were happy to see it ultimately be delivered on the 1st of October.  
  • The agreement essentially de-risks the flagship HPA project through a 3 phase development, providing a clear pathway to commercialisation, with FYI retaining a 35% interest that is ~94% free-carried. Project financing will be a formidable barrier to entry to any other would-be new producer, which FYI does not need to worry about going forward.
  • In July, FYI entered a partnership with graphite developer EcoGraf to look into developing HPA Enhanced Anode Coatings for Lithium-ion Battery Market. This signals another vertical integration to FYI’s technology, and another potential high-margin earnings stream down the line.
  • ESG credentials are becoming increasingly important, especially amongst institutional and global funds. So we liked the appointment of Dr Sandy Chong to the FYI Board, given her experience. Among her accolades, she was awarded Australia Community Citizen of the Year in 2020, Asia’s Top Sustainability Women of the Year award in 2019, and winner of the 2020 Executive of the Year for the US Stevie International Business Awards.
  • Share Price Commentary: There was a sell-off of FYI shares following the Alcoa announcement, we suspect due to a fairly strong run anticipating the deal prior, and then disappointment that the JV was in multiple stages and perhaps that FYI retained a minority stake. We took the opportunity to add to our holding at ~44 cents per share.

What we want to see next: We’d like to see progress made with the final engineering & final investment decision for the 1000 tpa demonstration plant as part of Phase 1 of the Binding Term sheet with Alcoa. Customer offtake MOUs and marketing relationships could also start to be finalised in the near term.

💰 Cash Balance at the end of the Quarter: $10.2M 

Euro Manganese (ASX: EMN, TSX.V: EMN)

📋 About: Developing a Green and European source of ultra high purity manganese for Electric Vehicle batteries developed from the recycling of a tailings deposit located in the Czech Republic.

🌏 Macro Themes: Europe’s shift to Electric Vehicles and enforced ethical, low carbon, local sourcing of battery metals. Strong interest emerging in the EV/battery/battery raw materials sector from individual and institutional investors, and particularly ESG funds.

JV Agreement with Nano One: Joint Development Agreement with Battery Technology Partner. This opens up the potential for EMN’s manganese to supply Battery makers who are partnered with Nano-One®.  

European Union Backing: EU Government Backed Entity EIT InnoEnergy advanced 2 tranches totalling €187,500. 

Extension to Exploration Leases: All exploration licenses are now extended out to June 2026, before which EMN expects to convert these into Mining leases. 

Agreement signed to extinguish Royalty: Termination agreement reached with the owners of the 1.2% Royalty interest in the Chvaletice Project.

[Post End of Quarter] Pilot Plant Restart Commissioned: Product samples can now be produced to be marketed to potential off-take customers. 

💬 Our commentary 

  • We think that the US$4.5m being paid to extinguish the 1.2% Royalty interest in the project is a great deal for EMN shareholders. Estimates from the 2019 PEA show that this would reduce operating expenses over the 25-year project life by US$91.1m + reduce the cost/tonne of plant feed by 2.5%. We think this is a small price to pay for a large cost-reduction over the project-life. 
  • We were pleased to see that EMN were issued exploration License renewals across the Chvaletice Project. The Exploration Licenses which were due to expire in 2023 have now been extended out to 31/06/2026. The extra 3-years now gives EMN some breathing room to be able to deliver the permitting leading upto the granting of Mining licenses.  
  • The receipt of the 2nd stage of funding from the EU backed entity InnoEnergy again highlights the importance of the project in the EU Region. 
  • Subsequent to the quarter ending EMN also managed to sign on-to a Joint Development agreement with TSX-V Listed Nano-One. Nano-One already has partnerships with major car makers like Volkswagen. Success in the joint development agreement could mean EMN becomes a key part of the manganese supply-chain for large end-users like VW. 
  • With the pilot plant restarted EMN can begin producing product samples which can then be marketed to potential off-take customers. 
  • Share Price Commentary: The share price approached near all-time highs during the middle of the September quarter. Going into Q1 & Q2 in 2022 where a lot of the DFS newsflow is due we expect the share price to re-test the all time highs if battery materials sentiment continues to rise. 

What we want to see next: During the December quarter we would like to see the pilot plant operating & producing product samples that are ready to be marketed to potential off-take partners. We expect this to be the major bit of newsflow during the December quarter whilst the company completes it’s DFS/EIA/SIA in the background. 

💰 Cash Balance at the end of the Quarter: $33.5M

European Metals Holdings (ASX:EMH; AIM:EMH; NASDAQ:ERPNF)

📋 About: European Metals Holdings owns 49% of the Cinovec Lithium project in the Czech Republic, which holds the largest hard rock lithium resources inside the European Union.

