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Mandrake Resources Ltd

ASX:MAN

Last Price:

$0.041

Our Investment Summary

Date of Initial Coverage

04-Mar-21

Initial Entry Price

$0.080

Returns from Initial Entry

-49%


Our Big Bet for MAN

MAN to return 10x by making a discovery and defining a deposit significant enough to move into development studies

Investment Memo: Mandrake Resources Ltd (ASX:MAN) - LIVE

Opened: 25-Mar-2022

Shares Held at Open: 2,150,000


What does MAN do?

Mandrake Resources (ASX:MAN) is a junior exploration company chasing a large scale copper porphyry discovery in a region of northern Chile that hosts the world's largest copper mine. MAN also holds ground 30km from Chalice Mining’s Julimar project in WA, Australia.

What is the macro theme?

We see MAN as being leveraged to the global electrification boom and anticipated commodities super cycle over the coming decade.

Copper is already the third most widely used metal in the world, used primarily in buildings and infrastructure projects - two sources of demand likely to benefit from pandemic stimulus. Copper also has a growing demand source from technology - EVs have up to 3.5 times more copper in them than a standard petrol car.

Why did we invest in MAN?

Copper project in a part of Chile home to large porphyry discoveries

MAN’s new copper acquisition sits in a region that hosts the world's largest copper mine - the 11.2bt @ 0.8% copper project owned by BHP/Rio Tinto, as well as the the 10.5bt @ 0.6% copper project controlled by state owned Codelco. Both of these are large scale porphyry deposits. MAN’s project sits on similar geological structures and has potential for a large copper discovery.

Historical drilling data indicative of high grade copper mineralisation

MAN’s new acquisition has ~15,000m of historical RC/Diamond drilling results which have returned a peak intercept of 86m @ 4.83% copper from 121m - which includes higher grade sections of 27m @ 7.1% copper from 134m, and 3m @ 14.4% copper from 164m.

Strong balance sheet: At 25 March 2022, MAN had $16.4M in cash

That’s a lot of cash in the bank for a small cap explorer, so MAN is well positioned to aggressively explore any potential discovery it makes across its project portfolio.

What do we expect MAN to deliver?

Objective #1: Complete 12 week due diligence period and proceed with acquisition

MAN has set an initial 12 week due diligence period, we want to see MAN complete the DD work and proceed with the acquisition of the project.

Milestones

Due diligence completion

Acquisition completion

Objective #2: Drilling program at the newly acquired copper project this year

Target generation works leading up to MAN’s first drilling program at the copper project. We want to see the company conduct at least one drilling program by the end of 2022.

Milestones

Geochemical surveys

Geophysical surveys

Exploration program detailed

Drilling permitting

Drilling commencement

Drilling results

Objective #3: Maiden JORC resource at the newly acquired copper project

With ~15,000m of historical RC/Diamond drilling results and any addition of new drilling data from drilling programs MAN completes, we want to see a maiden JORC resource for the new copper project either very late in 2022 or early in 2023.

Milestones

Drilling results compiled

Maiden JORC resource announcement

What could go wrong?

Acquisition Risk

The newly announced copper acquisition in Chile is via an option agreement which gives MAN until at least 31 May 2023 to decide if it wants to acquire the copper project. Until then, MAN could pull out of the transaction at any time should exploration work yield no results. There is a risk that MAN elects to not proceed with the transaction and would then need to look for a new project.

Environmental permitting risk

The Chilean government has signalled that it will put more focus on environmental permitting across the mining industry going forward. There is always a risk the government rejects new mine developments due to environmental concerns and so this is a key risk in Chile.

Exploration risk

MAN is an early stage explorer with no discovery made as yet. As a result the company has no cash flows to fall back on should they fail to make a discovery. There is a risk that nothing will be found.

Commodity risk

Junior exploration companies rely on elevated commodity prices to access capital. There is always a risk that the copper price falls and markets are no longer willing to finance new exploration.

What is our investment plan?

We plan to remain invested in MAN at least until it completes due diligence on the Chilean copper project. Given our confidence in the management team, if they choose not to proceed with the acquisition, we plan to continue holding until a new project is identified.

If all goes to plan and our investment objectives are met and the share price rerates, we will then look to take some profit and sell 20%, as per our standard investment plan for exploration companies.

