Biggest in USA? But worst quality on ASX?, page-7

Here's a recent article on JRL and also looks big resource upgrade from 1.6 LCE to 10.1 LCE (6.3 times)?

So if JRL was worth $1.60/80M MC (30/03/21 close) before both news this week, then after both upgrade news it should be $10/500MC?

https://www.jindalee.net/media-reports


https://www.livewiremarkets.com/wires/owning-tomorrow-s-production-assets-as-a-new-resources-boom-unfolds

Some commentators suggest the world is on the cusp of another resources super-cycle, given the endless billions being thrown at decarbonisation efforts in the West and China on top of general economic recovery policies. These stimulus measures, in addition to continued supply disruption risks from COVID-19, have seen the bull cycle continue into 2021.

I’m not game enough to call this new cycle “super”, yet.

Although, I do believe there is a high probability the world will experience a period of 'higher-for-longer' commodity prices further into this decade, as heightened demand looks set to outpace a tight production base. My favoured commodities are those exposed to the EV thematic as well as those used in broad economic recovery demand such as nickel, copper, lithium and as readers may note, last year I was bullish on iron ore and the investment potential from high cost leveraged assets.

However, as commodity prices have risen, so too have the share prices and valuations of those most leveraged to immediately higher prices, which are the established producers. Going forward, I believe better value and risk/reward potential from a higher for longer commodity price environment will come from those developing tomorrow’s production assets. This may come from companies progressing new recent discoveries or those that dust off older projects which were too late to participate in the prior resources super cycle and have been forgotten by investors.

I believe I have found one of each such opportunity, with Jindalee Resources (JRL) delineating a new lithium clay project whilst Carvel Minerals (CVV) is “dusting off” an existing copper project that was too late for the last cycle.

Jindalee Resources (JRL)

*N.B. JRL is in a trading halt for a resource upgrade at the time of publishing.

JRL is a project generator style company that has been listed since 2002. Amongst the company’s suite of projects, the current focus is on the development of their McDermitt Lithium Project, which is located on the Oregon (USA) side of the McDermitt Caldera. This is the same caldera which hosts Lithium America’s (LAC) Thacker Pass project.

The company has a long history as a project generator, building up and flipping projects with a few small-cap raises in their history. The share base is small and tightly held with Lindsay Dudfield, Executive Director, holding 26.8%. Given the current dynamics in the lithium market, JRL has committed to progressing the McDermitt project to maximise value for investors. This has seen further drilling to expand the resource, met testing, lease acquisitions and progression of feasibility work, which is all supported by the recent $9m cap raise.

Clay assets are commercially unproven and were not seriously considered as a potential source of supply until the late 2000s when Western Lithium picked up Thacker Pass (eventually taken over by LAC in the late 2010s) and put thoroughly assessed their economic potential. There are three leaders in the space being LAC, INR and BCN who have conducted extensive testing and feasibility which suggests they will work and likely work very well from an economic standpoint.

Although it is early in the project development lifecycle, with only an initial JORC resource established so far, JRL’s project has what potentially looks to be the 3rd best clay project in the US, particularly given the recent breakthrough in metallurgical processing via the use of attrition scrubbing to “clean” the clay prior to going into the leaching circuit. Whilst further bulk testing is required to confirm the initial tests, the use of attribution scrubbing has the potential to transform the project from an ordinary asset into a tier 1 asset. Attrition scrubbing is not a new process as it has been used by minerals sands miners who process deposits with a high slime content. However, it is relatively new in its application to lithium clays.

In JRL’s application, attrition scrubbing is used to remove larger sized carbonate and analcime (zeolite) minerals from the clay ore. These minerals types don’t contain lithium, with the majority of it hosted in the smectite minerals which is of a smaller particle size. The scrubbed minerals are also acid consuming in the leaching process, hence it is ideal to remove them prior to leaching. Overall, the initial test work showed up to a 60% uplift in head grade and a 26% reduction in acid requirements with 90%+ recovery rates. This has the effect of reducing both capex and opex intensity per LCE of output.

Without the scrubbing, the project might be around an NPV of $500m with an NPV/Capex ratio of ~1 (which is okay for a long life asset), whist with the scrubbing, it could push the NPV to $1b+ with a NPV/Capex ratio of 2+ (good for a long life asset). The size of the resource base, which is likely to continue to expand through ongoing exploration, would support multiple expansions down the line.

Despite the strong performance of JRL’s shares this year, it is still on a fully diluted EV of less than $100m. The risk/reward is skewed materially to the upside for investors even when we consider future dilution for advanced feasibility work and project equity funding. If we assume this future dilution sees the share base go from ~52m to ~182m, a $1b+ NPV would equate to $6/sh+ against a share price of ~$1.85 today.

The US market is short domestic lithium supply with US based battery plants being planned and built faster than they have so far secured raw material supply. There was a similar experience in the EU over the last few years and the battery makers and autos eventually scrambled for supply. In addition, the EU incentivises and supports domestic production of key EV minerals such as lithium. Recent developments in the US include multi-billion dollar support for the US to “win” the EV race which includes should filter down to domestic raw material supply.

Source: LAC corporate presentation, December 2020

Given the way the EU and China are locking up supply across key lithium producing regions, it will be important for the US to secure supply in which domestic production sources, such as incentivising the development of clay deposits will be a key part of the mix. Should JRL go on to prove their project is tier 1 quality, I think it will be of interest to majors given its strategic position as a potential large scale domestic supply source in the US battery supply chain.

As such, I believe this makes a lithium clay asset, like that of JRL's McDermitt project, highly strategic and important in the development of the US domestic raw material supply chain. It is also one of the very few ways to play this aspect of the EV thematic on the ASX and represents a high conviction position in our resources exposure within the Capital H Inception Fund.