BHP + Small Caps = Match Made in Heaven?
BHP + Small Caps = Match Made in Heaven?
BHP is throwing cash at an exclusive group of small-cap companies. We dig into the two we believe are the best
Picture this: you've thrown your hard-earned cash behind a scrappy small-cap company. They're putting in the hard work, but funds are tight. Suddenly, there’s a knock on the door from the top dog of mining, BHP.
This isn't just a lucky break. It's a testament to the potential these small-caps have.
It’s a type of fantasy-turned-reality scenario aided by the BHP Xplor program - a one-of-a-kind chance for small-cap companies to get noticed and backed by the biggest miner in the world.
It’s what we small-cap investors dream of — a sign that even the giants see something special in the plucky underdogs in our portfolio. BHP taking the time to analyse, identify, and invest in a company is a big deal and a big tick of validation.
The way the Xplor program works is: BHP handpicks small-cap companies, which then get access to BHP's expertise, resources, and knowledge to help them explore and hopefully discover something big.
This accelerates the exploration process and increases the odds of striking gold (or copper, or nickel, or ...).
To BHP, the world's largest mining company, which makes over USD $10 billion a year in profit, the funds are tiny, but to a small-cap, it's a big deal.
Here at Equities Club, we’re always banging on about the importance of location, management, and cash on hand. When we realised BHP had assessed the first two and helped with the third, we had to have a deeper look.
We've highlighted what we believe are the best two ASX-listed companies from the Xplor program and given a run-through on some others that may be about to hit their stride.
What is Xplor?
The BHP Xplor program, first introduced in 2022, is a global accelerator designed to support early-stage mineral exploration companies.
AKA the small caps we like researching and investing in.
BHP isn't just throwing darts at a board here; they're handpicking these companies through a rigorous selection process that evaluates everything from their growth potential and management team to how well their exploration goals align with BHP's strategic interests. In 2022, seven companies were selected, and in 2023, six more companies joined the exclusive program.
Through this program, BHP aims to create disruptive results in copper and nickel exploration. This includes identifying new concepts, leveraging new data, and testing opportunities much faster than discoveries to date, ultimately leading to the discovery of economically viable mineral deposits.
Remember, these small caps are much more nimble than the likes of BHP. What might take BHP years to get off the ground, these juniors can often achieve in a matter of months.
Each company selected receives up to USD $500,000 cash payment from BHP, along with access to a network of experts who can offer guidance on everything from technical challenges to business and operational strategies.
It's a win-win situation. BHP gets to tap into the agility and innovative spirit of these small-cap companies while the juniors get a much-needed boost in funding and expertise. It's a partnership that could pave the way for the next big mineral discovery.
The Recent Success Stories of Xplor
When we dug into the previous companies selected, two really jumped out at us. Both are just starting, but they caught our eye for their potential.
These companies aren't worth hundreds of millions (yet), but they're tracking the right course. With a bit of luck, they could become significant players.
1. Asian Battery Metals (ASX: AZ9)
The Overview
Share price: 3.6c
Market cap: $20 million
Focus: Critical minerals in Mongolia
Why They Caught Our Eye
From private to public: AZ9 is the only company from last year's Xplor cohort to make the leap from private to public. This move alone tells us there's something worth investigating here.
Cash in the bank and exploration on the horizon: Fresh off a $5 million raise (no easy feat in this market), AZ9 is gearing up for an exciting 2024 exploration program.
Diversified portfolio: AZ9 is exploring battery and energy transition metals, including graphite, lithium, and nickel-copper sulphides. Their Oval nickel-copper project is a key area of focus.
Experienced leadership: AZ9's managing director, Gan-Ochir Zunduisuren, has impressive on-the-ground experience in Mongolia, having been a board member for Oyu Tolgoi, one of the world's largest copper/gold mines. The in-country expertise Gan-Ochir brings to AZ9 will be invaluable. He brings practical knowledge from working in underground mines and boardroom experience in a jurisdiction known for elephant-scale discoveries.
