Small ordinaries, which have suffered heavy selling for the past two years, have started to outperform bigger companies thanks to a combination of the top end struggling to make headway and small companies offering overlooked value.

Hedley Widdup signalled late last month that the tide was turning for small miners and explorers which would eventually lead to a revival in initial public offerings (new floats), while Regal Investments chief Phil King sees a shift from passive investing in big stocks to a hunt for small company opportunities.

The change, which should become more obvious in the new year, can be seen in the start of a “bottom fishing” trend where stocks which have been in the sin bin for much of the past year are suddenly rising by 40% and more.

A perfect example of the small company magnifying effect can be found in the 95% share price rise by Petratherm over the past week thanks to a titanium minerals discovery in South Australia and a 40% rise by its partner, Narryer Metals.

It’s early days for the Rosewood discovery located in the Muckanippie project area of the Gawler Craton but the strong investor market is an example of the developing investor appetite for small stocks delivering discovery news.

The small company theme has been evident for the past three months with largely unnoticed stocks delivering outsized capital gains, such as Metal Hawk rising by 9c (32%) to 37c this week, taking its gain over the past month to 37c (up 102%) thanks to interest in its Leinster gold project in WA.

Phosco, a fertiliser hopeful, was steady this week at 8c but it has doubled from 4c in the last two weeks, while Lord Resources continued to edge up as interest grows in its WA copper project.

Another measure of the shift back towards small stocks was the high level of interest in the junior market at the Mines and Money conference held this week in London, from where this column is being filed.

While generally seen as a showcase for big companies, it was the smaller explorers and miners catching the eye of delegates rather than the presentations by heavyweights such as Barrick Gold boss Mark Bristow.

Finding the next mineral “elephants” was Bristow’s theme in a talk which focused on opportunities in remote locations such as a corner of Pakistan where Barrick is developing the world-class Reko Diq copper project which he likens to the opportunities Chile presented 80 years ago.

But a more important message came from a Saudi Arabian government official who said the mining industry was not spending enough on exploration to satisfy surging demand for mineral and metals.

Those comments from Khalid Al-Mudaifer were all the more interesting because they came from a government minister in a country built on oil and gas, but now investing heavily in creating a modern mining industry.

China’s latest market stirring move, a ban on the export of gallium, germanium, antimony and other so-called superhard minerals to the U.S. also attracted the close attention of Mines and Money delegates who see a trend developing in which mineral supply will become an east/west divide.

Australian companies exposed to anything which China bans will be winners from the widening gap between China and the west, including graphite producers, where Syrah staged an overdue revival with a 3c rise to 25c, still well short of its 12-month high of 72c.

Northern Star’s bid for De Grey triggered a strong reaction in the target which rose by 40c (27%) to $1.90 while the bidder paid a price for issuing a pile of new paper, falling by $1.18 (7%) to $16.18.

More importantly, the move on De Grey is not seen as a guaranteed win for Northern Star as rivals circle, led by North American heavyweight Agnico Eagle, which is believed to be keen to expand its Australian footprint.

Big name investment banks are unimpressed with the Northern Star move, with Citi downgrading its advice on the bidder from buy to neutral, as well as lowering its price target from $18.30 to $17. Morgan Stanley went harder with a sell tip on Northern Star and a price target of just $15.60.

Small precious metal stocks to move up this week included:

  • Lunnon Metals, up 4c to 26c as interest grows in its Lady Herial project near Kambalda in WA with Shaw and Partners seeing 60c as the target.
  • Spartan, up 6c to $1.47 after raising $220 million to accelerate a restart at the Dalgaranga gold project in WA, and
  • Sun Silver, up an eye-catching gain of 19c to 87c after reporting outstanding assays results from its Maverick Springs project in the U.S.

The Sun Silver drilling, which this week featured an intersection of 16.76 metres at 494 grams per tonne of silver equivalent (silver and gold) from a depth of 193.55m, was the highlight of solid week for silver which Morgan Stanley sees as the precious metal with the most attractive investment fundamentals.

The Morgan Stanley silver report released two weeks ago remains a go-to reference for silver, especially when considered as a precious and industrial situation.

The bank said the short-term outlook for silver was for a return to around US$33 an ounce after its recent fall to US$30/oz.

But what Morgan Stanley also did was take a deep dive into the silver market to unveil the importance of industrial use that is significantly more substantial than gold.

“Silver’s dual precious and industrial characteristics mean that no single lens is sufficient for understanding price,” the bank said.

What’s particularly important for silver is the growth in photovoltaics, such as solar panels, a relatively new market which has grown to account for almost 20% of total silver demand.

It’s this industrial demand which sets silver apart from gold, accounting for 55% of silver use versus just 7% for gold.

Critics of silver point to it being a by-product metal, coming mainly from mines more focused on other metals such as zinc and lead.

But that view fails to account for the fact that the global silver market has actually been in deficit since 2019, with the shortfall blowing out to 7640 tonnes this year, with the market remaining in deficit until the end of the decade.

Most importantly, Morgan Stanley can’t see when there might be a return to surplus conditions which, if correct, means silver has only one way to go for the next decade, up.

Whether silver can test its all-time high of US$47/oz seen in 2011 is not in any forecasts but with the status of being an industrial commodity and precious metal points to silver being as star for the foreseeable future.