General updates from MAN

Drilling for copper-gold in the NT [01-Sep-2022]

Disclosure: The authors of this memo and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 2,150,000 MAN shares at the time of publication. S3 Consortium Pty Ltd has been engaged by MAN to share our commentary and opinion on the progress of our investment in MAN over time.


Investment Milestones for MAN

Initial Investment: @8c
Top Slice
🔲 Free Carry
Increase Investment: @20c
🔲 Free Carry
Increase Investment: @5.49c
🔲 Free Carry
🔲 Take Profit
✅ Price increases 300% 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

Critical minerals quickly becoming a priority in the EU

Sep 20, 2022

Macro: Commodities


Readers who follow our Investment Portfolios will know that we have been making strategic Investments in commodities that have made critical minerals lists for the EU, USA, Japan, India and Australia.

These minerals are considered critical to the digitisation and decarbonisation macro thematic and include lithium, graphite, cobalt, nickel and PGE’s, to name a few.

Over the weekend, the following speech from the president of the European Commission, Ursula von der Leyen, gave a speech announcing that the EU would look to pass a “European Critical Minerals Act”.

The aim is to avoid the position Europe finds itself in with oil and gas, where it relies on a single trading partner like Russia.

The act would see the EU put in place:

  1. Agreements with partners like Chile, New Zealand, Mexico, India and Australia for the supply of critical minerals.
  2. Identification of strategic projects across all along the supply chain from mine sites to processing/refining projects.
  3. The act would also see the setting up of strategic reserves of these critical minerals.

All of this bodes well for our Investments across commodities identified as “critical minerals” giving these projects strategic importance on the world stage.

To see a list of all the critical minerals in the Australian Critical Minerals strategy document, check out the following link.

Here is a snippet from that speech:

Copper demand to outstrip supply by early 2030s?

Sep 07, 2022

Macro: Copper


The following article from Bloomberg touches on copper's role in the decarbonisation thematic.

The article highlights the structural shortage expected in the copper market over the coming decade. A thesis that we tend to agree with and have been making Investments based on.

With copper already the second most used industrial metal in the world and the electrification boom likely to increase demand by multiples from where it is today we think the outlook for copper demand is expected to outstrip the supply response.

At present, we hold Investments in the following companies as copper exposure:

Kuniko (ASX: KNI) - Next Investors Portfolio

  • Zero Carbon Copper, nickel, cobalt and lithium, Exploration stage, European Union (Norway)

Titan Minerals (ASX: TTM) - Next Investors portfolio

  • TTM recently started its first ever drilling program at its copper porphyry target at its project in Ecuador.

TechGen Metals (ASX: TG1) - Catalyst Hunter portfolio

  • TG1 is currently drilling one of its copper projects in WA (Australia).

Mandrake Resources (ASX: MAN) - Catalyst Hunter Portfolio

  • MAN is currently completing the acquisition of a copper project in Chile.

Auking Mining (ASX: AKN) - Catalyst Hunter Portfolio

  • AKN is currently updating its JORC resource at its project in WA. (Australia).

Click here or on the image above to read the article in full.

Our key takeaways from the article are as follows:

  • Copper is used in wind turbines, solar modules, transmission and distribution lines that carry electricity to consumers, wiring in mobile phones and the motors that power electric vehicles (EVs).
    Energy research firm BloombergNEF thinks Copper demand will increase by more than 50% between now and 2040.
  • BloombergNEF predicts that primary copper production can increase about 16% by 2040, less than the rise in demand. The research firm predicts that by the early 2030s, copper demand could outstrip supply by more than 6 million tons per year.
  • Copper mines are not able to be put into production quickly. No new copper discoveries are expected to be operational in the next three years.
  • Miners are currently mining ore grades of 0.5% copper or lower, grades that are a quarter of what they were 100 years ago. This means the ability of the majors to increase production is limited.

Drilling for copper-gold in the NT

ASX:MAN  

Sep 01, 2022

Announcement

Investment Memo: MAN IM-2022


Mandrake Resources (ASX: MAN) reports that it has commenced RC drilling at its Berinka Pine Creek Gold Project in the Northern Territory, targeting high-grade gold and copper mineralisation.

The 1,410m RC drilling program across 10 holes (plus diamond tails if required) will target five prospects with high-grade gold and copper potential.

The program was designed to follow up on results from the 2020 drilling program and test five other prospects in the immediate vicinity. That previous drilling returned high-grade intercepts including:

  • 3m at 1.8 g/t gold, 32 g/t silver and 2.1% copper from 124m, including;
    • 1m at 3.7 g/t gold, 69 g/t silver and 3.1% copper from 124m.

