Adriatic Metals announced on the 11/5/2020 that they had reached an agreement to acquire Tethyan Resources, a Serbia focused explorer, in an all-stock deal in exchange for 6.9% of the company. Adriatic appears to be focused primarily on the brownfield Serbian assets, Kizevak and Sastavci.

There are very similar historical parallels between the Raska district and Vares as a locality where Adriatic have their present operations. The Raska district has a long history as a mining region. The Kizevak and Sastavci mines were discovered in the mid-1970s and operated by the Yugoslav geological survey between 1984 and 2000 when mining ceased due to the Balkans conflict.
The projects benefit from numerous infrastructure advantages including water, power, road and rail access all within 5 kilometres, and a local workforce with a long history of mining.

No significant exploration work has been conducted on either licence since mining ceased, and the projects offer significant exploration potential for the expansion of existing mineralisation along strike and down dip from the open pits at Kizevak and Sastavci. The historical deposits have been untouched by modern exploration techniques.

Interestingly, Tethyan has historically only been able to explore the areas surrounding the historical mines as it did not hold the ground containing the historical mines. However, this ground has now been acquired as part of the Adriatic transaction and only a relatively small amount of drilling needs to be done to confirm continuity between the historical mineralisation and the mineralisation encountered by Tethyan. We note that the deposit appears to be very shallow, with very little exploration at depth with historical cores that have not been tested for precious metals.

Adriatic have proven they can add value via interpretation of historical cores and follow up exploration drilling on the brownfield assets given their experience at Veovaca and Rupice. They have also demonstrated their ability to progress projects at extraordinarily fast pace delivering a Scoping study/PEA for the Vares Project within 2 years of their ASX listing and are on track to deliver a DFS within the next 7 months.

We believe that Adriatic's management team can add significant value to the Serbian assets being acquired by the end of the calendar year. The acquisition firmly positions Adriatic as the pre-eminent Balkan polymetallic developer, whilst providing a longer-term development pipeline over and above the existing Vares Project. The acquisition provides an existing in-country team and relationships, whilst also providing the advantage of jurisdictional diversity to both sets of shareholders.

Adriatic have stated that they intend on delivering a Maiden JORC resource estimate for Kizevak and Sastavci before the end of the calendar year 2020. Assuming a small uplift on the existing non-JORC deposits, we anticipate that between 8-10 million tonnes of ore could be delineated at grades between 6-9% Zn equivalent. Adriatic aim to deliver a PFS for the acquired assets by the end of the calendar year 2021, with permitting likely to occur in conjunction with feasibility studies.

Overall, we consider this an acquisition that may prove to be extremely value accretive for Adriatic shareholders. We think the timing of the transaction at a cyclical and covid-affected low was strategically sound and well-executed. Our thesis is that the seeds of a base metal boom are being sown in the current market duress with many marginal, higher-cost mines being shut down; however, this dynamic will take time to play out. We believe that it's quite likely within the next 2-3 years, base metal prices will be considerably higher; leaving Adriatic well-positioned and strongly leveraged to a recovery in base metal spot prices.



Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author holds shares in Adriatic Metals (ADT).

Self Wealth (SWF) is a platform with a unique product offering that offers flat-price online broking and ancillary services.At present there are 4 separate revenue streams:

1. Broking - Self Wealth offers Australia's cheapest online broking, investors pay only $9.50 a trade irrespective of trade value with no strings attached. Investors are able to invest under their own HIN (CHESS sponsored), hold the stock directly, and without paying monthly account fees or subscriptions.
2. Interest on client funds - Self Wealth benefits by collecting an interest spread on client funds held within the platform. The client funds are held in segregated individual accounts for the benefit of the client, significantly reducing counter-party risk for clients.
3. Subscriptions - Platform users can access additional features for a subscription fee of $20 a month. This allows them access to trading and portfolio data to provide actionable insights for investors. In particular, high performing portfolios can be filtered and replicated easily by users.
4. ETF fees - An ETF has launched that is constructed using the data collected via the strategic relationship with BGL. The portfolio holds a number of liquid ASX 200 constituents, has outperformed the market benchmark, and is rebalanced quarterly.

