Q&A with Rick Squire, Portfolio Manager, Resources and Energy, Acorn Capital
What is the current state of the ASX junior market? Are there interesting trends that have emerged over the past 12 to 18 months?
The way I’m seeing the resources market behaving is pretty much consistent with how you’d expect to see it. In the gold sector, for example, there was the big run in the gold price mid to late last year, and that’s continued into 2025, though not as strong. What you see typically in the small end of the resources sector is that the first stocks to move are typically the producers, and when they become fully valued, it then cycles down into the developers and only in the latter stages of a strong commodity or a bull market do you actually see the explorers coming through.
If you look at the big names in gold, like Newmont and Northern Star, they pretty much got to their peak price in about October last year and since then there hasn’t been that much appreciation. It’s been up and down based on either good or bad news flow, but essentially their share prices track sideways.
What took over in that period from October to about July this year was that the next wave of developers, all those companies that were ramping up production, like Meeka Metals and Pantoro Gold, that’s where the real beneficiaries have been lately. And now, we’re just starting to see the early signs of some of those explorers start to pick up.
That nice wave where the producers move first, then it’s the developers, and then the explorers come through at that tail end, that’s where the opportunity is. You can look across the commodities and understand where we are in the cycle for that commodity that’s how we can see how the stocks are performing.
Apart from gold, what commodities are most attractive to you right now from an investment perspective?
Gold is definitely the stand out, but there are other commodities I like. What’s really picked up just recently has been some of those strategic metals like lithium, rare earths, graphite, and even some of the funky metals like antimony. These commodities are really impacted by this shift in reliance away from China.
Look at the deal between the US government and MP Materials for their rare earth project. The government is actually taking a stake in the company as well as putting a floor on the price that they can get for the product that they produce. That’s a real game changer in terms of how we think about and how we value companies in that particular sector.
Copper is also always something that we really like and lookout for, but there are very few opportunities there, so it’s a bit more difficult.
We’ve just seen a big announcement about CATL closing operations for their lithium mine in China. How do you see that impacting lithium?
There’s always news flow that, if it comes out at a particular time, can gather a lot of momentum, and that’s what we’re seeing out of the announcement of CATL closing down some of their lepidolite mines. They were operating under these licenses to be a clay mine with lithium as the byproduct, and the government has worked out that that’s not actually the case, so they’re cracking down. This might take three to 12 months to wash through, but it certainly is a disruption to the market. And now, with the news flow coming out of the US, it’s perfectly timed and is creating a great opportunity for those trying to pick the bottom. But, you have to be careful at the bottom after a really strong bull market like lithium because the downside of the bear market that follows often can be a lot deeper and for a lot longer than you expect.
Looking back at your top commodities, you didn’t mention nickel or iron ore as one of these. So why is that?
It’s a struggle because of their reliance on the construction market in China in particular, and in Asia generally. They’re the big consumers of iron ore and that’s a little bit more subdued now.
Nickel goes into batteries and other EV components, but that’s only a very small percentage of the overall production. And so, the real driver is still that steel production. The big companies like BHP, Rio Tinto, and FMG will stop making money – that heyday of profitability that they’ve had will be more subdued. So, particularly in the case of iron ore, you’ve got production returning to Brazil which, after the tailings dam disasters around eight years ago, a lot of production was shut down. Now that’s all starting to return and at the same time you’ve got some production that’s starting up in West Africa. That combination of returning production from Brazil and new production from Guinea, all that money that’s been spent in Western Australia to increase the size and the efficiency of the Australian operations, it just makes it really difficult for iron ore.
Then, in terms of nickel production, Indonesia is producing so much at such a cheap price, it’s really hard for an ASX listed company to compete with them. So those two commodities are probably the two that I’m least enthusiastic about.
Shifting over to looking at junior minors specifically, what do you look for in these corporates that would signal a genuine long term potential?
It sort of goes back to the comment I was making at the beginning of the interview that it’s really important for investors to understand the cycle that resources companies go through and that when you see an upswing, generally speaking, you don’t get all boats rising at the same time. The first ones to respond will be the producers.
Lithium is a good example, as it’s coming back now. Should you go and invest in those explorers? I would strongly argue that’s not the way to do it. What you’re best off doing is going to the producers because they’re always the first stocks to take off. When you start to see good value and they start to level out at a reasonable valuation, then you can move into the developers. The last stocks to move into are the explorers.
What advice would you give to retail investors that are looking to gain exposure to junior mining plays on the ASX?
You’ve got to think about two key factors. You think about commodity exposure, so getting exposure to different commodities not being tilted in just one commodity. Then, you also need to think about the stage of development; is it a producer, developer, or an explorer. In the gold sector, it’s probably not great to be invested in gold producers right now. If you really want to maximize your gains from that sector, you want to be moving down towards those developers and the explorers. That’s where the growth opportunity will come from. You’ll get your dividends, so I’m not saying it’s a bad move being in Northern Star or Newmont; that’s where you’ll get steady growth and some dividend return. That’s the conservative place to be. If you want real growth and real opportunity, it’s at the small end.
Having said that, this doesn’t apply to lithium because lithium’s coming out of a deep bear market, and you actually want to be investing at the producer end of that market.
Just taking on a couple of lithium explorers and a couple of gold explorers is just not a very efficient way to build your portfolio. You’ve got to think about where we are in the commodity cycle for the different commodities you’re investing in. And based on that, that’s how you actually invest your money.
Looking ahead to 2026, what’s your outlook for the Australian junior mining sector? Are we in a downturn? Is this a transitional phase? What do you see happening?
I think it’s going to continue along in the same way. At Acorn Capital we’ve been investing in resources and energy for over 25 years. And so really understanding where we are in the cycles for the different commodities. You need to keep an eye on that, and navigate where the opportunity is, but also to be aware of the risks around some things. For example, you just don’t know what might come out of the US or anywhere that can really disrupt the cycles. I don’t think anyone saw the war in Ukraine breaking out, yet that had an enormous impact on the commodity sector. So, they’re always these unforeseen risks, and that’s why you’ve always got to have an element of caution. There can be some really big unforeseen disruptions.
Generally speaking, if you look at what you see today, it’s actually positive. We’re seeing great opportunities and some companies are making great discoveries and there’s some great value to be had. So we’re keen to continue capitalizing on the opportunity.
