AZS Lithium DD / Summary

Current Market Cap ~$100M

Current Share Price ~30c

Azure Minerals.

This was/still is a Nickel explorer, however, they recently stumbled upon outcropping spodumene bearing pegmatites (lithium) on their Andover tenement (60% AZURE / 40% CREASY GROUP) while exploring for nickel (reminds me of how BRB found lithium while exploring for gold - now known as the "Manna" deposit owned by GL1)

Here are the links to the previous lithium announcements:

1. https://hotcopper.com.au/threads/ann-sqm-to-invest-a-20-million-for-19-99-of-azure.7175095/
2. https://hotcopper.com.au/threads/ann-lithium-exploration-accelerates-at-andover.7084102/
3. https://hotcopper.com.au/threads/ann-high-grade-lithium-at-andover.7028089/
4. https://hotcopper.com.au/threads/ann-lithium-bearing-pegmatites-identified-at-andover.7014181/

The standout is that SQM (one of the largest lithium producers) has announced a cornerstone investment of A$20 million to acquire a 19.99% interest in AZS through a two-stage Transaction (will be explained below). They are paying $0.2564 per share

Below im going to share some images from their recent quarterly which has important info and forms the majority of the DD (a bit lazy i know):

Pros / Catalysts:

1. SQM announces due dilligence complete and they go ahead with the $20M investment into AZS as a "cornerstone investor" (i believe there's approx 1 month left for the deadline for this to happen)
2. SQM announces offtake with AZS as per agreement (i believe there's approx 1 month left for the deadline for this to happen)
3. Further rock chip assays pending (previous results were taken well by the market and v high grade)
4. Announcement of 40,000m drilling to begin (30,000RC + 10,000DD). Quarterly states this will begin by end of Febuary (3 weeks to go?)
5. More targets to be identified from ongoing field sampling
6. Genuine potential for a lithium discovery here, and this is the reason SQM have invested $20M at this very early stage to fast track exploration

Negatives:

1. The risk of SQM backing out of the investment after completing their due dilligence would be a disaster for the share price. However, the possibility of this happening is extremely low
2. It has been made clear from HC baggies that this is a lifestyle company (but i'll explain why i think this is irrelevant below)
3. They should have drilled out the lithium first before making this deal with SQM. If they had done that successfully, they would have sold them the stake for much more
4. There is a huge amount of bagholders in this company. Even a German insto who appears to have participated in a CR years ago. They still hold over 40M shares and they appear to sell into any decent run up above 30c. But im thinking that some good lithium results announced to market should make enough volume to flush them out.

Regarding negative (2): i think its irrelevant because SQM can sort out any issues and lead the way for the lithium project moving forward. See this under the agreement:

Under the terms of the Subscription Agreement, on and from completion of the second tranche and until such time as SQM no longer holds a voting power of 10% in the issued capital of Azure for three consecutive months, SQM will have: • the right to appoint a Director to the Board of Azure; • the right to form, with Azure, a Technical Committee to assist and advise in the exploration and development of Azure’s lithium projects;

Other related info:

I found out that SQM had previously made deals with 2 other spec explorers (that appear to be in bad locations with bad geology) and really havent progressed into anything at all (KZR + DTM). This made AZS look a lot less exciting to me. However, after digging deeper, those deals were totally different to this one.
-

Those other 2 deals were both earn-in deals for petty amounts of cash. See example below:

"During the first earn-in period, SQM may earn an initial 30 per cent interest in Dorchap by spending $3 million over the next three years."

This is a totally different deal with AZS.

Firstly (the way i've understood it, is) they are not earning any interest in AZS or the lithium project. They are coming onboard as a cornerstone investor via a CR (the same way MIN came onboard GL1 via a CR as a cornerstone). MIN did not earn any interest in GL1. This is different because if they want to maintain their position they will need to participate in future CR's etc.
-

Secondly the amount invested in AZS is much larger ($20M) and is to be given now and used now to fast-track exploration under their leadership - this signals confidence. In addition to that, part of the deal is that AZS must sign an offtake deal with SQM. This also signals confidence in the fact they think there is a high chance there will be a discovery made here.
-

Finally the 40,000m drilling campaign (30,000M RC + 10,000M DD) is quite large for an initial drill. Usually i see companies start off with under 4000m or even much less than that just to see what they find at surface. These guys are going to go in hard (i believe this is with the request of SQM which is a positive). This is also why i think it doesn't matter if the company was a lifestyle company. SQM are leading this campaign with their own $$$

--------------------------------

Very interesting interview with the MD released yesterday (watch from 2:06 - this is when they talk about the lithium side). Talks about going straight into diamond drilling and the fact they have now identified over 600 outcropping pegmatites at surface with grades up to approx 5% lithium in some samples. The tone and the words he is using (plus the actual surface sampling to date) indicate the strong potential of making a genuine discovery here. Its a shame they will be selling ~20% at these levels prior to any drilling taking place. But atleast SQM can lead this company in the right direction under their leadership