BHP’s unexpected guide to ASX-listed small cap mining stocks

BHP (ASX: BHP) is the last company most investors would expect to provide small company share tips, but the world’s biggest miner has just provided a clear picture of what commodities it expects to outperform, along with a starter kit of three small ASX-listed stocks worth following.

Impact Minerals (ASX: IPT), Kingsrose Mining (ASX: KRM) and Nordic Nickel (ASX: NNL) are the three listed companies which have not only caught the eye of BHP management but have received a cash handout and offer of technical help with exploration.

Another four private companies are also recipients of $500,000 in cash each, and advice under what’s called the BHP Xplor program, but could just as easily be called “BHP Grubstake”.

BHP’s latest handouts are a classic example of the “grubstaking” once used by financiers and mining equipment vendors to help prospectors buy a new pickaxe and wheelbarrow. These cash handouts of an earlier era were in exchange for part ownership of any discovery.

In effect, BHP Xplor is a way for a big company to get involved in high-risk and potentially high-reward grassroots exploration at a minimal cost, without getting its corporate hands dirty in a way small companies can in frontier exploration.

Grubstaking a number of small explorers is also a strategy borrowed from the venture capital handbook of backing a number of start-ups, provide seed funding, and then hoping that some succeed while knowing that most will fail with profits from the winners washing away losses.

Investor reaction

The reaction of investors so far has been subdued but encouraging with the three ASX stocks moving up, aided by a market which has started the New Year with an optimistic surge.

Since the BHP deal was announced Impact’s share price has risen by 25% though that percentage move is a rise from $0.008 to $0.01 per share leaving the company with a market value of $24 million.

The focus of Impact’s work is a hunt for nickel, copper, and platinum group metals (PGM) close to BHP’s birthplace, Broken Hill in western NSW.

Kingsrose is looking for a similar mix of metals in Finland, as is Nordic, with copper and nickel have the advantages of deep traditional markets and growing demand in electric vehicles and energy transition.

Nordic is up $0.02 (7.5%) to $0.29 per share after its involvement with the BHP program was reported on Tuesday.

Kingsrose is up $0.02 (2.6%) to $0.078 per share, though, its price has been affected by a share issue and the acquisition of a new nickel, copper and cobalt project in Norway.

BHP’s Xplor strategy

The latest Kingsrose deal over the Rana project near the port of Narvik fits perfectly with the aim of BHP, which is to have a mosquito fleet of prospectors testing new exploration theories, often in areas with a proven history of high-grade metal production.

The Rana project includes the underground Bruvann mine which was worked out in 2002 after a three-year campaign with data from that work providing a guide to a potentially bigger geological structure in the area.

Kingsrose is also exploring the Porsanger nickel and copper project in the far north of Norway and the Penikat PGM project in western Finland.

Impact’s project close to Broken Hill is following up earlier work, which focussed on a series of rock features (sills and dykes) which could be pointers to something more substantial at depth.

Said to be “a new geodynamic framework”, Impact is working with Professor Ken Collerson from the University of Queensland who is pursuing a theory that the area around Broken Hill is related to a deep mantle “plume” of mineralised material pushed to the surface eons ago.

Nordic’s projects in Finland which interest BHP are Pulju and Maaninkijori in the Central Lapland region of the country’s far north close to the big Sakatti copper, nickel and PGM project of BHP’s rival Anglo American.

Norway, Sweden and Finland

The Arctic areas of Norway, Sweden and Finland have attracted explorers for centuries and have been one of Europe’s major sources of minerals with the potential for more to come.

Last week Sweden’s state-owned iron ore miner, LKAB, reported the discovery of a world-class rare earth deposit less than one kilometre from its giant Kiruna mine in the far north of Sweden.

Across the border in Russia there are a series of major nickel and PGM mines including the Severny Globoky project on the Kola Peninsula which is currently being deepened by 300m.

Private explorers attracting major’s interest

The four private companies being grubstaked by BHP are:

• Tutume Metals which is exploring for nickel, copper and PGM in the southern African country of Botswana;
• Red Ox Copper which is exploring for copper in Australia;
• Asian Battery Metals which is looking for critical metals in the Asia Pacific region; and
• Bronzite Exploration, an early-stage explorer focussed on northern Canada which is working with Professor James Mungall from Carleton University in Ottawa.

For BHP the grubstaking provides a low-cost look at potentially significant exploration projects which are too small for its in-house explorers.

Juniors identifying new concepts

BHP chief development officer Johan van Jaarsveld said it was hoped that the work of the junior explorers would identify new concepts at a faster pace than discoveries have been made in the past.

For the small companies, BHP’s cash is a handy injection to accelerate work on existing projects with the added benefit of being able to discuss theories and possible work programs with BHP staff or its outside specialist consultants.

For investors, the BHP chosen explorers are worth a look because people on a high pay grade like what they see, albeit only to the point of dipping into the BHP petty cash tin.

More importantly, the chosen explorers share a common theme as to where BHP thinks the best future returns might lie and that’s in critical and battery metals, especially copper and nickel.