"Based on our prospecting work, Oval Ni-Cu-PGE project has good potential to host an economically viable deposit." - Managing Director Gan-Ochir Zunduisuren.
The Bottom Line
With a diverse portfolio of nickel, copper, graphite and lithium, AZ9 is well-positioned to take advantage of long-term market fundamentals.
Their assets are situated on China’s doorstep, the world's largest copper concentrate consumer and the most mature market for Electric Vehicle battery materials production.
If AZ9's drill program (which started today) yields promising results, this $20 million company could easily be worth many times that amount. Keep your eyes peeled—this is one of our top-watched small-cap stocks.
The Overview
Share price: 4.7c
Market cap: $35 million
Cash on hand: $25 million
Focus: Nickel and copper exploration in Norway and Finland
Why They Caught Our Eye
A deal backed by BHP's billions: KRM might seem like it's already sitting pretty with its valuation and cash on hand. Yet a groundbreaking deal facilitated by the Xplor program could send KRM to much higher valuations. The initial alliance was formed following KRM's successful participation in the BHP Xplor program in 2023; KRM was one of the first seven companies selected.
Three-phase exploration powerhouse: This isn't your average exploration agreement. BHP is committing a whopping $31 million to fund KRM's exploration efforts over four years in the mineral-rich terrains of Norway and Finland. This initial "project generation" phase gives BHP the exclusive right to pick the most promising targets. If BHP likes what they see, they can then earn up to a 75% stake in these projects by investing another $56 million during the "earn-in" phase. Finally, if everything goes swimmingly, they can form a joint venture to further develop the discoveries.
Kingrose and BHP have signed an industry-leading exploration agreement that is unheard of for a junior explorer.
Management with a Midas touch: Leading the charge at KRM is managing director Fabian Baker, a young, but seasoned veteran who previously founded Tethyan Resources. Tethyan was snapped up by ASX-listed Adriatic Metals (ASX: ADT), now valued at over $1 billion. Baker clearly knows how to turn dirt into dollars.
Penikat PGE deposit – A hidden gem?: While the BHP deal is grabbing the headlines, don't sleep on KRM's Penikat PGE deposit. With drilling recently approved, Penikat could potentially become a tier-one asset.
The Bottom Line
The Xplor program has forged a powerful alliance between BHP, a mining juggernaut with deep pockets, and KRM, a nimble explorer with a proven leader at the helm. This partnership isn't just about money; it's about combining BHP's vast resources with Fabian Baker's expertise to unlock the mineral riches hidden beneath Norway and Finland.
Other ASX-Listed Xplor Juniors
Nordic Nickel (ASX: NNL) - These guys are laser-focused on finding and developing high-purity, sustainably sourced nickel sulphides – a critical ingredient for the green energy revolution. Their hunting grounds are in Finland, a country known for its mineral riches.
Hamelin Gold (ASX: HMG) - An exploration company dedicated to discovering and developing significant gold deposits. The company focuses on the West Tanami region in Western Australia, an area renowned for its high prospective gold potential.
Impact Minerals (ASX: IPT) - IPT is focused on discovering and developing a diverse range of mineral deposits. The company explores nickel, gold, copper, silver, lead, zinc, and platinum group elements.
Cobre Limited (ASX: CBE) - A 2024 selection, CBE is an exploration company focused on uncovering and developing high-grade base metal deposits. The company holds significant interests in two key regions: Botswana and Western Australia.
The BHP Advantage
Investing in small-cap companies is not for the faint of heart. It's a high-risk, high-reward game. But wouldn't it be nice to have an edge?
That's where BHP comes in. Remember, today's mining giants were yesterday's scrappy explorers. BHP knows what it takes to strike it rich, and they've put that knowledge to work by scouring the globe for the most promising small-cap companies. They've sifted through more than 1,000 applications and handpicked just 13, less than half of which are listed on the ASX.
That's some handy due diligence by anyone's standard.
Could BHP miss the next big success story? Of course, but the Xplor program offers a rare glimpse into where the world's biggest miner is placing its bets. If you're looking for potential winners in the small-cap space, this is a good place to start your research.