There is significant scope for additional revenue streams to be developed at very low incremental cost that will become increasingly more valuable as the user base grows; we have made suggestions to the management team and it is to be seen whether these will be pursued. The company also has a number of significant organic growth opportunities within its current product lines: International trading, multiple trading account functionality and a new mobile app are all in development and have the potential to further increase the company's rate of growth in the near term.The strength of the self wealth model is its low touch, automated, highly scalable approach. Prior to the COVID19 curfews, it was growing strongly year on year: having grown all key metrics by more than 100% between January 2019 and January 2020. The effect of current curfews has been like pouring petrol onto an already roaring fire. In the most recent March quarter vs the December quarter: Trade volume grew over 100%, Client cash held grew over 150% and active users grew by almost 50% (achieving almost 70% of their previous annual growth target in 3 months).

​We believe this growth cannot be looked at in isolation but is a validation of the structural shift we see in the local online broking markets. Self Wealth is unequivocally the lowest cost provider in the market providing a large incentive for new users to try the service; this consequently leads to increased client 'stickiness'. The platform is very stable and in the recent market volatility, outperformed it's larger competitors (Commsec and Nabtrade) in terms of uptime. We note that market trade volumes are correlated with overall market volatility, meaning that Self Wealth may benefit from the higher than usual levels of market volatility.

It is clear that Self Wealth has been profitable since the month of March and we expect this to continue going forward. Our information gathering suggests that April may very well be another record month of growth for the company. The increasing scale of the company's operations will lead to a fall in incremental costs. Our internal growth model suggests a base case EBIT projection for FY21 of ~$6.5 million; with our upper case scenario being multiples of the base case. Currently trading at an undemanding $45 million market cap, this represents a forward projected EBIT multiple of only 7x.


This is an excerpt of Datt Capital's comprehensive research note on Self Wealth.

​To request a full copy please follow THIS LINK




Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author holds shares in SWF.

The biggest investment risk today for investors is to be underweight equities. The ASX Total Return Index as at the end of March, was down approximately 27% from it's January highs. This means for an investor who bought the high and held through the volatility, they would need to achieve a 37% return from the end of March to breakeven.

According to the Credit Suisse Global Investment Returns Yearbook 2020, Australia has been the highest equity returns in global markets on average since 1900. Achieving a 7% real return calculated in US dollars, compounded over a long time frame is not something that can be ignored by any investor, local or global. It is a testament to our relatively stable political environment, our natural resource endowment and our growing population; all of which bodes well for potential future returns.

Focusing on the present situation, we are clearly in an inflationary environment with widespread monetary and fiscal stimulus and support being provided by governments worldwide. In an inflationary environment, stocks are the only listed asset class that will provide a positive real rate of return; bonds and hybrids are vulnerable to the achievement of future negative real returns given interest rates are at their lowest rates in history. If you are a large investor who has been invested across asset classes, you have effectively have been made whole by the Australian government if you have had investments in local bonds and have sold. The next question in this instance would be: where to store your wealth to ensure it retains its purchasing power whilst achieving a nominal real rate of return?

Virtually all fund managers are cautious and under-invested holding larger than usual cash weightings. As we've seen in the past, the majority are usually wrong in a risk-off environment filled with the perception of uncertainty. If the market continues to grind higher it increases the risk of manager under-performance and consequent pressure from investors to increase market exposure to invest at higher equity values.

Another aspect to look at is could there be any news worse than what has transpired over the past 2 months? There is now significant data around the treatment and prevention of COVID-19. We know almost unequivocally that the elderly and obese with pre-existing conditions are highly susceptible whilst younger, healthy individuals have a relatively benign response to the virus. We believe that it's unlikely that COVID-19 will ever be fully eliminated for reasons beyond the scope of this article.