MAN had approximately $17.2M in cash as at 26 July 2022 and with a $22.4M market cap, it is trading with a company enterprise value (EV) of just $5.2M.

Keep in mind that this NT copper gold project is only one of MAN’s assets.

Its primary project that we want to see developed is its Chilean copper project. Here, MAN is undertaking due diligence with a view to chasing a large-scale copper porphyry discovery in a region of northern Chile that hosts the world's largest copper mine.

MAN also has a 140km2 exploration licence prospective for PGE-nickel-copper in WA’s Jimperding Metamorphic Belt, 70km northeast of Perth and just 30km east of Chalice Mining’s massive Julimar discovery.

Due diligence period extended on copper project

ASX:MAN  

Aug 25, 2022

Announcement

Investment Memo: MAN IM-2022
Objective 1 : Complete 12 week due diligence period and proceed with acquisition


This morning our junior exploration investment Mandrake Resources (ASX: MAN) announced another extension to the due diligence period for its new copper acquisition in Chile.

MAN first announced the acquisition of the 'Delfin' copper project on 25 March this year and has been conducting due diligence on the project since then.

Today, MAN confirmed that it had secured a further 1-month extension to its diligence period at no extra cost, taking the due diligence period end date to 24 September 2022.

Interestingly, MAN detailed that the extension was done to renegotiate the terms for the acquisition so that payments can be linked to "project access/drilling".

This sounds like MAN will renegotiate the terms away from direct payments to the vendors so that the company makes payment if and when project access agreements are resolved or drilling programs are run.

As mentioned in the announcement today, this should mean the transaction is de-risked for MAN.

We are still looking forward to MAN completing the acquisition, given that the project sits in one of the planet's most copper rich regions.

In fact, the world's biggest copper mine, operated by BHP/Rio Tinto and contributing ~5% of global copper production, sits only ~100km away from MAN's project.

We covered the acquisition in detail in our last MAN note, which you can read here: Cashed up MAN picks up high grade Chilean copper asset

Quarterly report - $17.2M in cash

ASX:MAN  

Jul 27, 2022

Investment Memo: MAN IM-2022
Investment Thesis 3 : Strong balance sheet: At 25 March 2022, MAN had $16.4M in cash


This morning, our junior exploration investment Mandrake Resources (ASX: MAN) put out its June quarterly report.

MAN clarified its cash position at $17.2M as at 26 July and reiterated that “All technical and legal due diligence completed” for the acquisition of the “Delfin” copper project in Chile.

With the due diligence date extended to 24 August 2022 MAN confirmed that the company’s focus was now on obtaining “full support of the community to ensure a clear path to immediate exploration activities ahead of acquisition completion”.

This should mean that as soon as the due diligence process is completed, MAN will have already gone through a lot of pre drilling permitting hurdles, and can instead focus on exploration as soon as the acquisitions done.

MAN is currently trading with a market cap of $19.2M which gives it an enterprise value (EV) of only $2M when its current cash balance is taken into account.

With an enterprise value this low and cash balance so high we think the company is perfectly positioned to re-rate off the back of any exploration success after it completes the acquisition of its copper project.

We covered the acquisition in detail in our last MAN note which you can read here: Cashed up MAN picks up high grade Chilean copper asset

Noosa Mining Investor Conference round-up

Jul 22, 2022

Macro: Commodities


Spanning three days on the pristine Sunshine Coast of Queensland, the Noosa Mining Investor Conference kicked off its 12th year on Wednesday. Attracting a diverse and large spread of corporates, brokers, retail and institutional investors, this year’s event featured over 60 companies presenting and over 1,000 people in attendance, all hosted within the coastal town's Peppers Resort.

At the event, we caught up with a number of executives from our Investment companies (including AKN, AOU, BPM and PFE) as well as companies of interest, either as potential additions to one of our Portfolios, or to gain expert insight to macro and regional headwinds impacting the markets.

The conference is held in the ideal location to mix work with pleasure, and meet a host of CEOs of ASX juniors. Each day ends with a short ‘business at the bar’ session that quickly morphs into talking tactics about where to eat and drink. On Thursday and Friday nights, many head to the Noosa Surf Club for its networking sessions, enjoying its glassed indoor area and open deck to the beach.

