The focus of the ASX lithium sector switches in a big way in coming days to Quebec’s James Bay region.
The region is still dealing with wildfires in its western reaches but that is not going to stop the dual-listed Patriot (ASX:PMT) from releasing its maiden resource estimate for its high-grade Corvette discovery.
It is the one that was the subject of an attack from the activist short-seller mob Night Market Research earlier in the month when Patriot shares cracked $2 a share, pressuring the shorts in the stock.
Among other things, the Night Market report said the maiden resource estimate would only be 60Mt. Nothing wrong with that actually as a start as it would be twice the maiden resource estimate for the Pilgangoora deposit which has grown and grown to underpin the $15 billion Pilbara Minerals (ASX:PLS).
Having said that, those not short in the stock reckon the maiden resource estimate is going to be something much, much bigger than 60Mt. Not many sleeps now to we all find out, with Patriot confirming on Thursday that the maiden resource estimate was scheduled for release in late July.
And here we are in late July. Patriot shares have traded down to $1.55 (the Canadian stock is $C13.74) since the Night Market attack notwithstanding calming words from Patriot, which has the guy who built Pilbara into the company it is today, Ken Brinsden, as its chairman.
Brinsden has described the Night Market report as outrageous, and inconsistent with the facts. “It is really a significant discover,” he said.
The company itself said the maiden resource estimate was expected to be large-scale and high-grade when benchmarked against other hard rock lithium projects globally. That would put it in the 100Mt to 150Mt category.
If that is the case come no later than Monday (July 31), watch the shorts in the stock burn. Care factor for them? Zero.
It was the world-class potential of Corvette and the James Bay region that prompted Brinsden to cancel an extended break form the corporate world after he passed on the leadership baton at Pilbara last year.
The same can be said for David Southam after he passed on the baton last year at nickel producer Mincor after taking it from a $60m company to $1.1 billion ahead of its more recent takeover by Andrew Forrest’s Wyloo Metals for $760m.
Leaving his need to work on improving his golf handicap for another time, Southam took up the managing director role at Cygnus (ASX-CY5) which about 12 months began accumulating what has become one of the biggest land positions of any ASX company in the James Bay region.
Southam has been in the Eastern states this week on the Resources Rising Stars “Twilight Series” investor roadshow. His upbeat presentations in Brisbane, Sydney and Melbourne worked a treat as Cygnus put on 14% to 31.5c for a market cap of $72m.
Southam confirmed that a maiden resource estimate for the company’s Pontax project was due within weeks. Analysts following the stock reckon the initial estimate will come in at about 10Mt grading 1.2% lithium.
It will be a good start and can be expected to trigger a re-rate of the company. Last month Euroz Hartleys came up with a guide to the market’s rule-of-thumb in arriving at company valuations for early stage discoveries and beyond.
The guide was that every 10 million tonnes of potential spodumene resource creates $80-$100 million of exploration value. Further to that, every 10Mt of resource that has a clear pathway to production creates $150-$300m of speculative development value, and every 10Mt of mining inventory is valued at about $1.2 billion (at the then spot prices).
A real world guide to what a circa 10Mt resource can be valued at by the market comes from Bill Beament’s Develop (ASX:DVP) which is acquiring Essential Metals (ASX:ESS) in a friendly $152 million scrip deal. Essential’s Pioneer Dome project in WA’s south Yilgarn stands at 11.2Mt grading 1.16% lithium.
For Cygnus, the Pontax maiden resource estimate will be the start of the story as it based on a small section of the prospective ground.
And as exciting as it is for a company to be announcing a meaningful resource estimate within 12 months of being on the ground, Southam gave the distinct impression that he is more excited about the potential of the company’s other less advanced James Bay projects – Auclair and Sakami.
Southam said that Auclair was “really exciting”.
“There is no question that there is lithium there as we found it in drill core that was accidentally intersected by a gold explorer 20 years ago,:” he said.
“And we recently walked on the tracks there and stumbled across spodumene boulders.”
In response to the early encouragement, the initial 25sq km ground position has been expanded to 400sq km.
Aerial photography has identified 67 outcropping pegmatites (which may or may not be lithium-bearing) and Cygnus is now just waiting for a return of a helicopter from the region’s firefighting effort so it can land a field crew to begin sampling work.
“I like our chances of finding some significant lithium in this space,” Southam said.
The Sakami prospect is on the same greenstone belt as Corvette, which is about 40km distant. It has never been explored for lithium previously. Aerial photography has identified about 55 outcrops.
“We are going to land a helicopter on those and start sampling those very shortly,” Southam said.
Southam couldn’t leave the stage without offering up another steak knife, the Bencubbin clay rare earths discovery near Southern Cross in WA. It is where Rio Tinto and IGO are said to be on the clay rare earth chase as well.
Hits such as of 23m from 12m grading 1,862ppm TREO are certainly worth following up. Cygnus will be doing just that. ”At some stage we will have to decide what to do with the assets as the focus is still very much James Bay,” Southam said.
Southam was preceded on the stage at the Melbourne leg of the “Twilight Series” by Gascoyne (ASX:GCY) boss Simon Lawson.
That was kind of neat because Lawson finished his presentation with the observation that the company must now be on the radar of its neighbours in the Murchison region of WA, Ramelius (ASX:RMS) and Westgold (ASX;WGX).
The best full disclosure practice for Southam in his following address was to say he was a non-executive director of Ramelius. “Clearly there is a bit of a message in there,” Southam said of Lawson’s reference to his neighbours.
The two neighbours recently had a shootout over Musgrave Minerals (ASX:MGV), with Ramelius winning the day with a $201m scrip and cash offer.
Musgrave comes with a 927,000 resource grading 2.3g/t at its Cue project which it had planned to develop as a standalone project at a cost of about $120m. Now it gets wrapped into Ramelius’ Mt Magnet operation some 35km to the south.
Lawson was talking after Monday’s release of a game-changing increase in the resource estimate for the Never Never lode in the shadows of Gascoyne’s mothballed 2.5mtpa Dalgaranga mill to 721,200oz at a hefty 5.85g/t.
As mentioned here previously, Dalgaranga was parked up last year when its less than 1g/t feed from the Gilbeys open cut became uneconomic.
It was sensible move and was followed up by a recapitalisation of the company in April at 10c a share as part of Lawson’s strategy for Dalgaranga to return as a high-grade gold producer with at least a 5-year mine plan.
The growth in the Never Never discovery – and exploration upside there, and at the adjacent Ink lode and in-pit higher grade zones previously overlooked - means Lawson is well on his way to turning Dalgaranga back on.
That has been reflected in the stock trading up from the 10c a share pricing in the April recapitalisation to 25.5c this week for a market cap of about $224m. Like all good mining execs, Lawson reckons that even at its higher levels, the company is undervalued.
He has a point. The replacement cost of the Dalgaranga mill is probably north of $200m, and the M & A action elsewhere in the Murchison is pricing gold resources at about $200/oz, suggesting a $145m in value for Never Never alone., if not more because its high-grade.
“I haven’t talked about it before but I have to be realistic . . we have derisked the project, we’ve found high grade ounces, and I am 50km from my nearest competitor Ramelius which has shown an interest in M & A recently,” Lawson said.
“And we’ve got Westgold just to the north. Those guys would love to have those high grade ounces.”
Bridge Street Capital’s Chris Baker reckons Gascoyne has a potential M & A target price of 65-70c. He noted that Westgold had bid for the company in the past and that was before the game-changing Never Never discovery, and missing out on Musgrave of course.