Speaking with the responsible CEOs of young raw material companies reveals that, especially for mine developers, securing the future supply of raw materials is the paramount issue of the future. There are constant reports that the EU is currently exerting significant pressure for the development of new projects. The pressure is particularly high for critical metals such as rare earths or antimony.
Turning to the level of local governments, however, presents a different picture. Here, the unified stance of the European Union fragments into many, sometimes highly divergent, national approaches. For example, the French government, largely unnoticed by the general public, has long since compiled a list of all properties in the country that could potentially be developed into a producing mine.
Whether this will happen remains to be seen. In any case, the systematic identification of all potential opportunities is the first indispensable step to actually transform ambitious wishes and plans into producing mines. This is not a given, as other EU member states have not yet initiated comparable steps. It is therefore appropriate to speak of a two-speed Europe at this central point as well, even though the term was originally coined in a completely different context.
Green Ideology as a Hindering Factor
The development that Sweden, for example, has undergone in recent years is telling. The country has a long mining tradition. One would therefore assume that the development of new projects is a perfectly normal matter, handled quickly and smoothly by politicians and authorities. However, this has not been the case in recent years.
Individual projects were so far developed that only the final state approvals were missing. However, even though all necessary regulations were essentially met, nothing happened for seven long years because the Green partner within the governing coalition blocked the decisions. After the Greens were no longer part of the government, everything suddenly moved very quickly, and the necessary approvals were granted just three months later.
It is not to be assumed that the fundamental data of the project, which had been blocked for seven years, significantly changed within these three months. We are therefore dealing with a form of political resistance for resistance’s sake. It was not about facts, but solely about green ideology.
Political Ignorance Threatens an Entire Industry
For the affected companies, such purely politically motivated blockades are a catastrophe, because mine developers typically do not yet have constant revenues with which they can finance themselves and their activities. Instead, they rely on finding risk-tolerant investors who are willing to provide capital for the planned development steps.
However, if almost nothing happens for seven long years because authorities cease to act under political pressure, even the most patient investor will eventually lose interest in these companies. The consequence: Investors sell the stock, withdraw their money, and thereby usually destroy the company’s share price and valuation. What remains is an unattractive shell, to which hardly any investor can truly find appeal.
If this happens not only to individual companies but affects the entire industry, a situation quickly arises, as we have experienced over the past ten years: No one wants raw material stocks in their portfolio, and valuations plummet to rock-bottom levels or even significantly lower.
Enormous Price Potential from Low Levels
From this point, the shares indeed have enormous price potential, but what good is this if investors unfamiliar with the raw materials sector and its valuations subsequently see the high percentage gains and believe the shares are now hopelessly overvalued because they have risen too sharply in too short a time?
Gold Terra Resource (WKN A2P0BS) and American West Metals (WKN A3DE4Y) are two companies that figuratively represent an industry unjustly ignored by investors at this point. A look at the 5-year chart in both cases reveals the share price carnage that has occurred in recent years. Now, however, the tide seems to be turning.
The Gold Terra Resources share price has gained approximately 200% since mid-August, rising from CAD 0.05 to CAD 0.15. However, the 200% increase in the share price still does not nearly reflect the true value of the project and the infrastructure of the historic Con Mine, which Gold Terra will be able to utilize for future production, and the temporary drop back to CAD 0.10 certainly does not.
Still Massively Undervalued despite Massive Price Gains?
The situation is similar at American West currently. The “big difference” to Gold Terra here is that the preceding share price carnage occurred not in Canadian, but in Australian dollars. At the beginning of October, just a few days ago, American West shares could be bought for AUD 0.04. Anyone who did so is already sitting on a 100% gain today.
A doubling within 14 days will prompt many investors to nervously hover their fingers over the sell button. However, anyone who sells prematurely now primarily demonstrates their great nervousness, because a look at the long-term charts shows that the stock was still trading at prices well above AUD 0.20 about two years ago.
At that time, the Storm Copper Project in northern Canada was still the company’s only project that interested investors and influenced its valuation. No one spoke of the Indium project, which only came into focus a few days ago, not even the company itself.
Today, however, indium is the main price driver, because, as with rare earths and antimony, Chinese export restrictions have first alarmed governments and subsequently investors, causing a frantic rush. The copper at the Storm Project in Nunavut, for which investors were willing to pay approximately twice today’s price in 2023, buyers now essentially get for free.
Anyone who only looks at the charts and believes that the train has already left the station for American West and Gold Terra Resource overlooks important details and judges not only hastily but also without the necessary diligence. Investors who, on the other hand, demonstrate this diligence and look carefully will quickly realize that two absolute gems could still be acquired here at extreme bargain prices – despite all remaining risks.