We look forward to providing updates on companies we met with down the road.

China considering US$1.1 trillion infrastructure stimulus

Jul 15, 2022

Macro: Commodities


China plans to make up to US$1.1 trillion in financing available for infrastructure spending, which we think will increase commodity demand. Read the following Bloomberg article for details.

Read the full article here.

Below are our key takeaways:

  • China is making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending.
  • According to Citigroup, infrastructure investment in 2022 is likely to rise by 7.7% versus 2021.
  • President Xi Jinping has called for an “all out” effort to increase infrastructure spending this year to fuel economic growth and meet a GDP growth target of around 5.5%.

The Bloomberg article touches on the impacts of China’s COVID induced lockdowns on the domestic economy.

With economic growth tipped to slow, the Chinese government is getting ready to lean on fiscal stimulus through infrastructure investment to spur economic growth.

We think this type of fiscal stimulus is likely to become a common theme in China and the West, with macro themes like decarbonisation requiring massive CAPEX.

This infrastructure spending forms part of our “commodities supercycle” investment thesis, where we see increased fiscal stimulus and CAPEX investment spurring higher demand for commodities already facing supply shortages.

China considering US$220Bn in infrastructure stimulus

Jul 08, 2022

Macro: Commodities


The following Bloomberg article highlights China’s plan to spend up to US$220 billion to spur economic growth through infrastructure spending.

All of this new infrastructure will require more commodities.

Read the full article here.

Below are our key takeaways:

  • China’s Ministry of Finance is considering US$220 billion of infrastructure funding aimed at shoring up the country’s beleaguered economy.

  • The funding is to be brought forward from next year’s quota, marking the first time the issuance has been brought forward due to concerns around the dire state of the world’s second largest economy.

  • The funding would primarily be used on infrastructure spending to boost an economy hit by Covid lockdowns and a housing downturn.

  • Commodities rallied in European trading hours following the news, with copper moving 3.6% higher on the London Metal Exchange.

For over two years, we have been writing about an upcoming commodities supercycle brought about by infrastructure spending, following decades of underinvestment in the “real economy”.

All this investment in the “real economy” requires raw materials, which is why we think the macro backdrop for commodities over the next decade is strong.

The Bloomberg article highlights the readiness of the Chinese government to lean on fiscal stimulus to spur economic growth at a time when the Chinese economy is slowing down.

Generally, governments would try to respond to slowdowns in economic growth by cutting interest rates. With this tool exhausted after the COVID pandemic, we think infrastructure spending will become the new policy of choice for governments worldwide.

Again, this infrastructure spending will increase demand for commodities which we expect will take commodity prices higher.

VW CEO breaks down batteries and supply chain issues

Jul 08, 2022

Macro: Commodities


The following Bloomberg article showcases the moves major carmaker Volkswagen is making in the batteries industry.

Read the full article here.

Below are our key takeaways:

  • VW is pressing forward with investments along its battery supply chain, commencing construction at a new cell factory in Salzgitter, Germany, one of five facilities in Europe under the carmaker’s PowerCo subsidiary.
  • Salzgitter is home to VW’s main motor factory, and it is where the company last year opened an $80 million facility to research, develop and test EV batteries.
  • Roughly $2 billion will be invested in the new cell factory, where production is scheduled to begin in 2025.
  • VW expects its battery business to generate €20 billion in revenue by the end of this decade.
  • VW CEO Herbert Diess said, “We are invested in some startups and we are looking forward to a joint venture together with Bosch for the machine tools and equipment for those plants, so we’re really gearing up to become one of the bigger battery cell producers”.

The news is just another sign that downstream investment in battery supply chains is showing no signs of slowing down.

VW is one of the world's largest carmakers and is heavily investing in downstream production capacity. It expects this part of its business to generate over €20 billion in revenues by the end of the decade.

This is a situation where investment in midstream/downstream (manufacturing/battery industry) is far ahead of upstream investment (mining), this leads to the supply/demand imbalances for the raw materials required to produce batteries only becoming worse.

The imbalance comes from the timing of these mega projects. Building a downstream / midstream facility could take 1-4 years whereas it takes around 7 years on average to bring a new resource discovery into the production stage.

As a result, we think that raw materials prices will remain high for at least the next decade whilst the mining industry catches up to demand.

