Money Talks: Seneca’s Luke Laretive thinks this $8.5m goldie could be the next 10-bagger

Seneca Australian Small Companies Fund thinks Strata Minerals and its Penny South gold project could be a takeover target for neighbour Ramelius Resources.

The fund has its eyes on M&A in the red hot gold space. Pic: Getty Images.

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Seneca Australian Small Companies Fund portfolio manager Luke Laretive who’s enjoyed a productive 12 months, delivering 32.89% returns (beating the benchmark by more than 25%) and taking the Seneca to the top of the peer group tables.

Laretive says a significant part of Seneca's success has been identifying under-appreciated resource companies such as Strata Minerals (ASX:SMX), which has a market cap of only $12m, exploring for gold on a relatively tiny tenement WA’s Murchison.

Strata is currently drilling the Penny South gold project, directly adjoining Ramelius Resources' (ASX:RMS) Penny West gold mine, which was originally discovered by Spectrum Metals and ran from a $5 million market cap to an eventual takeover by RMS for $208 million.

Strata is also surrounded by the recently reinvigorated Rox Resources (ASX:RXL), whose market cap has ballooned to ~$200m after reporting significant gold mineralisation (6m at 19.08g/t from 220m) at depth on the same Youanmi geological trend.

Seneca’s thesis is that SMX can intersect the same high-grade gold at depths below 150m, similar to the best results seen at Penny West when it was initially discovered.

“Historical work on Penny South only tested to 70m,” Laretive said.

“We think this is one of the most prospective drill programs on the ASX, with genuine 10-bag potential on success.

“It’s a high-risk, high-reward opportunity but if they’re successful with drilling it’s going to have asymmetric upside for the share price.

“For the potential payoff I think it looks pretty good.”

Not to mention, M&A in the gold space is really heating up.

And the precious metal is in the midst of a bull run, hitting a new record of US$3115 an ounce as investors continue to flock to the safe haven asset amidst ongoing market uncertainty.

Any other goldies in the spotlight?

Laretive says if you’re not looking for M&A opportunities in gold you’re probably barking up the wrong tree.

“Antipa Minerals (ASX:AZY) is for us a likely takeover target this year – we think Greatland Gold (LSE:GGP), their neighbour, is the likely acquirer there,” he said.

“In the gold space, one stock I think is mis-priced and has probably gone under the radar is James Bay Minerals (ASX:JBY) with their Independence gold project where drilling has just started.

“That’s a ~$50m market cap project in Nevada, which is ranked higher by the Fraser Institute as a mining jurisdiction relative to Western Australia – but if it was in WA it would be a $200-300m market cap," he said.

“It has excellent grades already, it's low cost, it’ll operate at high margins once it’s in production, and it has barely explored the landholding there.

“I think from a resource growth potential and market cap leverage, that could be one of the better ones in the gold sector in our view.”

Keen on resources adjacent companies, too

But Seneca doesn’t just focus on resources companies. The overarching emphasis is on growth companies at reasonable prices that have recurring revenues and are about to be – or have just become – profitable.

“We see them as often mispriced by the market and regularly undervalued, and then once that profitability and that operating leverage starts to come through – the market often re-rates that and prices in growth for the future as a baseline assumption,” Laretive said.

One of those is drilling services provider Imdex (ASX:IMD).

“Outside gold, we’re really impressed with what Imdex have been able to deliver for us over the last 12 months. I think that business has got significantly more upside as drilling activity is accelerating,” he said.

“These higher base metal prices and precious metals prices are a really good tailwind for Imdex.”

Seneca also likes XRF Scientific (ASX:XRF), which manufactures equipment and chemicals used in mining, construction and analytical laboratories.

Both IMD and XRF are what Laretive calls second-order derivative beneficiaries of higher gold and copper prices.

At Stockhead, we tell it like it is. While Strata Minerals, Antipa Minerals and James Bay Minerals are Stockhead advertisers, they did not sponsor this article.

Originally published as Money Talks: Seneca’s Luke Laretive thinks this $8.5m goldie could be the next 10-bagger