Barry FitzGerald: The key deal that led gold bug Hedley Widdup to invest in Medallion Metals

Lion Selection Group’s Hedley Widdup talks to Barry FitzGerald about why its latest ASX gold investment makes the grade.

Lion Selection Group is deploying its cash in the junior gold sector. Pic: Supplied/Stockhead

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

Hedley Widdup is in a buying mood in the junior resources space ahead of a coming mining boom.

Widdup is managing director of Lion Selection Group (ASX:LSX), a listed investment company that specialises in the junior space with more than $100 million invested.

Think of it as a one-stop shop to gain exposure to the high-risk but potentially high reward end of the mining market.

“The allure of the junior miners is that you can get the best returns in the market if you get the selection right,” Widdup told Garimpeiro during the week.

“But the thing is that it is a hard sector in which to pick winners as there are lots of names to trawl through.”
That was a bit of soft promotion of LSX’s market beating track record of stock picking amongst the juniors since 1997.

So why is Widdup in a buying mood?

“It is a great time to be accumulating because the junior market has been so weak – it has lost three quarters of its value since April 2022 (based on the median price changes for 615 junior companies),” he said.

“So we’ve been buying. We’ve invested $31m and that is currently worth 70% more than we paid, and that has been in a crap market with the mining boom yet to come.”

LSX still has $46 million in cash to invest. Its current investments and cash position gave it a net tangible asset backing (NTA) of 70.1c a share at December 31, which compares with its share price mid-week of 59c.

Listed investment companies almost always ways trade at a discount to their NTA but the discount narrows as the value of the portfolio increases, a phase LSX is experiencing thanks to portfolio momentum to the upside from the impact of gold’s advance to record levels and stock specific catalysts, or a combination of both.

It was a combination of both that prompted LSX to invest $1 million in Medallion Metals (ASX:MM8) at the start of the month in a placement at 10c a share. Medallion was trading at 16.5c mid-week for a 65% gain to LSX.

Widdup said the investment was prompted by last August’s announcement from Medallion that it was working on a deal to acquire IGO's (ASX:IGO) Cosmic Boy processing plant at the mothballed Forrestania nickel operation in WA’s wheatbelt.

The yet to be concluded deal stands as a faster and capital light processing route for high-grade gold-copper ores from Medallion’s proposed Ravensthorpe mine development some 170km to the south in the Goldfields-Esperance region.

“Cosmic Bay needs to be changed over to be suitable for gold but the beauty is that it drops a material amount of capex out of the Medallion development story,” Widdup said.

“All of sudden they can get in to production far more cheaply than they were possibly able to under their original studies.”

New catalysts

Widdup said the changed development dynamic meant new catalysts around the stock have also emerged.

“It didn’t escape anyone’s attention that only a small portion of their resource found its way into the (December) scoping study. I think as they derisk that orebody in terms of moving it in to the indicated category, then we might see some early additions,” he said.

“Their ability to have a much larger gold business than they have already got on paper could take shape in the next 6-12 months. It is a catalyst you don’t often get in a development story.”

The December scoping study on Ravensthorpe’s development with processing at Cosmic Boy pointed to an initial mine life of 5.5 years for total production of 342,000oz of gold and 16,000t of copper at an all-in sustaining cost of $1845/oz net of by-product credits, using a base case assumption of $US2350/oz gold and $US7937/t copper.

Capital payback was estimated at one year on the base case metal price assumptions.

Again at base case metal prices, the net present value was put at $329 million and the internal rate of return at 129%. The robust projections become even more so at current spot prices.

At Stockhead, we tell it like it is. While Medallion Metals is a Stockhead advertiser, it did not sponsor this article.

The views, information, or opinions expressed in  this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

Originally published as Barry FitzGerald: The key deal that led gold bug Hedley Widdup to invest in Medallion Metals