Our Initial Entry
5 Day VWAP
Our Current Returns
Nov 26 2020
Our Current Returns
Investment Memo: Latin Resources (ASX: LRS)
Memo Opened: 10th June 2022
LRS Shares Held at memo open: 5,755,000
Archived LRS Memos:
What does this company do?
Latin Resources (ASX: LRS) recently discovered a high grade lithium resource in Brazil. The company is now actively defining the size of the discovery and aiming to become a lithium producer.
What is the macro theme?
Lithium is the key component of EV battery cathodes and has recently experienced strong upwards price momentum after a long period in the doldrums.
We believe battery metals are the most compelling investment theme of this decade. With a lithium supply deficit anticipated in 2024.
We think spodumene resources like LRS’s Brazilian lithium discovery should do well in this environment.
Why do we continue to hold in 2022?
- Lithium - Following the company’s Brazilian lithium discovery in March 2022, our LRS holdings give us exposure to lithium. We think lithium offtakers will really need new supply as EVs continue to gain market penetration.
- Potential to re-rate again - LRS has a large retail following and hence has the potential for significant share price re-rates on good news. The opposite also applies if the news is bad. We hope the definition of a JORC resource or offtake deal could see LRS re-rate again with this retail backing.
- Favourable peer comparison - LRS is at an early stage in its development as a lithium company, meaning its current valuation may have more upside as compared to its peers.
- Funding risk mitigated - LRS raised $35M in April 2022 and we think it is well funded to advance its Brazilian lithium project over the next 12 months.
- Billion $ capped neighbour with similar geological setting - US$1.7B capped Sigma Lithium’s project, ~100kms to the south, is a good model for how LRS can progress its project. Sigma’s project is in the construction phase and LRS can take learnings from Sigma.
What do we expect the company to deliver in the next 12 months?
Objective #1: JORC resource at the Brazilian lithium projects.
A JORC resource would allow LRS to engage in more substantive conversations with offtake partners and allow the market to appropriately value LRS versus its peers.
We want to see an overall grade for the resource >1% lithium and have set up our expectations for overall tonnage as follows:
Bullish case (Exceptional) = >15Mt JORC resource
Base case = 5-15Mt JORC resource
Bearish case= <5Mt JORC resource
🔄 25,000 metre infill resource definition drilling
🔲 Assay results (ongoing)
Objective #2: Start feasibility studies
We expect LRS to begin a feasibility study (scoping study or pre feasibility study) at some point over the next 12 months following resource definition.
🔲 Testwork reporting (metallurgy) (Q3-Q4)
🔲 Commencement of feasibility study (Q3-Q1 2023)
🔲 Bonus: completion of feasibility study (Q2 2023?)
Objective #3: Offtake Agreement
While demand for lithium remains strong, we are hoping LRS manages to sign an offtake agreement in the next 12 months. Perhaps around the time that its JORC resource comes out.
🔲 Letter of Intent or Non Binding MoU / Binding Offtake (by end of year)
🔲 Binding Offtake Agreement
Objective #4: Additional exploration at lithium tenements
LRS is looking to do more drilling at a recently acquired lithium prospect and an existing lithium prospect that has previously not been focussed on - this could increase the size of its resource.
🔄 Drilling at recently acquired lithium tenements
🔲 Drilling at existing under explored lithium tenements
What could go wrong?
After the discovery hole, LRS will face a new set of challenges with regards to developing the project. LRS will have to start thinking about feasibility studies as well as factors like logistics and processing plants.
There are no guarantees that LRS continues to find more (or enough) lithium at its newly acquired and under explored lithium tenements. Alternatively, LRS doesn’t find enough lithium in infill and resource definition drilling at its lithium discovery to justify a mine.
Lithium prices have cratered before and its possible supply/demand dynamics change and in turn impact market sentiment to lithium exploration/development companies such as LRS.
While the region of Brazil that LRS operates in is a mining friendly jurisdiction, political changes could alter that.
What is our Investment plan?
We are now free carried and have taken profit in our LRS Investment.
We currently hold 5,755,000 LRS shares and we intend to hold the majority of these shares while the fully funded LRS executes on its business plan to develop its lithium resource.
If the share price re-rates significantly on major news, likely either to be an offtake agreement, or the JORC resource exceeds expectations, we may look to take a profit once again.
Disclosure: The authors of this article and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 5,755,000 LRS shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by LRS to share our commentary on the progress of our investment in LRS over time.
Investment Milestones for LRS
✅ Initial Investment @ 1.765c
✅ Top Slice
✅ Free Carry
✅ Increase Investment @ 4.49c
✅ Free Carry
✅ Increase Investment @ 3.00c
✅ Free Carry
✅ Take Profit
✅ Price increases 250% from initial entry
✅ Price increases 500% from initial entry
✅ Price increases 1,000% from initial entry
✅ 12 months capital gains tax discount
🔄 Hold remaining for 2+ years
Our Past Commentary on Latin Resources
Most recent catalysts for Latin Resources
Catalyst Hunter 12/08/2022
The Lithium Market is On Again - LRS Fast Tracking to Development
Lithium is back. But did it ever really go away? After its lithium discovery in Brazil this year, our lithium exploration Investment Latin Resources (ASX: LRS) is one company trying to bring new supply online.
Catalyst Hunter 27/06/2022
Lithium deposit getting bigger - plenty more drilling to come
Latin Resources (ASX: LRS) is currently in the middle of a 25,000m drilling program with the ultimate aim of producing a JORC lithium resource over its new lithium discovery in Brazil.
Catalyst Hunter 10/06/2022
$35M Raised. 4 Drill Rigs. 25,000m of Drilling. LRS Going After Lithium.
Given the lithium discovery and $35M capital raise, LRS is a transformed company from the one we wrote about in our first LRS Investment Memo in February.
Catalyst Hunter 14/04/2022
LRS raises $35M to fast track Lithium project
LRS today announced that it has raised $35M to expedite its lithium business.
Catalyst Hunter 30/03/2022
High Grade Lithium in Pegmatites, Open Across Strike Length… Four More Holes from LRS Still to Come
Today, LRS announced a peak lithium grade of 3.22% along with grades of 2.22% and 2% - meaning LRS has significantly exceeded our expectations.
Catalyst Hunter 17/03/2022
Large fresh green crystals everywhere - is this a new lithium discovery?
Our investment Latin Resources (ASX:LRS) is reaching a very interesting juncture in its lithium exploration in Brazil, continuously releasing promising visuals of drill cores, all attention is now on LRS' lithium grades from assay results which are due in the next few weeks.
Catalyst Hunter 03/03/2022
LRS Keeps Showing Us More Spodumene
With the lithium price up from ~US$9,000 per tonne at the start of 2021 to now trade at an all-time high price of US$78,000 per tonne - an incredible 700%+ surge - it appears that LRS has picked the right time to go drilling for lithium.
Catalyst Hunter 17/02/2022
Spodumene alert: Has LRS just made a new lithium discovery?
Yesterday afternoon LRS announced that it had intersected multiple zones of spodumene bearing pegmatites immediately down-dip from high-grade (2.71% lithium and 1.45% lithium) outcropping pegmatites.
Catalyst Hunter 18/11/2021
LRS Aims to Cut Cow Methane With Halloysite
Latin Resources (ASX:LRS) has just teamed up with a former CSIRO Chief Research Scientist to conduct R&D projects that will see if LRS can use its halloysite to develop technology that will reduce methane emissions.