Lithium project premiums point to upside for Pilbara shareholders

Recent lithium acquisitions provide see-through valuations for Pilbara which are well above its share price, fuelling talk about what it may get for its planned sale of a stake in its project. Plus, Sunstone’s chief is upbeat on its current porphyry drilling and PolarX’s $70m Lundin deal validates its strategy.

Pilbara Minerals (PLS) was the big lithium presence at this week’s Resources Rising Stars conference, where there was lots of discussion about Tesla wankers and whether the electric vehicle revolution was real.

After braving unusually cold weather on the Gold Coast at a knees up the night before beneath giant tepees erected on the green at the RACV’s Royal Pines resort, Pilbara CEO Ken Brinsden told the assembled throng that it will only be a “matter of time before we all become Tesla wankers”.

He was of course joking about the wanker element. Brinsden’s assessment is that investors shouldn’t be dismissing the EV thematic on the basis that it is hard to spot a Tesla at the local supermarket, or anywhere else for that matter.

His bigger call is that the revolution will get into full disruptive swing once China starts exporting $15,000 EVs. And he reckons that’s just around the corner.

Brinsden’s upbeat assessment is a message he is also delivering to potential partners across the battery materials supply chain. Pilbara is offering to sell a stake of up to 49% in its Pilgangoora lithium/tantalum operation, which for the sake of about $500m, could be expanded a couple of times.

The “partnering process” is one to watch as the recent sales/takeovers involving others in the WA hard-rock lithium space implies a read-through price for 100% of Pilbara at a big premium to its current market price of 68c for a market cap of $1.25 billion.

Credit Suisse crunched the numbers last month on the Wesfarmers’ (WES) bid for Kidman (KDR), and Albemarle’s (US:ALB) deal with Mineral Resources (MIN), and came up with a read-through value for Pilbara (based on reserves) of $1.78b-$2.79b.

Pilbara was trading at 65c at the time and as noted by Credit Suisse, the read-through valuations are at a 44-174% premium to Pilbara’s market price.

The trick now for Brinsden is to capture some of that implied premium in the partnering process, in which the intention is to sell a 20%-49% stake in Pilgangoora.

He didn’t give much away on the subject at the conference.

“We are well underway in that process. I really can’t say much more about it other than to say, so far so good.

“Happy with the level of interest and looking forward to what unfolds in coming months.”

Sunstone Metals (STM)

The biggest “watch this space” message at the conference came from Sunstone Metals (STM) boss Malcolm Norris.

“It’s a very exciting phase for the company at the moment,’’ Norris said. “Our goal is to deliver a very large discovery and a very large share price appreciation.’’

Norris was the second last speaker at the two-day conference and it can be said that after the above comment, the weary and still recovering players in the room sat up and paid attention.

Sunstone is currently a 3.4c stock for a market cap of $42m on the strength of its Bramaderos gold-copper project in southern Ecuador and the $6m it is pulling from the sale of a copper asset in Sweden to a company in which Sunstone is now the biggest shareholder, with the stake worth about $15m.

Norris said Bramaderos presents as a “significant upside opportunity over the next few months” as Sunstone moves through its initial drilling program across two gold-copper porphyry targets and an epithermal gold target.

The first hole on the Limon porphyry target was a bit of disappointment in that the results suggested it was on edge the system. But the second hole, for which assays are pending, hit porphyry-related mineralisation with visible and persistent copper and molybdenum sulphide mineralisation.

Sunstone reckons the lower parts of the drill hole indicate the intersection was likely drilled adjacent to the core of the system where it expects the higher-grade portion of the porphyry is waiting to be tested in the next hole.

“The second hole was fantastic and we will be delivering assay results for that in June,” Norris said.

Norris also reported the first hole on the Bramaderos Main porphyry target was underway and had reached a depth of 100m.

Visual results from the hole, 2.5km from Limon, will be reported in June as well. The hole is following up historical drilling (200-2004) that included a 248m hit at 0.56g/t gold and 0.14% copper.

“To put that in context, Newcrest’s Cadia mine in NSW was developed on 300 million tonnes grading 0.6g/t gold and 0.15% copper. So if you’ve got the tonnage, these are ore-grade intercepts,” Norris said.

The latest hole is beside the historical hit and will be drilled to 500m below surface. “We’re down about 100m and we are very excited about what we are seeing,” he said.

The smaller, high-grade and outcropping West Zone epithermal prospect will be drilled but Norris is not sure when.

Fair enough too given the porphyry excitement, remembering Norris in another life was involved with Intrepid Mining when it went from $40m to $1.2bn in under two years on the back of its discovery of two billion tonnes of porphyry copper-gold mineralisation in Indonesia.

PolarX (ASX:PXX):

Talking about the big-time potential of hitting a porphyry with the drill bit, it was mentioned here a couple of weeks ago that PolarX (PXX) was fielding interest from a half dozen or so major miners in its Alaska Range project.

Canada’s Lundin Mining has won the day, striking an exclusive option to earn a 51% interest in PolarX’s Stellar project area which is home to the Saturn and Mars porphyry copper-gold prospects, as well as taking up a 14.3% PolarX stake for $4.3m.

There are various gateways for Lundin to get to a 51% project interest but PolarX chairman Mark Bojanjac distilled it down nicely for the RRS crowd.

Lundin is basically betting that for expenditure of up to $50m, it has a chance at finding a $1bn-plus orebody, with PolarX along for the ride with its 49% exposure to the upside.

Importantly, the deal with Lundin does not include the nearby Zackly skarn deposit (3.4mt grading a handy 1.2% copper and 2g/t gold) which PolarX gets to advance as a development opportunity on a 100% basis.

The market was on to the interest by the major miners in PolarX and had recently run the stock to around its current 9.5c level ($30m market cap) in expectation of a deal, and the start to the Alaskan field season.

So the market response to Lundin emerging as the anointed one at Stellar has been low key. But look out for that to change as the partners prepare to drill Saturn and Mars.