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Small Cap Stocks: Which small cap exploration stocks on the ASX should I buy?18.08.2014

Small cap exploration stocks are starting to do well again. Our Stock Report has its finger on the pulse of mining minnows that are in the position to fire.

Small Cap Exploration stocks are starting to fire

Calls of the death of exploration could have been greatly exaggerated. You just have to look at the trebling in the past month or so of the platinum and Platina Resources (PGM), the graphite explorer Triton Minerals (TON), and Minotour Exploration (MEP), which announced high grade copper and zinc intersections at its project in Conclurry, North Queensland.

But fewer stocks and less price certainty

The trouble is that there are fewer of them than at the start of the century when commodity prices were increasing exponentially. There is also a lot less certainty that their prices will keep going up after the discovery, or even stay where they are. Triton is the most discussed stock on the Hot Copper website and its shares have gone from about 10 cents in June to as high as 90 cents in mid-July and now sit at around 40 cents, giving it a market cap of $117 million.

There is always a lot of hype in exploration. Triton’s target in Mozambique is close to those of a much more advanced graphite miner, Syrah Resources (SYR) so there is a big element of “near-ology” going on. But this cannot overcome the funding risk, which is at the heart of investor’s fears.

So, which small cap stocks in this sector should you look at?

We don’t think it’s time for investors to chase explorers because sentiment is still against them, but there are some where the risk is much lower than others. Triton’s market cap dwarfs the $25 million market cap of Platina Resources, but in our opinion, the minnow’s stock could be a better bet (if you can get a hold of it).

Platina's stock climbed after it announced it had signed a letter of intent for the proposed supply of 15 tonnes of scandium oxide to a Chinese manufacturer, Honfine. The off-take agreement being discussed over the next few months will presumably involve a financing arrangement for the production facility, which could cost as much as $100 million.

Scandium is often classified as a rare earth and is hard to get. Nowhere is it produced on its own, being obtained as a by-product.  It is used to strengthen aluminium used to manufacture of aircraft and scandium oxide sells for between US$1400 and US$3700 a kilogram.

Platina’s Owendale Project in central western New South Wales has a resource of 9,100 tonnes of scandium metal. The company is currently completing metallurgical test work to see if it can make a high grade concentrate to ship to China.

“The Owendale deposit has the highest grade and largest tonnage or contained metal of scandium that I’m aware of,” Platina’s exploration manager Mark Dugmore told Under the Radar.

The project, which is located new Dubbo, also contains a resource of half a million ounces of platinum and the company also has a project in Greenland where it is exploring for gold and platinum.

There is a lot going on for this mining minnow, which inexplicably is based in Gold Coast, Queensland. There is a lot of potential, but more importantly, there is the possibility that finance for the construction of its plant could come from the China based privately owned industrial company Honfine.

Richard Hemming  is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

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Under the Radar Report is licenced to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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