We expect societal restraints to be relaxed sooner than later, with higher risk individuals maintaining quarantine. The government can mitigate the impact of vast social issues that are arising from an extended lockdown by loosening current restraints. Behavioural changes don't need to be mandated to be followed, for instance, the past impact of SARS affected social behaviour in the hardest-hit nations leading the widespread voluntary adoption of wearing face masks in public.

Over the past 2 weeks, we have been selectively increasing our equity weighting with a focus on quality. Markets always move in anticipation of change and the seeds of every bull market are sown in times of uncertainty.
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We discuss 3 of our new positions in a recent podcast which can be found here: https://bit.ly/Datt-Media



Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should
not be construed as advice in any way

Alkane yesterday confirmed another strike of 689 metres @ 0.46g/t gold, 0.19% copper from 402 metres depth from the Boda prospect, stepping out a further 100 metres to the east. This followed up on the initial discovery strike of 502 metres @ 0.48g/t gold, 0.20% copper from 211 metres depth.

We consider this a fantastic intercept, clearly demonstrating consistency and the continuation of grade at depth. We believe the latest result is high quality, having spatially explored a different plane to the discovery hole by apparently skewing to the north. As such we believe the odds of confirming a large scale porphyry system have shortened significantly. Alkane has disclosed that another 2 holes to the south will be drilling along with another to the north, all at 100-metre step-outs. We expect that given the scale and nature of the recent strike, this program will be materially expanded and we expect to see multiple drill rigs on site for the foreseeable future.

Should Alkane confirm sufficient tonnage and grade at Boda, we believe that the deposit will be extraordinarily valuable for several reasons. Most important is the location: in a safe jurisdiction, on flat open grassland, only a 4-hour drive from Sydney and 30 minutes from Dubbo providing a readily available skilled labour force. The economics of mining large mineral deposits in NSW are very well understood given the various operations at Cadia, Northparkes and Cowal. The key levers of any mining operation are: capital intensity, political risk, ore grade, operating cost and byproduct credit value. From our perspective, Boda's geographic location alleviates many of these levers, with of course the scale and ore grade of the deposit still needing to be confirmed by further drilling. 

Even though it is still early in the exploration process, there is no doubt that this project would have the attention of all the large Australian miners; BHP, Rio Tinto and Newcrest all who are desperate to increase their exposure to Tier 1 projects on their home turf. The economic potential of large disseminated ore bodies is generally not well understood by Australian investors, which is to their detriment.

Alkane are in the truly fortunate position of being able to largely self-fund exploration at this stage, due to their gold production assets at Tomingley. Tomingley itself has good growth potential with cumulative exploration targets of approximately 2 million ounces on their ground. If successful, this would materially increase the life of mine operations at Tomingley to a range of 10-20 years depending on exploration success. Whilst this is a very handy resource, it is dwarfed by the exploration potential at Boda.

Boda deposit and district-scale exploration potentialAt Boda, Alkane appears to have found the extent of mineralisation to the west, however, they still have not found the high-grade core of the porphyry which provides an indication of how truly significant this deposit may be in time. The current results have effectively only scratched the 'halo' of the porphyry itself.

We speculate this high-grade core lies further to the east at depth. Mineralisation remains open along strike (north-south), at depth and to the east. We note that porphyry districts usually contain multiple, clustered deposits, typified by the Cadia complex which contains 5 separate ore bodies. We expect that other deposits may be found in time within a 3-5 km radius of Boda. We consider the 100m interval step out drilling being conducted to be fairly low risk, considering the number of shallow but low-grade historical strikes.

Alkane suggests that the style of alteration and mineralisation at Boda has several apparent similarities as Newcrest's giant Cadia East deposit (2.9 billion tonnes @ 0.36g/t gold, 0.26% copper), including equivalent grade. We note that in the early stages of the Cadia East deposit, the first 4 successful holes were relatively low grade; it was only once exploration was conducted at depth to the east that the high-grade core was discovered. 

West North West (WNW) is an extremely important direction in NSW resources, the Cadia deposits and other major mineralised faults broadly follow this angle. We feel this is replicated by the geometry of the Kaiser-Boda complex with further exploration potential along the Belgian and Sullivan faults which runs towards the south-east. Also, we note that Cadia East and Boda both begin from approximately 200m depth.

