Trump Endorses Cryptos / Capital Flowing to Small-Caps
Published: 7/29/2024
Author: FRC Analysts
- Equity and metal markets suffered another round of losses last week. Tech and AI stocks experienced significant sell-offs once again.
- We are observing a shift of capital from large-cap to small-cap stocks, driven by growing Fed rate cut expectations.
- Shares of an oilfield services company under coverage were up 17% last week
- A graphite junior under coverage is on track to begin production in September 2024.
- Asia’s first inverse Bitcoin ETF was launched last week; Donald Trump gave a strong endorsement of the crypto sector at a Bitcoin conference last week
South Star Battery Metals Corp. (STSBF, STS.V)
PR Title: Prepares for commissioning of the Santa Cruz graphite mine (Brazil)
Analyst Opinion: Positive - Construction is nearly complete, with commissioning currently underway. Commercial production is expected to begin in September. The open-pittable Santa Cruz graphite deposit has potential to produce anode materials for lithium-ion batteries.
East Africa Metals Inc. (EAM.V, EFRMF)
PR Title: Attracts a new partner for the development of the Magambazi/Handeni mining project (Tanzania)
Analyst Opinion: Positive - EAM has secured interest from a Hong Kong-based mining and investment company to potentially form a joint venture aimed at advancing EAM’s gold projects in Tanzania toward production. Meanwhile, at its flagship projects in Ethiopia, partner Tibet Huaya Mining (SHSE: 601020) has begun acquiring the heavy equipment needed for construction. Tibet Huaya is financing the project up to production, with EAM retaining a 30% carried interest.
Rover Metals Corp. (ROVR.V, ROVMF)
PR Title: Signs a LOI to acquire a high purity silica asset in Golden, B.C.
Analyst Opinion: Positive - ROVR can acquire the project by paying $855k in cash, issuing 2M shares, and spending $1M in exploration over a two-year period. This pre-resource stage property is adjacent to the Sinova quartz silica quarry, one of Canada's largest producers of high-purity silica. Silicon, which is widely used in semiconductors and transistors, was recently added to Canada's list of critical minerals.
FRC Top Picks
The following table shows last month’s top five performers among our Top Picks. The top performer, Enterprise Group, was up 17%. Enterprise is an oilfield services company specializing in renting equipment to oil and gas companies. We anticipate the company's Q2 results, due next week, will show record revenue and EPS.
| Top Five Weekly Performers | WoW Returns |
| Enterprise Group, Inc. (E.TO) | 16.5% |
| Giga Metals Corporation (GIGA.V) | 10.0% |
| South Star Battery Metals Corp. (STS.V) | 9.3% |
| Kidoz Inc. (KIDZ.V) | 3.2% |
| Builders Capital Mortgage Corp. (BCF.V) | 2.0% |
| * Past performance is not indicative of future performance (as of July 29, 2024) |
Source: FRC
Our top picks have outperformed the benchmark (TSXV) in four out of seven time periods listed below.
Performance by Sector
| Total Return | 1 Week | 1 mo | 3 mo | 6 mo | 1 yr | 3 yr | Since launch |
| Mining | -7.8% | -8.8% | -8.6% | 8.3% | -17.8% | -45.2% | 2.1% |
| Cannabis | N/A | N/A | N/A | N/A | N/A | -44.3% | -23.6% |
| Tech | 3.2% | 3.2% | -30.4% | 60.0% | -38.5% | -32.4% | -4.5% |
| Special Situations (MIC) | 3.7% | -1.8% | 10.3% | 10.7% | 38.1% | -14.2% | -6.5% |
| Private Companies | N/A | N/A | N/A | N/A | 6.7% | 20.5% | 30.5% |
| Portfolio (Total) | -5.1% | -6.7% | -7.1% | 7.3% | -6.6% | -22.3% | 3.7% |
| Benchmark (Total) | -1.4% | 1.2% | -1.2% | 3.3% | -8.6% | -38.0% | -35.3% |
| Portfolio (Annualized) | - | - | - | - | -6.6% | -8.1% | 0.3% |
| Benchmark (Annualized) | - | - | - | - | -8.6% | -14.7% | -4.0% |
1. Since the earliest initiating date of companies in the list of Top Picks (as of July 29, 2024) 2. Green (blue) indicates FRC's picks outperformed (underperformed) the benchmark. 3. Past performance is not indicative of future performance. 4. Our complete list of top picks (updated weekly) can be viewed here: Top Picks List
Market Updates and Insights: Mining
Last week, global equity markets were down 0.8% on average (down 0.9% in the previous week), primarily driven by continued sell-offs in tech and AI stocks. On a positive note, the U.S. inflation data released last Friday were encouraging, raising the possibility of a Fed rate cut in September. We are witnessing a shift of capital from large-cap to small-cap stocks, fueled by increasing expectations of a Fed rate cut. This trend is evident from the 0.2% drop in the S&P 500 last month, while the Russell 2000 surged by 10.1%.
