Resources Top 5: Is this $70m capped rare earths explorer sitting on a ‘world class’ Caldeira lookalike?

VMM, one of 2023’s best performing stocks, announces “breakthrough discovery” at Colossus ionic clay rare earths project
PAM now up 66% after inking binding agreements to buy one of the largest lithium brine projects in South America
WA1 neighbours ENR, CUF up on no news

Here are the biggest resources winners by percentage in morning trade, Wednesday January 3.

VIRIDIS MINING AND METALS (ASX:VMM)

One of 2023’s best performing stocks has started the new year at pace, announcing a “breakthrough discovery” at its Colossus ionic clay rare earths project in Brazil.

First drill results from Capão da Onça are the highest grades reported at Colossus to date, and include 7m @ 8,277ppm, ending in mineralisation, from 1m depth.

All up, this batch of results “re-affirms that Colossus is a world-class project”, chair Agha Shahzad Pervez says.

“… results continue to illustrate the sheer scale and quality of Colossus, which lays the foundation for the project to potentially rank amongst the highest grade and largest REE Ionic Adsorption Clay (IAC) projects globally.”

Acquired in August last year, Colossus directly adjoins Meteoric Resources’ (ASX:MEI) world-class Caldeira ionic adsorption clay project (409Mt @2,626ppm TREO), a favourite with analysts and punters alike.

A good chunk of the mineralisation at Caldeira is truly ionic, meaning REEs can be recovered easily (and hopefully cheaply) via single step leaching at room temperatures.

Not all clay rare earths projects can say the same.

VMM says it shares the same dirt with MEI. Drill continues, while all-important metallurgical sampling has also commenced.

PAN ASIA METALS (ASX:PAM)

(Up on no news)

PAM is now up 66% this week after inking binding agreements to buy one of the largest lithium brine projects in South America.

The 1200sqkm Tama Atacama project in Chile comes with “extensive” lithium surface anomalies with elevated lithium results up to 2,200ppm lithium and averaging 700ppm Li extending over 160km north to south. That’s high grade.

PAM calls it a “tier 1 asset in a tier 1 jurisdiction”, but the company won’t know that for sure until geophysics and drilling kick off in early 2024.

Chile alarmed investors in 2023 when it moved to take greater control over its lithium sector, the second biggest globally.

SQM and Codelco have entered into a memorandum of understanding for a joint venture in lithium exploration. This agreement extends SQM’s lease operations and increases its production quota, which is a credit positive.

Read more: https://t.co/U4GPswWgXz pic.twitter.com/T59hPlmgt7

— Moody’s Investors Service (@MoodysInvSvc) January 2, 2024

However, PAM boss and major shareholder (~26%) Paul Lock maintains it’s not as bad as it looks for overseas explorers.

“The recent MOU between SQM and Codelco quells speculation around nationalisation, which follows several strategic moves in Chilean lithium by multinational mining and chemical companies, including French based Eramet SA’s recent purchase of early stage Li brine assets for ~A$150m, Codelco’s acquisition of Lithium Power and its Maricunga Li brine assets for A$385m, and recent indications from BASF, BYD and Tsingshan that they plan to build lithium conversion plants in Chile,” he says.

PAM says preliminary discussions with potential strategic partners are underway and PAM expects to have initial discussions with key Chilean government organisations in early 2024.

5E ADVANCED MATERIALS (ASX:5EA)

A slice of good news for the battered boron-lithium stock, which has started pilot mining at its 370Mt at 8.22% boric acid and 0.17% LCE Americas Complex.

Boron is an essential element for plant growth, but its use in heat resistant fibreglass and unique properties also make it a future facing commodity for the renewable revolution, with growing use as an anti-reflective material in solar panels.

5E expects to begin lab production “in the short term” and production of boric acid and lithium carbonate from the small-scale facility by the end of the first calendar quarter of 2024.

This initial production will be used for customer qualification as the company seeks to obtain bankable offtake agreements and future sales.

“The 5E team has been resilient through the construction process, navigating several challenges and ultimately bringing our facility on-line,” CEO Susan Brennan says.

“We look forward to 2024 as we continue advancing our vision as we now become the newest domestic producer of boric acid and lithium carbonate.”

5EA – formerly American Pacific Borates — is a baggie’s worst nightmare, down +93% from its May 2022 peak of $3.73/sh.

First production from the pilot facility was originally pencilled in for early 2023, with a 250,000tpa large scale operation to be up and running in 2025.

In 2022 and 2023 a handful of board members resigned amid cost overruns and schedule misses, which 5AE blamed on its contractor.

A shareholder vote on a painful recapitalisation and restructuring deal (done at a 50% discount, ouch) will be held January 12.

If it is voted down, the company will implement the restructuring through bankruptcy, which would extinguish the equity interests “of stockholders in their entirety”.

CUFE (ASX:CUF) & ENCOUNTER RESOURCES (ASX:ENR)

(Up on no news)

We are going to hazard a guess here to say these two explorers are benefitting from WA1 Resources (ASX:WA1) nearology.

WA1 shot through the roof in the final month of 2023 on a major upgrade from Canaccord Genuity, which lifted its price target on the niobium hopeful from $11.50 to $17.50.

All eyes are on the maiden resource for its Luni discovery, which is due around the second quarter of 2024.

WA1’s emergence as one of the ASX’s hottest exploration stocks has also sparked a renewed focus on the wider West Arunta region.

Neighbour ENR is also up almost 100% over the past 12 months, while CGN Resources (ASX:CGR) was one of the few resources IPOs to get away in 2023.

Meanwhile CUF is in the process of increasing its landholding in the region, immediately adjacent to Lycaon Resources’ (ASX:LYN) Stansmore project.

This unexplored area has similarities to the WA1 and ENR projects and discoveries ~70km to the south, it says.

The tiny Pilbara iron ore producer is also benefitting from boomtime prices, which have climbed to multi-month highs on upbeat Chinese data.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) hit US$140.58/t yesterday, the highest since August 2021.

The SGX 62% fe fines benchmark is also at 18-month highs above US$142/t.

In the September quarter last year, CUF made revenues of A$159/t from its high grade JWD iron ore mine, a 3% increase on the prior quarter.

Cash costs of ~A$140/t, if maintained, give the company a nice profit margin at current prices above A$200/t.

Any upside is kneecapped by a weighty hedge book, however.

A total of 195,000t of hedges with an average strike price of US$110/t were in place covering the period October 2023 to March 2024, which represents ~50% of anticipated sales volume for that period.