Our analysis and review of the historical drilling by Alkane and others in the area leads us to the conclusion that it is likely that Boda is already a substantial deposit in its own right. Mineralised intercepts have already been recorded for at least 500 metres of north-south strike, at least 450m in width east-west and at least 800 metres in depth. Whilst this still needs to be confirmed via step-out drilling, we believe there is clear evidence for a large ore body existing at depth.

There is very strong evidence for district-scale exploration potential evidenced by the purchase of an exploration block by Alkane from Impact minerals for $100,000 mid last year; immediately to the south of Boda.

Alice Queen holds the ground only 600 metres east of the latest Boda drill collar with various faulted structures, most prominent being the Belgian and Sullivan faults, running directly into Alice Queen's large tenement that has never been tested. This ground at Boda East must surely be the hottest exploration ground in Australia, especially considering that Alkane appears to have found the western extent of Boda's mineralisation. 

Our research suggests the average width of commercial porphyry deposits to be over 1 km, with multiple deposits clustering within a radius of 3-5 kms. We also note that should Boda prove to hold a commercially viable deposit, it is highly likely that any mining lease application would have to extend into Alice Queen's ground given the nature of cave mining, making this an extremely strategic and valuable parcel of land.
Alice Queen we expect will be very interested in Alkane's results going forward in addition to their exploration works on the other side of the fence. The company controls the entire northern part of the Molong Belt, a large area of approximately 700 square kms. There is no doubt that Alkane among others are observing the efforts of their junior neighbors to the east.

Dubbo Project - Australian Strategic Minerals
The Dubbo Project is one of the world's largest and advanced rare earth projects that are in pre-development. The current large resource supports an open pit mine life of over 70 years making this a strategic and valuable asset, especially considering the anticipated rise in demand for rare earth products over the next 10 years. The project has been fully permitted and front end engineering studies completed; along with completed feasibility studies that have been kept current by the company. The feasibility study was conducted on an initial 20-year base case operation scenario, which provided an NPV of $1.24 billion, however, with a large initial capital outlay of $1.3 billion.

There have been further studies conducted to reduce this figure including a staged, modular design as well as more recently some very promising Korean technology that has the potential to materially reduce the capital expenditure and operational costs of the project. We feel there is potential to materially improve the project's projected financial metrics in the case of success for these various initiatives.

We note the recent appointment of an MD for Australian Strategic Minerals and that a decision will be made before the end of the financial year to demerge or spinoff this project into a separate ASX listed vehicle. Should the demerger go ahead, we expect Alkane shareholders will receive shares in the new listed vehicle in proportion to their shareholding, an attractive proposition considering most spinoffs are value accretive to shareholders and the strong industry fundamentals.
​
We consider Alkane to be an outstanding investment proposition given its exposure to 3 unique projects, all which have the potential to add material value over the coming months.


Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author holds shares in ALK & AQX.  ​

I explicitly began my investing education by reading what is considered the bible to value investors: Security Analysis by Benjamin Graham. To be honest, I couldn't and still haven't finished the book as I found it fairly dry and uninspiring; especially for a young, new investor. Thankfully, there are a whole universe of books out there, and I list a number of books I found have useful in my investing education.


1) Am I being too subtle - Sam Zell
Sam Zell is a self-made billionaire, who earned his fortune primarily via real estate. His blunt, spare and contrarian style makes for a refreshing read; the title is a question he often asks himself which reflects his personality. The book is filled with business wisdom, covering a wide range of time eras, industries, personalities, successes and failures. Themes covered comprehensively are real estate investment, controlling risk and value investing.


2) Dead companies walking - Scott Fearon
This book is mandatory reading for our investment team. Written by an investment manager it focuses primarily on why, when and how companies fail. By learning the warning signs, and avoiding an investment in a company which may fail; readers learn a great deal about becoming a much better investor. Chock full of practical advice and wisdom, major themes include the psychology of investing, the role of cognitive bias in business and the importance of time horizons.


