Despite the dampened sentiment with regard to the lithium sector the takeover of Azure Minerals Ltd by SQM and Hancock (Gina Reinhardt) is still proceeding with the shareholder vote taking place on April 8, and if the AUD $3.70 offer is approved, it will be implemented on April 18, 2024. Since drilling started in March 2023 Azure has drilled 248 core holes for 83,219 m and 97 RC holes for 19,267 m in three target areas within the the 9 km by 5 km pegmatite dyke swarm at the Andover project in the western Pilbara region of Australia. So far only 40% of the identified pegmatite targets have been drilled. Target Area 1 is estimated to have a tonnage range potential of 55-105 million tonnes of 1.0%-1.5% Li2O while the more recently tested Target Area 3 has a 25-75 million tonne potential at 1.0%-1.5% Li2O. Azure hopes to release a maiden resource estimate in Q2 of 2024 and a scoping study (PEA) in Q4 of 2024, though we may never see these documents, especially not the PEA, because Azure will have been privatized as a 50:50 JV between SQM and Hancock controlling 60% of Andover while the Mark Creasy group will have the other 40%.
If the acquisition closes at $3.70 per share cash it will value the Andover project at AUD $2.5 billion on a 100% basis, and will inject about AUD $945 million into the pockets of Azure shareholders excluding SQM and Hancock. At the current AUD:CAD exchange rate of about 1.116 that valuation amounts to CAD $2.2 billion compared to the CAD $1.2 billion valuation for Patriot Battery Metal's 100% owned Corvette project at CAD $8.30 per share. On July 31, 2023 PMET released a maiden resource estimate for the CV5 pegmatite in Quebec's James Bay region that came in at 109.2 million inferred tonnes at 1.42% Li2O, pretty much the upper end of the target range that Azure has projected for Target Area 1 of the Andover project. Combining Target Area 1 and 3 Azure is proposing a range of 80-180 million tonnes of 1.0%-1.5% Li2O.
PMET has potential to deliver an updated resource in the 150-200 million tonne range, partly by including a resource for the 4,400 m strike of CV5 of which the maiden resource estimate was based on only 3,750 m strike, marching CV5 another 3.1 km to the southwest where it is expected to join up with the CV13 pegmatite, and a maiden resource estimate for the CV13 pegmatite which has been traced for 2,300 m. This does not include the CV9 pegmatite discovered in late 2023 near the western end of the Corvette property 14 km from CV5 for which initial assays are still pending. And it does not include the CV8, 10, 11 and 12 pegmatite outcrops that will be drilled in 2024. PMET hopes to release an updated resource estimate in Q3 of 2024 and a PFS by the end of 2024.
The fact that SQM and Hancock have stood firm with their $3.70 per share bid for Azure Minerals despite the melt-down in lithium carbonate prices sends us a signal that SQM, a major lithium producer, and Hancock, a new entry in the lithium sector, firmly believe those IEA projections for a required 600% supply expansion by 2030 if the EV component of net zero emission goals are to be met. Those projections, by the way, exclude the possibility of a solid state lithium ion battery becoming reality. Toyota claimed in May 2023 that it had achieved a major manufacturing cost breakthrough for a solid state LIB where substitution of lithium metal for graphite in the anode could double demand. In fact, this doubling in demand is a necessary aspect of the EV future, because unless a carmaker like Toyota can offer an affordable Camry equivalent EV with 1,200 km range on a ten minute charge, the masses in at least North America will never adopt electric vehicles.
For PMET's Corvette project to have a valuation comparable to Azure's Andover project the stock would have to double to $16, just above the $15.29 price at which Albemarle was more than happy to invest $109 million within a week of the CV5 maiden resource estimate. Albemarle, which failed in its effort last year to take over Liontown and its Kathleen Valley project in Australia, has cooled its near term demand projections in light of the slowdown in EV sales, but remains confident about the long term growth of lithium demand. PMET bottomed at $5.77 on February 5 from which it has recovered to $8.30, and I believe it will make a new high ($17.74 was high on June 16) by the end of the year, provided that the rebound of lithium carbonate prices continues. |