Source: FRC / Various
Last week, metal prices were down 2.7% on average (down 4.1% in the previous week).
Gold producer valuations were down 1.7% last week (down 2.8% in the prior week); base metal producers were up 1.5% last week (down 7.4% in the prior week). On average, gold producer valuations are 16% lower (previously 15%) than the past three instances when gold surpassed US$2k/oz.
| 22-Jul-24 | 29-Jul-24 | ||||
| Gold Producers | EV / R (forward) | EV / EBITDA (forward) | EV / R (forward) | EV / EBITDA (forward) | |
| 1 | Barrick | 3.13 | 6.46 | 3.04 | 6.25 |
| 2 | Newmont | 3.43 | 7.77 | 3.34 | 7.56 |
| 3 | Agnico Eagle | 4.83 | 8.80 | 4.77 | 8.60 |
| 4 | AngloGold | 2.46 | 5.66 | 2.37 | 5.47 |
| 5 | Kinross Gold | 2.67 | 5.63 | 2.62 | 5.50 |
| 6 | Gold Fields | 2.92 | 5.55 | 3.03 | 5.61 |
| 7 | Sibanye | 0.66 | 3.66 | 0.65 | 3.59 |
| 8 | Hecla Mining | 5.08 | 13.69 | 4.94 | 13.28 |
| 9 | B2Gold | 1.74 | 3.28 | 1.71 | 3.27 |
| 10 | Alamos | 5.27 | 9.49 | 5.10 | 9.43 |
| 11 | Harmony | 1.67 | 5.09 | 1.62 | 4.95 |
| 12 | Eldorado Gold | 2.62 | 5.20 | 2.66 | 5.16 |
| Average (excl outliers) | 2.85 | 6.05 | 2.81 | 5.94 | |
| Min | 0.66 | 3.28 | 0.65 | 3.27 | |
| Max | 5.27 | 13.69 | 5.10 | 13.28 | |
| Industry (three year average) | 110.70 | 116.70 | 110.70 | 116.70 | |
| Base Metal Producers | EV / R (forward) | EV / EBITDA (forward) | EV / R (forward) | EV / EBITDA (forward) | |
| 1 | BHP Group | 2.81 | 5.38 | 2.80 | 5.35 |
| 2 | Rio Tinto | 2.13 | 4.63 | 2.14 | 4.62 |
| 3 | South32 | 1.30 | 5.94 | 1.28 | 6.01 |
| 4 | Glencore | 0.43 | 5.66 | 0.42 | 5.50 |
| 5 | Anglo American | 1.82 | 5.36 | 1.90 | 5.60 |
| 6 | Teck Resources | 3.34 | 7.80 | 3.58 | 8.66 |
| 7 | First Quantum | 3.60 | 12.11 | 3.55 | 11.86 |
| Average (excl outliers) | 2.20 | 6.70 | 2.24 | 6.80 | |
| Min | 0.43 | 4.63 | 0.42 | 4.62 | |
| Max | 3.60 | 12.11 | 3.58 | 11.86 | |
Source: S&P Capital IQ & FRC
We are maintaining our metal price forecasts.
Market Updates and Insights: Cryptos
Prices of mainstream/popular cryptos were down 1% on average last week (up 3% in the previous week).
| July 29, 2024 | ||
| Cryptos | WoW | YoY |
| Bitcoin | 3% | 130% |
| Binance Coin | 0% | 137% |
| Cardano | 1% | 31% |
| Ethereum | -1% | 76% |
| Polkadot | -8% | 8% |
| XRP | -3% | -15% |
| Polygon | -4% | -28% |
| Solana | 2% | 635% |
| Average | -1% | 122% |
| Min | -8% | -28% |
| Max | 3% | 635% |
| Indices | ||
| Canadian | WoW | YoY |
| BTCC | 1% | 125% |
| BTCX | 2% | 142% |
| EBIT | 2% | 139% |
| FBTC | 1% | 44% |
| U.S. | WoW | YoY |
| BITO | 1% | 52% |
| BTF | -2% | 76% |
| IBLC | -11% | 38% |
Source: FRC/Yahoo Finance
The global MCAP of cryptos is US$2.53T, up 7% MoM, and 106%YoY.