Due diligence period extended on copper acquisition

ASX:MAN  

Jun 27, 2022

Announcement


Investment Memo: MAN 2022

Objective #1: Complete 12 week due diligence period and proceed with acquisition


This morning, our junior exploration investment Mandrake Resources (ASX: MAN) updated the market with respect to the progress being made with its new copper acquisition in Chile.

MAN first announced the acquisition of the “Delfin” copper project on the 25th of March this year and since then has been conducting due diligence on the project.

Today, MAN confirmed that it had secured a two month extension to its diligence period at no extra cost, taking the due diligence period end date to 24 August 2022.

MAN also confirmed that the due diligence extension would allow it to complete all of the required works that would ensure a clear pathway to commencing exploration activities as soon as the acquisition is completed.

We are looking forward to MAN completing the acquisition given that the project sits in one of the most copper rich regions on the planet. The world's biggest copper mine, operated by BHP/Rio Tinto and contributing ~5% of global copper production, sits only ~100km away from MAN’s project.

We covered the acquisition in detail in our last MAN note which you can read here: Cashed up MAN picks up high grade Chilean copper asset

New investor presentation for Chilean copper project

ASX:MAN  

Apr 19, 2022

Announcement


This morning, our junior exploration investment Mandrake Resources (ASX:MAN) put out an updated investor presentation which ran through in detail, the company's newly acquired copper project in the Antofagasta region of northern Chile.

MAN’s project sits in one of the most copper rich regions on the planet. The world's biggest copper mine, operated by BHP/Rio Tinto and contributing ~5% of global copper production, sits only ~100km away from MAN’s project.

MAN’s project is also de-risked to a certain extent, with ~15,000m of historical RC/diamond drilling results on hand, with a highlight intercept returning:

  • 86m @ 4.83% copper from 121m
    • Which includes higher grade sections of 27m @ 7.1% copper from 134m, and 3m @ 14.4% copper from 164m.

The following slide from today’s presentation stood out to us the most, detailing all of the target generation works that MAN is completing leading up to its maiden drilling program.

  1. Rock chip sampling combined with geological mapping.
  2. Geophysical surveys (IP surveys)
  3. Geochemical sampling (More soil/rock chip sampling)

MAN is sitting on $16.2M in cash, which means its got plenty of runway to deliver on the above exploration plans.

We covered the acquisition and launched our 2022 MAN Investment Memo in our latest note.

To see why like the new copper project and our 2022 MAN Investment Memo, check out our latest note here: Cashed up MAN picks up high grade Chilean copper asset

Assays received from WA nickel, copper, PGE project

ASX:MAN  

Mar 31, 2022

Announcement


This morning MAN announced the assay results from the last EM conductor (Conductor C) which was drilled at its WA nickel, copper, PGE project.

The bad news first: the results returned low grade nickel mineralisation, similar to the first two EM conductors that were drilled over this project, with the following results:

  • 4m @ 0.37% nickel from 82m
  • 1m @ 0.33% nickel from 69m

The good news: MAN ran some downhole EM surveys as soon as drilling was finished and managed to locate an off-hole EM plate measuring ~80 x 20m with strong conductance of 8,750 siemens at a depth of ~125m below the ground.

Despite the conductor being relatively small in size it has a high siemens count, classifying it as having “strong conductivity”. This could at some stage provide an opportunity for MAN to come back and test this project.

As we outlined in our 2022 MAN Investment Memo, we are now more interested in seeing the company drill its newly acquired copper projects in Chile. We’re happy to see MAN confirm in today’s announcement that it will now move its corporate and exploration focus over to that project.

Our recently launched Investment Memo explains all of our reasons for holding MAN in our portfolio, what we want to see the company achieve in 2022, and the risks to our investment thesis.

Trading halt pending an acquisition

ASX:MAN  

Mar 24, 2022


Yesterday we saw our junior exploration investment Mandrake Resources (ASX:MAN) enter a trading halt pending news of a “material transaction”.

MAN’s share price closed at 4.7c just before it entered the halt. That gives the company a market cap of $22.6M, and given MAN had ~$16.4M in cash in the bank as at 31 December 2021, MAN’s enterprise value is currently around $6.2M.

That means MAN has almost 2.5x its enterprise value in cash in the bank. Given the uncertainty in the markets at the back end of 2021 and in early 2022, we like that MAN is cashed up and ready to do some deals.

We expect MAN to come out of trading halt tomorrow. Once the acquisition is announced we will cover it on Catalyst Hunter. Subscribe here to get our take on the deal.

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