A popular piece of investing advice, to never catch a falling knife, is only partially true, failing to account for how the stock market’s efficient, long-term reflection of value in share prices often turns irrational over the short term and punishes quality stocks into bargain-bin territory.
One of these stocks is Newport Exploration (TSXV:NWX), market capitalization C$8.45 million, which is down by 60 per cent since fiscal 2017, despite the prospectivity of its 2.5 per cent royalty interests in numerous producing oil and gas licenses in the Cooper Basin, Australia, as well as its 100-per-cent interest in the Chu Chua copper and gold deposit project in British Columbia.
The Cooper Basin royalties
Newport’s oil and gas royalties, free from capital contribution requirements, expose it to production and exploration by Beach Energy Limited and Santos Limited, both top Australian energy producers, in the country’s largest onshore oil and gas development area.
The licenses’ oil and gas output, marked by high flow rates, net backs and exploration success, is positioned for expansion through Beach Energy’s development and appraisal campaign of up to 10 wells slated for Q4 fiscal 2025, potentially leading to an exploration drilling campaign in fiscal 2026.
The Chu Chua copper and gold project
Newport’s Chu Chua copper and gold project, 30 kilometres north of Kamloops, British Columbia, houses a volcanogenic massive sulphide body with mineralization occurring over 480 metres in strike length and up to 180 metres deep.
The project boasts an inferred resource estimate of 2.29 million tons averaging 2.11 per cent copper, 9.99 grams per ton (g/t) of silver, 0.5 g/t gold and 0.3 per cent zinc, with 75 per cent of the deposit lying within 100 metres from surface and each target commodity playing an essential role in either the energy transition or investors’ needs for value preservation.
Newport Exploration’s unacknowledged profitability
While Newport’s earnings flow completely from its oil and gas royalties, the company has proven this concentration to be a sound capital allocation decision, generating millions in net income every year since 2017 thanks to Beach Energy and Santos’ tier-1 operations, oil’s continued strength following high global inflation occasioned by the COVID-19 pandemic, and management’s extensive natural resource experience at major and junior companies across the economic cycle.
In exchange for this stellar stretch of income statements, Newport stock has given back over 60 per cent of its value, demonstrating why it’s the privilege of micro-cap investors to allocate into stocks outside of mainstream scrutiny whose high-conviction value has yet to be acknowledged.
With about AUD$2.4 million in its treasury and no debt as of its Q2 fiscal 2025 update, Newport is in a position to benefit as management hunts for undervalued assets and attracts interest in Chu Chua’s development and Beach Energy pursues expanded production, adding heft to the case for a share price re-rating.
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(Top image, generated by AI: Adobe Stock)
