The story of the week for small caps came right at the end of the week, indeed, after the market close on Friday. This may have been just as well. The 14p a share possible offer for Upland Resources (UPL) is no more. Of course, we have already seen the customary stone throwing and name calling, and given that the shares were initially sucked up to 8p, versus the 3p pre-announcement Friday close, a lot of burnt fingers. The end of the offer period is bad news in many ways, primarily on the basis that after a torrid year to date for small caps, it would have been great if investors had been delivered a solid win. In addition, the timeline of what happened over the past week perhaps could have been handled better. I would venture to suggest that some of the blame for the debacle is actually the fault of the current (over) regulation we have.
On Monday UPL revealed that in response to “media speculation” it had received a preliminary offer. Given what we now know, the offer was not concrete enough for the company to have made an announcement. However, given the draconian rules these days, even if a fly lands on a doughnut, companies are forced to make an announcement, whether it is in their interests or not. In addition, it should not be assumed that management are always trying to ramp up their share price. Those who have actually served on listed companies know that the share price, market sentiment, and the state of the business can be out of kilter with no rhyme nor reason, and this does not affect the long term health of the company.
In the case of Upland, it should have been the case that the company did not reveal the offer until it had proper evidence of its solidity. If it did, and given the gap between the then share price of 3p, and the offer price, the shares should have been suspended until the deal was done. Instead, last week traders were in a shooting gallery of speculation. What was evident though, and this is based on how share prices have moved in analogous situations in the past, the 8p peak on Monday suggested that the market did not really believe the offer would get over the line. Really one would have expected the stock to be at a mild discount to the 14p level in the wake of the RNS. Instead, 8p was a blink and you missed it, and the shares closed near to half that level, even before the company clarified on Friday.
As far as what may happen next there are obviously a few scenarios to chew on. It may be that because the market was not big on the offer idea the downside from the current 4.5p level is limited to where the stock was prior to it: 3p. However, given the burnt finger factor, one might suspect an initial move lower to the 2-3p zone, and then things settle down. As I said in the Bulletin Board Heroes video, there may be an opportunity to take advantage of any brief bear trap below 2p. Hopefully that is the limit to the downside.
The F word, funding has been one of the themes of 2023, and no doubt this will continue for some time. Therefore, companies who have sorted themselves out in this respect are well worth following. In the case of Kodal Minerals (KOD), the company has been on the front foot since it announced a major funding package for the development of its Bougouni Lithium Project. This week it finally announced the completion of the deal, something which spurred the stock higher. It will be interesting to see how many more investors come to the table now that any uncertainty regarding financing is out of the way.
This week saw Hummingbird Resources (HUM) deliver a Q3 Operational and Trading Update. This year has seen a significant inflection point fundamentally for the multi-asset, multi-jurisdiction gold producing company, but it would appear that even with a firming gold price, investors continue to look this gift horse in the month. It has said that Yanfolila is well positioned to meet FY-2023 guidance and Kouroussa is ramping up for a full year of commercial production from FY-2024. One can say here that there is little else to know for the bulls to step forward, especially with the share price just under 10p and the recent re-jig of its financing. The direction of travel should be that as production ramps up the company will easily be able to pay down debt, especially given the way that the operational heavy lifting is now well behind it.
It was good to see shares of GGP rally to the high end of the recent range at 8p, as it would appear that the market is looking forward to what the company said was looking forward to the imminent involvement of Newmonth as its Havieron Joint Venture partner. This underlines the way that if a company in the space is looking for a sugar daddy, Newmont would be among the more preferred contenders.
First Class Metals
Marc Sale, CEO, and the team have shown themselves to be busy bees at First Class Metals (FCM), with the mantra here being that the company is making the idea of getting its four core assets to drill ready status by the end of the year. Doing this would obviously give the company optionality in terms of how to take them forward in the most favourable way for shareholders. This week Mr Sale added to his workload with the announcement of the granting of two Exploration Permits for the Company’s North Hemlo & Esa Properties located in the Hemlo area of Ontario. While the market is yet to properly price up what the company is sitting on, it can be seen that value is being added to the portfolio.
Echo / Corcel
Given what a generally grim time it is for small caps currently, stocks that rise significantly without fresh newsflow are always a standout. This week’s dynamic duo in this respect were Echo Energy (ECHO), which at the start of the month actually announced a widened loss, and Corcel (CRCL) where earlier this month said it had received a revised offer from Integrated Battery Metals to purchase the company’s 41% interest in the Mambare nickel/cobalt project. In the case of both companies it looks like the message is now watch this space.