Total Crypto Market Cap Chart
Source: CoinGecko
Last week, BTC was up 3.1%, while the S&P 500 was down 1.7%. The U.S. 10-year treasury yield was down 0.08 pp.
Source: FRC/ Yahoo Finance
The global hash rate of BTC (defined as calculations performed per second/an indicator of network difficulty) is 661 exahashes per second (EH/s), up 9% WoW, and 20% MoM. The increase in hash rates is negative for miners as their efficiency rates (BTC production per EH/s) are inversely linked to global hash rates.
Total Hash Rate (BTC)
The Realized HODL ratio (RHODL), which gauges the activity of short-term holders relative to long-term holders, was up 28% WoW, and 454% YoY. We interpret the increase in RHODL as a sign of strengthening demand, suggesting potential for an uptick in near-term prices. Historically, BTC prices have moved in tandem with this ratio. By tracking RHODL, we believe we can identify potential turning points in BTC prices.
Source: FRC/ Various
Companies operating in the crypto space are trading at an average EV/R of 6.6x (previously 7.0x).
Source: S&P Capital IQ/FRC
| July 29, 2024 | |
| Crypto Stocks | EV/Revenue |
| Argo Blockchain | 2.3 |
| BIGG Digital | 5.2 |
| Bitcoin Well | 0.8 |
| Canaan Inc. | 1.3 |
| CleanSpark Inc. | 13.0 |
| Coinbase Global | 15.2 |
| Galaxy Digital Holdings | N/A |
| HIVE Digital | 4.0 |
| Hut 8 Mining Corp. | 8.2 |
| Marathon Digital Holdings | 11.8 |
| Riot Platforms | 9.0 |
| SATO Technologies | 1.5 |
| Average | 6.6 |
| Median | 5.2 |
| Min | 0.8 |
| Max | 15.2 |
Source: S&P Capital IQ/FRC
Key Developments:
- CSOP Asset Management launched Asia’s first inverse Bitcoin ETF last week, designed to produce returns opposite to Bitcoin’s daily price movements, offering a potential hedging tool for investors. While this is a novel offering in Asia, inverse Bitcoin products, such as the BITI - BetaPro Inverse Bitcoin ETF on the TSX, are already available in other markets.
- Last week, Donald Trump was the keynote speaker at the Bitcoin Conference 2024 in Nashville. Previously a skeptic of cryptos, Trump voiced his support for the sector during his speech. He promised to implement policies that would provide more stability and fewer regulations, emphasizing the importance of everyone's right to self-custody. While the race between Trump and Harris is tight, Trump holds a slight lead in the polls. We believe a victory for Trump could potentially boost confidence and sentiment in the crypto sector.
Market Updates and Insights: Artificial Intelligence/AI
Major AI indices are down 3% WoW on average (down 2% in the previous week), but up 5% YoY.
| July 29, 2024 | ||
| AI Indices | WoW | YoY |
| First Trust Nasdaq AI and Robotics ETF | -2% | -9% |
| Global X Robotics & AI ETF | -3% | 9% |
| Global X AI & Technology ETF | -3% | 16% |
| iShares Robotics and AI Multisector ETF | -2% | -5% |
| Roundhill Generative AI & Technology ETF | -5% | 15% |
| Average | -3% | 5% |
| Min | -5% | -9% |
| Max | -2% | 16% |
Source: FRC/Various
The following table highlights some of the most popular large-cap AI stocks. Shares of these companies are down 7% WoW on average (down 6% in the previous week), but up 77% YoY. Their average P/E is 37.2x (previously 39.3x) vs the NASDAQ-100 Index’s average of 30.9x (previously 31.9x).
| AI Stocks | WoW | YoY | P/E |
| Arista Networks | -6% | 108% | 44.4 |
| Dell Technologies | -11% | 113% | 23.2 |
| Microsoft Corporation | -4% | 27% | 36.9 |
| NVIDIA Corp | -9% | 140% | 66.0 |
| Micron Technology | -6% | 51% | n/a |
| Palantir Technologies | -5% | 36% | n/a |
| Qualcomm | -7% | 36% | 24.0 |
| Super Micro Computer (SMCI) | -10% | 112% | 39.6 |
| Taiwan Semiconductor Manufacturing | -2% | 67% | 26.0 |
| Average | -7% | 77% | 37.2 |
| Median | -6% | 67% | 36.9 |
| Min | -11% | 27% | 23.2 |
| Max | -2% | 140% | 66.0 |
Source: FRC/Various
