Corcel : ALIGN Research Top 10 Conviction Calls For 2022 - CRCL

ALIGN RESEARCH TOP 10 CONVICTION CALLS FOR 2022

December 28, 2021 | Posted by admin

And so another yet year turns… A little older and hopefully a little wiser, although observing the utter, utter madness that is the world today and many of those going along with the Covid hysteria and narrative I am not so sure about the wiser part… There is a saying in the stock market, that is the backdrop at any one point in time is either "feast or famine" - well the early part of '21 came in like a lion enjoying a veritable "feast" but as the spring gave way to summer and many of the crazy covid restrictions were lifted it seems the world went on holiday and with it demand for UK shares. So began the current "famine" in UK Plc and small caps in particular which experienced a material de-rating.

Inflation will be the key driver this year in our opinion and there is ONE primary place to be in this scenario - commodity focused equities. We make no apologies for the fact that our list below is packed with these save for a couple of deep value plays. The current "official" RPI of 5-6%is quite simply untrue. Real world inflation is likely running around 11-12% and with interest rates in the UK & US still effectively zero, I am not so sure many people understand the impact of such massive negative real interest rates on their net wealth - put simply it robs you of this - you are getting, literally, poorer by the day. Over just 5 years, if the current real (not the manufactured one that has no relation to real energy & food prices, council tax increases etc) inflation rate continues and you keep your money in the bank then you will have lost over 50% of its spending power. Sobering thought indeed. This is why equities and real world assets - gold in particular are, in our view, the place to park your money - particularly with bargain valuations still abounding.

We have observed again this year that in the small cap arena management is EVERYTHING. Sadly, quality high calibre management is very, very, very rare,

particularly where they are also aligned with shareholders. That is the stand out lesson of our foray into this arena over the last 6 years. Ultimate delivery of plans just does not happen in almost all cases. Look at the debacle that is ADM Energy - what differentiates us from almost every other known research house however is that when we get it wrong (invariably through management non delivery and in certain instances outright lies to us) then we hurt just like our followers. That is rare and I believe many people forget this. Vice versa, when we get it right -

Argo Blockchain, Xtract Resources, ITM Power, Gaming Realms, Powerhouse Energy, Rainbow Rare Earths, Eqtec, Silence Therapeutics etc etc.. the returns can be life changing. Patience is however required to ride this turn in sentiment and fellow investor realisation of what is going on in a company. With that in mind, we are aware that some of the inclusions below have been disappointing this year and were included last year. We have thus only included those companies where we expect continued execution of corporate plans by management that have proved themselves and hence their inclusion once again this year.

So, in no particular order here are our top 10 picks for 2022.

KAZERA GLOBAL INVESTMENTS - Current price 1.1p

Kazera is in the midst of a complete transformation from the moribund years under old CEO Larry Johnson. As the largest shareholder here we push management to ensure that cash flow is paramount. Recent RNS's have made clear that profits from its South African diamond operation are about to be eclipsed as its HMS and tantalum projects move into production.

A lot has been going on at Kazera this last 12 months, the southern African focused mining investor with a large high-grade tantalum & lithium project in Namibia. Commercial mine production of tantalum is now just around the corner with a new Chinese off-taker and recent plant upgrades. A transformative deal in June 2020 that we introduced took Kazera into diamonds and now imminently into the extremely lucrative heavy mineral sands (HMS) with the intent of this funding

providing the cash runway to fully develop the tantalum opportunity. The company is now on the cusp of this.

A new strategy is being spearheaded to bring the tantalum mine back into production using borehole water and, benefiting from improved water retention techniques, is now set to produce decent cash flow literally within week. Work has been ongoing using the natural mountainous landscape to create tiered tailings dams which will be gravity fed.

Whilst on care and maintenance, the mine superintendent and the geologist have still been employed. This has allowed work to continue on the ground and included the running of a lot of water pipes, with more boreholes brought on stream as well as the cleaning of boreholes. Following very heavy rains there is now some 65 foot of water in the boreholes, which is considered sufficient to support a reasonable level of production. It should be noted that without the water problem, this tantalum mine could make several million dollars a year as it stands with very minimal upgrades to the plant and an addition of an already government approved tailings dam.

