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 26/10/2021
Great Time to Look for Lithium - LRS Building Lithium Footprint in Brazil
Latin Resources (ASX: LRS) isn’t just another “Johnny come lately” to the lithium game, it was focusing on its lithium projects long before lithium was cool. Today LRS announced two high grade lithium samples from initial outcropping sampling - 2.71% Li2O and 1.45% Li2O.
Catalyst Hunter 23/09/2021
LRS strengthens lithium story with commitment to ESG
Just over a month ago we commented on the news that Latin Resources (ASX:LRS) was making the best of the surging lithium market and the long term outlook for lithium investments, by placing an increased focus on exploration at its South American lithium project.
Catalyst Hunter 19/08/2021
Latin Resources eyes lithium potential at Salinas Project
We invested in Latin Resources (ASX: LRS) back in November 2020, adding it to the Catalyst Hunter investment portfolio at 3.0¢. At the time, we identified the obvious potential of the company’s halloysite project in WA — one of Australia’s few known occurrences of ultra-high-grade halloysite, a naturally occurring nanotube.
Catalyst Hunter 13/08/2021
Cloud Nine infill and stepout drilling points to Resource expansion for LRS at Noombenberry
Latin Resources Limited (ASX: LRS) yesterday reported that Resource infill drilling to upgrade the current Inferred Mineral Resource Estimate to a JORC Indicated classification has been completed.
Catalyst Hunter 02/06/2021
Halloysite Head to Head Hit Out
On Monday, Latin Resources (ASX: LRS) delivered its Maiden Inferred Mineral Resource for its 100% owned Halloysite-Kaolin Project The market has been waiting for LRS to release its news for some time - as it has given investors the opportunity to get a better idea of how LRS might stack up against its bigger and more advanced halloysite peer, ADN.
Catalyst Hunter 02/06/2021
Halloysite Heavyweights Go Head to Head - LRS vs ADN
On Monday, Latin Resources (ASX: LRS) delivered its Maiden Inferred Mineral Resource The $87M capped LRS is trying to follow the same pathway as Andromeda Metals (ASX: ADN), currently capped at $442M.
Jonathan Jackson 31/05/2021
LRS delivers Maiden Jorc Resource: Is it better than Andromeda?
Our $96M capped Halloysite hero Latin Resources (ASX: LRS) just announced a 207mt maiden JORC resource which on our initial read looks to be better than $475M capped Andromeda’s 210mt resource.
Jonathan Jackson 28/04/2021
🏹 MAJOR CATALYST ALERT: JORC Resource Estimate Lands in a Few Weeks
Latin Resources (ASX: LRS) has received the final assay results required for it to move ahead with its maiden resource estimate - due in May just a few weeks from now.
Jonathan Jackson 01/03/2021
LRS Set to Drill Lithium Assets in South America
Latin Resources (ASX: LRS) is preparing to conduct a new exploration program on its 100% owned and optioned lithium tenements in the state of Minas Gerais in Brazil.