This is why (aside from the wise Danielle's words) the stock crapped its pants:
#1 - the company quotes a resource above a 0% Li cut-off. this is shysterlike because, and bear with, lets take a BIF which GXY finds in Shoemaker. It is 100m thick, 10,000m long, and 100m deep and has an SG of 3.5 - 350M tonnes of material. 50% of this 350Mt goes 50%Fe and 50% of the BIF goes 10% Fe.
Now, if you are still with me. To quote a resource for this BIF at a 0% cut-off for Fe, would give a resource of 350Mt @ 30% Fe. Big tonnage, totally uneconomic. Within this big tonnage volume of BIF you only have 50% which is even approaching economic grades.
So - it's bad news to see someone quoting resources of any kind with a 0% lower cut! It basically tells you how much pegmatite you have, not whether you'll mine it - ever.
The real resource statement is the 12Mt one, at the 1% Li lower cut. This implies that there's some indication of a minimum cut-off grade which they need.
Second reason it got sold down (aside from buy on rumour, sell on fact) is that 40% of this 12Mt is in Inferred. It won't transfer over to a Reserve without more work. So, your mining reserve is going to be 6Mt as a rule of thumb, which means they mine at 0.5Mt if the mine life is 12 years. Or 1Mtpa if they spend more money (which they don't have yet) drilling this into Indicated and Measured.
so, getting back to the StateOne research report, go check the figures to see if their assumptions are based on 1Mtpa or 0.5Mtpa. I think the analysis was on 1Mtpa, so don't get carried away on assumptions based on certain facts which may not hold true.
And in the end, a $1.50 12 month target is based on as much market perception as eventual NPV from production. don't forget that production is years off yet!
GXY Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