🌏 Macro Theme:  Europe’s shift to Electric Vehicles and enforced ethical, low carbon, local sourcing of battery metals. Strong interest emerging in the EV/battery/battery raw materials sector from individual and institutional investors, and particularly ESG funds.

Diamond Drilling Program Completed. 22-diamond Drill-holes completed for 6,622m with average grades across the drilling programme at 0.6% Lithium.

De-carbonisation Optimisation report commissioned. Life-cycle Assessment performed by UK consultants looking into De-carbonisation Optimisation opportunities as part of the ongoing DFS. 

Experienced Personnel Appointment. Mr Walter Mädel appointed. Previous experience delivering Lithium Ore Processing plants for Altura’s Pilgangoora mine + Firefinch’s Goulamina Hard-rock Lithium DFS.  

[Post End of Quarter] JORC Resource Upgrade announced. Company increased the total resource by 12.3mt for a total 0.16mt increase in Lithium Carbonate Equivalents. 

💬 Our commentary 

  • We were pleased to see that the Life-cycle decarbonisation optimisation report for the Cinovec project was completed during the quarter, with the results of the report to be announced soon.
  • The appointment of Mr. Walter Mädel is positive given his experience (delivering processing plants, DFS’ and experience delivering a US$194m investment into the Goulamina project in June-2021) as EMH may look to work on a Bankable Feasibility Study.
  • With the resource upgrade out of the way, all eyes will be on the DFS that is currently being worked on which we believe will deliver improved results on the 2019 PFS already completed for the Cinovec Project.
  • The resource drilling earlier in the year delivered a healthy resource upgrade post-quarter ending. The increase in the resource classification by ~53.3mt into the measured category (Previously 0mt) & an increase in the Indicated category by 28.5mt de-risks the commercial potential of the project.
  • Share Price Commentary: The share price reached an all-time high during the quarter at $2.15/share, the price has come back now but we think this is healthy in the long-run and expect to see it consolidate here going into the DFS being completed, EMH’s share price will be tied to the broader sentiment around battery metals. 

What we want to see next: We expect EMH to release the results from the Life-cycle de-carbonisation report that was commissioned as part of the on-going DFS works, ideally we would like to see some low-carbon footprint development strategy outlined in the report. We would also like to see a further commitment by EMH to some more resource classification drilling, that is to see the resource upgraded into the measured category & the announcement of a maiden ore reserve. 

💰 Cash Balance at the end of the Quarter: $7.452M

Auroch Minerals Ltd (ASX:AOU)

📋 About: AOU is a nickel sulphide focused base-metal resource company aiming to build value through targeted high-impact exploration in Western Australia. AOU has three nickel projects in WA.

🌏 Macro Theme: Nickel is primarily used in stainless steel, but has growing potential as a tech metal due to its use in electric vehicle batteries. It stands to benefit from technology, stimulus spending and an inflationary environment.

🔄 Drilling 3,000m (Nepean Deeps) AOU announced it has completed down-hole geophysical surveys for the first of 6 diamond drill holes beneath historic Nepean nickel mine.  

[Post End of Quarter] $8M Capital Raise AOU did a $8M capital raise at 16¢ to new and existing institutional and sophisticated investors. This shores up the company’s cash position.

💬 Our commentary 

  • AOU is currently diamond drilling beneath and near the Nepean Nickel Mine – we are expecting the results in the coming weeks. Large high grade nickel intercepts have the potential to give AOU the re-rate long term investors are hoping for. 
  • We’re mindful of AOU’s progress in understanding what’s at the Nepean Deeps project could’ve been impacted by the need to raise capital subsequent to the quarter and the planning around that.
  • We invested in AOU primarily for the potential at the historic Nepean project and AOU’s ability to quickly get to grips with the resource using modern geophysics techniques.
  • [Post End of Quarter]: The capital raise was necessary for AOU to continue its drilling programs across its projects.
  • Share Price Commentary: AOU slipped down the charts, in part due to pressure from options and the capital raise. This despite a strong nickel price. We think that if AOU gets the right results from the diamond drill holes, the picture for AOU could change quite quickly.

What we want to see next: We want to see AOU focus on the Nepean Deeps project and start delivering results from the 6 planned diamond drill holes. The down-hole geophysical survey for the first diamond drill hole is a starting point and we hope to see more progress on this going forward.

💰 Cash Balance at the end of the Quarter: $2.26M

Tomorrow we will provide an update on (EXRWHKFODBODIRD)

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Disclaimer

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its reports. As a result, investors should be aware that the S3 Consortium may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making any investment decision. The publishers of this report also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this report.

Publishers Notice

The information contained in this report is current at the finalised date. The information contained in this report is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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