Resources Top 5: Danakali may have just sold 50% of one project for more than twice the company is worth

Widgie Nickel picks up high grade lithium in rock chips at 170,000t Mt Edwards nickel project
Danakali will sell its 50% interest in the Colluli potash project for $US166m
Cavalier returns numerous thick, shallow, high grade gold from drilling at 101,000oz Crawford project

Here are the biggest small cap resources winners in early trade, Monday October 3.

WIDGIE NICKEL (ASX:WIN)

Explorer WIN has picked up high grade lithium in rock chip sampling at the Faraday prospect, part of the 170,000t Mt Edwards nickel project in WA.

On their own rocks chips don’t mean much, but WIN is getting them from up to 25m wide pegmatites (rock that could contain lithium) outcropping over a 600m length.

These peggies could keep going under cover, the company says.

Despite being in a lithium-rich region – which includes major resources at Essential Metals’ (ASX: ESS) Dome North, LithCo’s Bald Hill and Mineral Resources’ (ASX: MIN) Mt Marion – there has been very little lithium exploration at Mt Edwards to date, WIN says.

The company will now drill Faraday with RC drilling “to provide an initial indication of pegmatite geometry (i.e. dip and true width) and lithium endowment within the rock unit”.

“This initial reconnaissance work identifying high grade spodumene over a significant strike length couldn’t be a better outcome for Widgie,” managing director Steve Norregaard says.

“To think we have 170,000t of contained nickel and we now can lay claim to hosting complementary and widespread lithium pegmatites in this world class lithium corridor.

“Widgie looks forward with great anticipation to getting a drill rig on this highly prospective target which will only complement the existing drilling effort on our nickel resources.”

The recently listed Neometals (ASX:NMT) spin-off wants to be a ‘production ready’ nickel stock by end of 2023.

WIN – which raised $24m when it listed on the ASX last year — is +18% year to date and 50% on its IPO price of 20c per share.

DANAKALI (ASX:DNK)

Fertiliser explorer DNK will sell its 50% interest in the flagship Colluli potash project in Eritrea for $US166m ($258m) pre-tax.

The company expects to rake in ~$US121m ($188.5m) net, of which 90% will be distributed back to shareholders.

Subject to a bunch of conditions, the deal with Chinese co Sichuan Road and Bridge Group is expected to be finalised between March and May next year.

DNK says it will use the remaining cash — ~$US12m — “to identify new projects and potential new alternative growth opportunities”.

DNK’s ‘Colluli’ potash project has the world’s largest JORC compliant reserve at 1.1Bt.

The downside is the location — Eritrea in Africa — which is governed by one of the most oppressive regimes in the world. Eritrea’s military is also one of the largest in Africa.

Until now, the $112m market cap stock had been quiet in 2022, losing 22.5% of its value year-to-date.

It had ~$17.9m in the bank at the end of March.

CAVALIER RESOURCES (ASX:CVR)

This recently listed WA gold explorer has returned numerous thick, shallow, and reasonably high grades from drilling at its 101,000oz Crawford project.

Highlights included 9m at 3.84g/t from 7m, and 3m at 12.52g/t from 67m.

Many of the holes ended in mineralisation, CVR says.

“This first round of drilling at Crawford was designed to provide further confidence in the current 101,000 oz gold resource, test the potential for extension of the resource along strike and depth, and carry out exploration on potential new targets on the northern part of the lease,” exec technical director Dan Tuffin says.

“The results are extremely encouraging, particularly regarding drilling around, and extensions to, the existing resource area.”

The Crawford resource had previously been extensively drilled, but this historic drilling was only carried out to shallow depths, Tuffin says.

“These results confirm that there is further potential scope for increasing the current Crawford resource along strike, but more importantly at depth below the current resource boundary,” he says.

“The Company will now review these results for follow up drilling and begin work on reviewing its impact on the existing Crawford resource.”

The $5m market cap minnow is down 17.5% on its June listing price of 20c per share.

CARAVEL MINERALS (ASX:CVV)

(Up on no news)

Caravel’s namesake 1.42Mt copper project in WA’s Wheatbelt region is at the pointy end of the development cycle.

A recent pre-feasibility study defined a project capable of producing 62,000 tonnes of copper annually for an initial mine life of 28 years at a cash cost of $US1.72/lb.

Recent drilling has demonstrated that Caravel has plenty of room for growth, which is timely given that the forecast supply gap could hit up to 10Mt by the 2030s as copper demand increases from ~25Mt to more than 30Mt annually by the end of the decade.

“Its long-life and tier 1 location are big ticks in a world increasingly worried about just where future supplies of copper are going to come from,” says columnist Barry FitzGerald.

But this is an expensive project, with the company expecting a capex cost of $1.2bn. A tweaked option announced last month would reduce costs by about $100m.

The $101m market cap stock is down 30% year-to-date. It had ~$5.4m in the bank at the start of July.

MC MINING (ASX:MCM)

(Up on no news)

Despite sky high coal prices this small South African producer had a rough FY22, posting a $20.8m loss after tax thanks to civil unrest, lower production, and increased input costs.

“The 2022 financial year was challenging for our Uitkomst Colliery which was affected by the civil unrest in KwaZulu-Natal during July 2021,” MCM boss Godfrey Gomwe said last week.

“Furthermore, the colliery’s largest customer commenced with major maintenance and did not order any stock from March 2022.”

But MCM’s main game in the long term is the 296Mt ‘Makhado’ hard coking coal project (68% interest), also in South Africa.

A recently completed BFS envisages a production of 13.7Mt (coking) and 11.9Mt (thermal) over a 22-year mine life. Post-tax IIR and NPV were estimated at 38.2% and $268m, respectively.

The project would use existing infrastructure to minimise upfront costs, which have been estimated at $41m.

“The Makhado Project is shovel ready and the Company made significant progress to secure the cornerstone funding for the project during FY2022,” Gomwe says.

“This resulted in the launch of the fully underwritten Rights Issue in September 2022 and the MC Mining aims to conclude arrangements for the balance of the funding in Q4 Y2022, allowing the construction of the Makhado Project to commence in early CY2023.”

The $91m market cap stock is up 411% year-to-date.