Joel’s Resource Report – the best earn-in in the business?! #IRR

Joel’s Resource Report – the best earn-in in the business?! #IRR

At the time of writing the author holds a long position in the stock discussed.

Hi all, I’m writing this article after a long day in the office so hopefully it all makes sense!

At the end of April I covered AIM-listed gold/lithium exploration company IronRidge Resources for premium members and explained why I’d bought back in.

In summary:

  • IronRidge released a super scoping study on its Ewoyaa Lithium Project in Ghana.
    • Low capex – $68 million
    • High IRR – 125%
    • Post tax NPV (8% discount rate) – $345 million (at conservative lithium prices which are lower than today’s prices)
    • Average EBITDA – $105 million
  • They’d just raised £12 million in an oversubscribed placing to:
    • Deliver an updated Scoping Study and pre-feasibility study (“PFS”) for the Ewoyaa Lithium Project (“ELP”) in Ghana, including 30,000m of resource and exploration drilling, metallurgical test work, engineering studies and environmental and social studies.
    • Deliver a maiden mineral resource estimate and ongoing drill testing of exploration targets at the Zaranou Gold Project in Côte d’Ivoire.
    • Development of the Company’s pipeline of prospective gold projects in Côte d’Ivoire and Chad, including exploration drilling programs.
    • Provide working capital, including costs associated with the Fundraise.

IronRidge’s market cap (including additional subscription discussed below) at 24.7 pence is £140 million:

The best earn-in in the business?

Last week IronRidge announced a monster RNS concerning a deal with ASX-listed Piedmont Lithium, where Piedmont can earn 50% of the Ewoyaa project for over $100 million.

Some highlights from the RNS:

  • Conditional binding and definitive agreements entered into with Piedmont to fully fund and fast track development of the industry standout Ewoyaa Lithium Project in Ghana for US$102m
  • Piedmont is a US integrated supplier of raw materials and minerals supporting the electric vehicles (“EV”) and industrial markets
  • Piedmont to subscribe for £10.8m (c. US$15m) IronRidge shares at 20 pence per share
  • Piedmont to fund additional regional exploration and advancing the Ewoyaa Lithium Project to Definitive Feasibility Study (“DFS”) for US$17m
  • Piedmont to fund the Ewoyaa Lithium Project to production with full capex spend of US$70m
  • IronRidge increases net cash position to c. US$30m for future growth initiatives

This is the best earn-in agreement I’ve ever seen – IronRidge essentially have a free carry through to production. Mkango have a similar deal although that only leaves Mkango with 25% of the project vs IronRidge’s 50%.

Reading between the lines, there was almost certainly fierce competition to enter into a deal with IronRidge.

CEO Vincent Mascalo discussed the update with proactive:

Piedmont Lithium CEO Keith Phillips also discussed the agreement with Proactive, stating “We think this is one of the worlds best Spodumene assets frankly, we see a lot of upside in the asset and our investment in the stock.”:

Near term value catalysts/next steps
  • Undervalued – as a holder I am biased, but I don’t believe the market has reacted to the news appropriately – the shares were higher earlier in the year and the company is now materially de-risked! (In case you’re wondering, yes I’ve bought more shares since the announcement.)
  • Q3/Q4 – Drilling results – IronRidge already has a 30,000m of drilling exploration on going and initial results have been excellent.
  • Q4 – Mineral resource upgrade – drilling results will be incorporated into an updated mineral resource upgrade.
  • Spin out of gold assets – IronRidge believe (as I do) that their gold assets are not valued within IronRidge’s share price and that a spin out is the best way to realise value.

IronRidge is now the second largest holding in my portfolio, with multiple value inflection points and $30 million in the bank there’s a lot for shareholders to look forward too in H2 – till next week!

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