3) King Icahn - Mark Stevens
This book provides an insight into the personality, mindset and business philosophy of Carl Icahn, one of the greatest investors of our era. It covers the early part of his career comprehensively, and provides a great overview of 1980's corporate America from the perspective of a corporate raider or activist. In particular, the book articulates how much value can often be overlooked by passive shareholders and how it can be released by a well motivated and funded activist.


4) Metal Men - Craig Copetas
An intriguing book about the hard and fast world of commodity trading; and the ascent of Marc Rich who founded the world's largest commodity trading company today, Glencore. The physical mechanics of commodity trading are fascinating; encompassing a multitude of different aspects such as financial, geo-political and logistical. Major themes broached are the mechanics of physical commodity trading, risk management and the effects of the geo-political environment on trade flows and commodity prices.


5) 100 Baggers - Chris Mayer
This book examines the investor's holy grail of the 100 bagger or making 100 times your money invested on a stock; it is an update on a book on the same subject written in the 1970's. The beauty in this book is the breadth of the content, as the author examines a multitude of historical examples and the various elements that led to their 100 bagger status. We learn very quickly there is no 'magic bullet' for obtaining outsized returns, but there are a number of factors that can increase our probability of investing in one of these companies. Major themes are the impact of compounding returns over longer time frames, evaluating the quality of a company and how to maintain a long term perspective on your investments.


6) The Most Important Thing - Howard Marks
Howard Marks is an investor well known for co-founding Oaktree Capital, a value orientated asset manager. This book is effectively a compilation of writings on various aspects of investing from the perspective of a value investor. Whilst a little repetitive, it hammers home a number of factors that any serious investor should consider when making any investment. Major themes are the thought process behind investing 'defensively', understanding and managing risk and expectations.


7) Margin of Safety - Seth Klarman
Written by Seth Klarman, a highly respected investment manager, this is one of the most sought after investment books. The book is divided into 3 sections encompassing: where and how investors typically make mistakes, an overview of a value investing philosophy primarily focused on risk mitigation and finally a number of case studies and discussion on portfolio management. This book has a lot of value for anyone regardless of your investment experience or methodology.


8) My own story - Bernard Baruch
The author was a well known financier in the early 20th century before becoming a statesman. This is a classic account of the economic change in the US as experienced through the lens of a successful stock market investor. Baruch's humility and wisdom shine through this book, which is filled with many practical examples and lessons on life and the markets amplified by his obvious gift for story telling. In particular, I found his lessons and recounting of periods of desperate economic times to be enlightening.


9) Education of a Speculator - Victor Niederhoffer
This is a wild account of the author's life and investment principles. This is a difficult read, it is clear the author is brilliant but also deeply flawed. There are many valuable nuggets to be extracted by a patient reader, such as the necessity to perform your own analysis of opportunities regardless of the 'commonly held' or market knowledge. Major themes include the necessity of risk management, probabilistic investing and embracing randomness.  The author's honesty and candidness is refreshing throughout, although a lot of biographical elements can be skipped over.


10) What works on Wall Street - James O'Shaughnessy
This book is effectively a statistical study of the historical returns achieved by various investing strategies. The real value in this book is educating the reader on various methods or factors which may contribute to an investment return; which provides a lot of food for thought for the reader in formulating their own investment methologies. 


11) The investment checklist - Michael Shearn
This book focuses on evaluating a company using fundamentals. This is quite a dense book and covers a lot of ground; I particularly found the author's focus on management useful which is often overlooked in investment books. In addition, the emphasis on utilising investment checklists in the decision making process I think is especially important to ensure consistency in the investment process. 


12) The Art of Speculation - Phillip Carret
Phillip Carret ran one of the first investment funds in the US, the Pioneer Fund, for 55 years starting from 1928. He was idolised by a young Warren Buffet and had a great long term record over a long time period. The book covers a lot of ground: market cycles, technical vs fundamental factors and security analysis to mention a few topics. Even though the examples are now dated, the concepts are all sound and still very relevant to today's markets.

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