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Latin Resources

(ASX:LRS)


 

  Our Initial Entry
Price

Portfolio Initiation

5 Day VWAP
After Initiation

Current Price

Our Current Returns

ASX:LRS
$0.018
$0.030
Nov 26 2020
$0.037
$0.105
    497%

ASX:LRS
Our Current Returns
497%




Overview

Investment Memo: Latin Resources (ASX: LRS)

Memo Opened: 10th June 2022
LRS Shares Held at memo open:
5,755,000

Archived LRS Memos:

LRS-IM-2022 (17th Feb 2022)


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?

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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

Milestones:

🔄 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.

Milestones:

🔲 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.

Milestones:

🔲 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
🔲 Assays
🔲 Drilling at existing under explored lithium tenements
🔲 Assays

What could go wrong?

Development risk:
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.

Exploration risk:
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.

Market risk:
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.

Geographic risk:
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


Type Date Share Price $ Title
Email 12-Aug-2022 $ The Lithium Market is On Again - LRS Fast Tracking to Development
Email 27-Jun-2022 $ Lithium deposit getting bigger - plenty more drilling to come
Email 10-Jun-2022 $ $35M Raised. 4 Drill Rigs. 25,000m of Drilling. LRS Going After Lithium.
Email 14-Apr-2022 $ LRS raises $35M to fast track Lithium project
Email 30-Mar-2022 $ High Grade Lithium in Pegmatites, Open Across Strike Length… Four More Holes from LRS Still to Come
Email 17-Mar-2022 $ Large fresh green crystals everywhere - is this a new lithium discovery?
Email 03-Mar-2022 $ LRS Keeps Showing Us More Spodumene
Email 17-Feb-2022 $ Spodumene alert: Has LRS just made a new lithium discovery?
Email 18-Nov-2021 $ LRS Aims to Cut Cow Methane With Halloysite
Email 26-Oct-2021 $ Great Time to Look for Lithium - LRS Building Lithium Footprint in Brazil
Email 23-Sep-2021 $ 0.043 LRS strengthens lithium story with commitment to ESG
Email 19-Aug-2021 $ 0.044 Latin Resources eyes lithium potential at Salinas Project
Email 13-Aug-2021 $ 0.042 Cloud Nine infill and stepout drilling points to Resource expansion for LRS at Noombenberry
Article 02-Jun-2021 $ 0.065 Halloysite Head to Head Hit Out
Article 02-Jun-2021 $ 0.065 Halloysite Heavyweights Go Head to Head - LRS vs ADN
Email 31-May-2021 $ 0.080 LRS delivers Maiden Jorc Resource: Is it better than Andromeda?
Email 28-Apr-2021 $ 0.049 🏹 MAJOR CATALYST ALERT: JORC Resource Estimate Lands in a Few Weeks
Article 01-Mar-2021 $ 0.078 LRS Set to Drill Lithium Assets in South America
Article 24-Feb-2021 $ 0.092 Emerging Discovery: Can the $90M Capped LRS Eclipse its $656M Capped Halloysite Peer?
Article 18-Feb-2021 $ 0.075 LRS Likely Days Away From Revealing Halloysite Drilling Results
Article 26-Nov-2020 $ 0.031 CATALYST ALERT: LRS to Drill for Halloysite, Hoping to Emulate Some of ADN’s 700% Run



Most recent catalysts for Latin Resources

The Lithium Market is On Again - LRS Fast Tracking to Development
Lithium deposit getting bigger - plenty more drilling to come
$35M Raised. 4 Drill Rigs. 25,000m of Drilling. LRS Going After Lithium.
LRS raises $35M to fast track Lithium project
High Grade Lithium in Pegmatites, Open Across Strike Length…  Four More Holes from LRS Still to Come
Large fresh green crystals everywhere - is this a new lithium discovery?
LRS Keeps Showing Us More Spodumene
Spodumene alert: Has LRS just made a new lithium discovery?
LRS Aims to Cut Cow Methane With Halloysite

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