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ASX:MAN
Mandrake Resources Ltd$0.027
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Commodities Energy Transition Materials Exploration US-Based CommoditiesInvestment Memo:
Mandrake Resources Ltd (ASX:MAN) - LIVE
Opened: 24-Feb-2023
Shares Held at Open: 3,150,000
What does MAN do?
Mandrake Resources (ASX: MAN) is a junior exploration company aiming to make a lithium discovery in North America.
MAN’s lithium brine project is located in the Paradox Basin, Utah USA. This is the same region as $224M capped developer Anson Resources.
What is the macro theme?
Lithium is a critical raw material used in the manufacturing of Electric Vehicles (EV) and grid storage batteries.
The US recently signed into law policies aimed at re-shoring critical minerals supply chains - the USA considers lithium a critical mineral.
The US$400BN Inflation Reduction Act (IRA) mandates that by the year 2027, 80% of the critical minerals in US-made EV batteries must come from US-based mines or from countries with a free trade agreement with the US.
ASX listed Ioneer Limited recently secured US$700M (AU$1BN) from the US government for its lithium-boron project in Nevada, Piedmont Lithium also secured US$141.7M for its lithium plant in Tennessee.
We think that US-based lithium projects will benefit the most from the wave of capital the US government is committing to domestic supply chains.
Our Big Bet for MAN
MAN returns 1,000%+ by making a lithium discovery significant enough to move into development studies, or attract a takeover offer.
Why did we invest in MAN?
Critical minerals (lithium) project inside the USA
The US has signed into law billions of dollars of spending over the next 10 years on building out domestic critical minerals supply chains. Lithium is listed as a critical mineral in the US critical minerals strategy.
Partnership with Galan Lithium ($344M current market cap)
Galan Lithium is currently developing its lithium brine project in Argentina. Galan has agreed to invest $1.5M for a ~5% shareholding in MAN and has a right to bring on a strategic advisor for a further $700k at the same price. Galan has also agreed to provide technical support to MAN as it explores its projects. We think Galan’s direct investment validates the potential of MAN’s project.
$360M Galan Lithium buying MAN shares on market [02-Mar-2023]
Updated investor presentation [08-Mar-2023]
Larger capped neighbour in the same region
MAN’s project sits in the same region as $224M Anson Resources which is developing its lithium project in Utah, USA.
Strong cash position, small enterprise value, leveraged to a discovery
After Galan’s investment, MAN will have ~$19M in cash in the bank. Given no capital raise is anticipated in the short to medium term, investors seeking exposure to the project will likely only be able to buy on market. MAN is currently trading with an enterprise value of ~$14M. This means we think the company is leveraged to a re-rate on material news.
The project was generated organically
MAN has put together the project internally meaning the company doesn't need to make any expensive vendor payments or cause additional shareholder dilution. MAN’s balance sheet can instead be used to develop its project.
Lithium brine potential confirmed inside MAN’s project
It’s early days, however historic well data inside of MAN’s ground has confirmed lithium brine potential. Data shows concentrations of up to 75 mg/L of lithium (inside MAN’s ground). For some context, ~US$1BN lithium brine developer Standard Lithium’s resource is based on concentrations averaging 168 mg/L lithium, nearby Anson Resources' average grade is ~124 mg/l.
What do we expect MAN to deliver?
Objective #1: Increase landholding (project size)
MAN has just recently started staking its ground. We want to see MAN increase its total landholding and in turn the size of its project.
MAN's US based lithium project area is now 50% bigger [12-Apr-2023]
Milestones
Stake more ground to increase overall project size.
MAN’s US based lithium project just got bigger [20-Mar-2023]
MAN gearing up for sampling programs at its US lithium project [01-May-2023]
MAN increase size and scale of its US lithium project [08-Aug-2023]
MAN permitting another well at US Lithium Project [18-Oct-2023]
Objective #2: Maiden exploration target
We want to see MAN first publish a JORC-compliant exploration target and then convert it into a maiden JORC resource estimate.
Milestones Maiden JORC exploration target.
Objective #3: Re-sampling of existing wells and drilling of a new well
As part of its exploration program, we want to see MAN re-sample existing oil and gas wells in and around its acreage with lithium focused testing methods. We also want to see the company drill at least one NEW well.
Milestones
Sampling of existing wells in and around MAN’s project.
MAN identifies cost effective wells for lithium exploration [15-May-2023]
MAN selects two wells to re-enter and sample for lithium in USA [05-Jul-2023]
Drilling of at least 1 NEW well.
Objective #4: Maiden JORC resource estimate
We want to see MAN first publish a JORC compliant exploration target (Objective #2) and then convert it into a maiden JORC resource estimate.
We also want to see the company evaluate suitable Direct Lithium Extraction (DLE) processing technologies as this will determine how much of a resource can be converted into a maiden JORC resource.
Lithium turnaround opportunity? MAN close to cash backing - JORC resource due in coming weeks [01-Aug-2024]
MAN gets US$1M Department Of Energy grant [05-Aug-2024]
Mandrake inks supply agreement, gets free pilot plant [21-Aug-2024]
Milestones
Progress on Direct Lithium Extraction technologies.
Maiden JORC resource estimate.
What could go wrong?
Exploration risk
MAN’s lithium project is still relatively early stage considering the company just recently got a hold of its leases. There is always a risk that the company’s exploration programs yield no notable drill results and there is no economically viable lithium resource over its ground.
Lithium turnaround opportunity? MAN close to cash backing - JORC resource due in coming weeks [01-Aug-2024]
Processing risk
MAN’s lithium project is hosted in brines. This means that for the project to be processed economically the company needs to find a suitable processing technology for its type of material. Typically this is a type of Direct Lithium Extraction (DLE) technology.
Lithium turnaround opportunity? MAN close to cash backing - JORC resource due in coming weeks [01-Aug-2024]
Technology risk
Direct Lithium Extraction (DLE) is yet to be fully commercialised. There is always a risk that no technological advancements are made with the processing tech and so brine projects like MAN’s are considered stranded until suitable processing tech advancements.
MAN signs DLE partnership with Bill Gates backed Electroflow [22-Dec-2023]
Commodity pricing
The lithium price is currently trading near all-time highs. Any negative change in the lithium price may impact demand for new discoveries. This would hurt the share price of a junior explorer like MAN.
Market risk
In the event of a market-wide sell off, we would expect higher risk early stage exploration companies like MAN to sell off even more. This typically happens because during market downturns, investors look to pull capital out of their highest risk investments.
What is our investment plan?
We will look to hold the majority of our position in MAN up until the key catalyst, which we think will be a maiden JORC resource.
If the company achieves key milestones on the way to this catalyst and the share price substantially re-rates on the back of the project de-risking, we will look to sell a further 35% of our Total Holdings in MAN.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,150,000 MAN shares and the Company’s staff own 35,714 MAN shares at the time of publishing this memo. The Company has been engaged by MAN to share our commentary on the progress of our Investment in MAN over time.
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The information in this website is general information only. Any advice is general advice only. Any advice contained on this Website does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877).
