Barry FitzGerald: This 2c lithium stock can scale up at speed – with some gold on the side
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Lithium explorers are back in favour big-time now that prices for the key battery material are back on the boil.
It means that share price gains in response to decent exploration results are amping up again, in some cases spectacularly.
When lithium explorers run, they tend to run hard. There are already lots of 10 and twenty 20-bagger stock performers out there. And there will be more.
That’s because it doesn’t take much in terms of the tonnage potential of a prospect to get the value creation wheel turning.
Analysts at Euroz Hartleys recently captured that in their guide to the market’s current rule-of-thumb in arriving at company valuations for early stage discoveries and beyond.
It went like this:
Every 10 million tonnes of potential spodumene resource creates $80-$100 million of exploration value.
Every 10Mt of resource that has a clear pathway to production creates $150-$300m of speculative development value.
And finally, when in production, every 10Mt of mining inventory is valued at about $1.2 billion (at spot prices).
So in essence, even a “small’’ discovery of a 10Mt resource (our big lithium deposits are 150Mt or more) is a serious value creating event.
The lightning speed with which a 10Mt resource can be defined with the drill bit compared with a value equivalent in gold or base metals is one of the main attractions of the lithium hunt.
Given all that, the challenge for investors is to find the next junior which could go for a run on the back of decent exploration results.
Garimpeiro has had a look around, seeking out a lightly capitalised junior with cash in the till, a drilling program just around the corner, and a prospect with the right sort of credentials.
Kairos Minerals (ASX:KAI) was one to fit the requirements. It has been followed by Garimpeiro for years on the strength of its Mt York gold project in the Pilbara which has a resource of 1.6 million ounces.
The lithium potential of its Mt York ground – it is adjacent to Pilbara Mining’s (ASX:PLS) giant Pilgangoora deposit – is set to be checked out first with an innovative 2D seismic survey to firm up drill targets.
Growing the Mt York gold deposit to something north of 2 million ounces is also part of the plan.
It could be argued then that the Mt York’s gold resource and the early stage lithium potential there alone justifies Kairos’ current market cap of $44m at 1.7c share.
But Kairos is actually a three knives job for the price of one – Mt York gold, Mt York lithium and a third project of current hot interest, its Roe Hills lithium project, 100km east of Kalgoorlie and adjacent to Global Lithium’s (ASX:GL1) Manna lithium project.
Global itself became a multi-bagger lithium stock after picking up an 80% interest in the Manna lithium-tantalum discovery back in December 2021 from Breaker Resources which decided to focus on its Bombora gold project on the tenements.
Global followed up by moving to 100% of Manna in a $60m deal in October last year, with Breaker recently disappearing from the ASX after being acquired for its gold project by the trucking king of the WA gold industry Ramelius (ASX:RMS).
Global has grown the Manna lithium deposit to 32.7Mt at 1% lithium in quick fashion, and its market cap has swollen to $388m as a result.
It has also just taken a shine to Kairos’ adjacent Roe Hills project and the coming exploration program there by securing a 10% foothold in Kairos through a placement of shares at 1.7c, with Kairos also raising funds from an entitlement issue to shareholders at a lesser 1.5c each to mitigate their dilution.
So all up Kairos is pulling in some $10.5m to get cracking at Roe Hills, as well as move things along on the gold and lithium hunt at Mt York.
Work by Kairos at Roe Hills has defined lithium soil anomalies with all of the right coincident elements which point to the potential for spodumene-hosting pegmatites of scale below cover.
The biggest outlined to date – Black Cat and Crystal Palace – will be the first to be drilled in the coming exploration program.
The potential high impact program – and that is all it is at this stage – is due to kick off in late July, subject to heritage clearance.
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