Recently, there was very good news on the Tantalite Valley Mine where the return to mining and tantalum production is now in process as the first shipment to the company's off-take partner is expected by the end of December 2021, with a steady increase in production during 2022.

Diamonds have decent profit potential

Diamond and diamond processing are set to generate healthy profits, to be followed by HMS, at which stage funding sources for the tantalum become internally generated (or it could come by way of a bank loan). So, cash flows from the diamonds and HMS will also further exploration of both the tantalum and lithium potential - a really hot area in the battery metals space.

Processing alluvial material at Alexkor. Source: Alexkor

In September 2021, Kazera, with its joint venture partner MV5 took over the operation of the Muisvlak alluivial diamond processing plant, a move which will

allow the team to remedy production blockages at the alluvial diamond operation of the past. The target is to lift the throughput at the plant six-fold to 35,000 tons of gravel per month, significantly increasing the amount of gravel Kazera can process from its activities at Alexander Bay. With control of the processing plant at Alexander Bay, Kazera can now make the operational improvements necessary to boost diamond production and profits. A December 2021 announcement highlighted what looks like a 300% increase in diamond production over the last production cycle.

First production from HMS expected within months

The company now expects its Mining Permit for the HMS to be granted in the first few weeks of 2022 allowing production to begin from this 72,000tpa high- grade HMS project. Initially, unprocessed material will be sold and Kazera has well- developed plans to be generating additional profits of some US$300,0000 per month within 6 months of receiving the Mining Permit. It gets better than that however as waiting in the wings are international players seeking to get the chance to build a separation plant, allowing KZG's production to be sold at a price uplift of around 600% more.

At the moment, Kazera's subsidiary WHM is waiting for the final grant of a Mining Permit over a 5-hectare beach sand deposit at Walviskop which has a JORC Indicated Mineral Resource of 3.11Mt of Valuable Heavy Minerals at a grade of 61.2%. Apparently, the predominant Valuable Heavy Minerals are garnet (30.29% of Run of Mine (ROM)) and ilmenite (27.54% of ROM). Also present are zircon and rutile, which haven't been included in the economic modelling. The NPV has been determined at around £150 million based on a 20% discount rate and prevailing FX rates.

Mining HMS at Alexkor. Source: Company

That big NPV(20) valuation is just for Walviskop and there is one hell of a lot more here than simply Walviskop. Truth is that WHM is also in the process of applying for a Prospecting Right over an adjacent beach which apparently bears all the hallmarks of having similar characteristics to Walviskop - but is reckoned to be 34 times larger. To save you reaching for your calculators, and being highly illustrative, 34 x £150 million = £5.1 billion.

If that wasn't enough, as a by-product of the HMS operation, Deep Blue Minerals is expected to generate around 300 carats per month of additional diamond production from the HMS operation. Importantly, beach diamonds tend to be bigger and better quality than those found inland and so we are talking about higher prices being paid at auctions. Whilst inland diamonds typically attract prices around US$250 per carat, Kazera are fairly confident that they can sell these diamonds for more than US$750 per carat.

There is no doubt that rapid progress is being made right across each and every one of Kazera's operations. With a current market cap of just under £8m, and management telegraphing the imminent HMS licence award, the profits thereof from here, the tantalum and lithium potential that is frankly massive and the steady cash flow generation profile of the diamonds, the current stock price frankly defies belief. We are hard pressed to find many minnows on the cusp of immediate cash and profit generation with aligned management. This is the one position that we expect to generate multi-fold returns in 2022.

IRONVELD - Current price 1p

Ironveld is blessed with having a world-class high purity iron, vanadium and titanium project which is located on the Northern Limb of the Bushveld Complex in Limpopo Province in South Africa. There have been a number of false dawns in the