US is planning to spend US$2 trillion over the next 10 years in order to reshore supply chains of critical minerals. Lithium and rare earths are listed as critical minerals as part of the US critical minerals strategy.
Opened: 17-Feb-2023
Shares Held at Open: 9,740,545
What does MEG do?
Megado Minerals (ASX: MEG) is a junior exploration company aiming to make a critical minerals discovery in North America.
MEG’s main projects are a lithium project in Canada and a rare earths project in Idaho, USA.
MEG’s lithium project is in the James Bay region of Canada - home to a recent major lithium discovery by Patriot Battery Metals (now capped at ~$1.7BN). MEG’s project shares geological similarities with Patriot’s, and investor attention is focused on the region
What is the macro theme?
The US and Canada are making a concerted effort to reshore critical minerals supply chains - this includes lithium and rare earths.
The Inflation Reduction Act (IRA) mandates that 80% of the critical minerals in US-made EV batteries come from US based mines or mines in countries with free trade deals with the US by 2027.
Lithium is critical in the manufacture of EV batteries, and rare earths are used to make the permanent magnets found in EVs and wind turbines and are also found in high tech defence applications.
Rare earths production and processing is currently dominated by China.
We see both lithium and rare earths as part of a decade long investing thematic.
Our Big Bet for MEG
MEG returns 10x by making a North American critical minerals discovery significant enough to move into development studies, or attract a takeover offer
Why did we invest in MEG?
Right place, right time (critical minerals exposure in North America)
US is planning to spend US$2 trillion over the next 10 years in order to reshore supply chains of critical minerals. Lithium and rare earths are listed as critical minerals as part of the US critical minerals strategy.
Canadian lithium project in the right neighbourhood
MEG’s ground sits along strike to major lithium discoveries made by Patriot Battery Metals (capped at ~$1.7BN), Winsome Resources (capped at $318M).
Similar geology to larger market cap neighbour
MEG sits on top of the same type of rock structures that host Patriot Battery Metals Corvette discovery.
Project has never been explored for lithium
MEG’s lithium project has never been explored for lithium with most of the historical exploration focused on gold. This is despite previous mapping identifying >1km long pegmatite outcrops on projects next to MEG’s.
Vendor of the MEG project was involved with Patriot Battery Metals, retained as a consultant
The vendors of the assets to MEG are from Dahrouge Resource Management, a related party of Dahrouge Geological Consulting (the company that did Patriot’s exploration work). Dahrouge Geological Consulting will be retained as consultants at MEG’s lithium project and have MEG shares which means they have skin in the game to deliver success for MEG.
High grade rare earths in carbonatites
MEG’s US rare earths project has multiple carbonatite structures at surface across ~10km of strike. Rock chip sampling across the project has returned grades of up to 17.7% TREO (Total rare earths oxide). Carbonatites are the same type of rocks that hosts $7.6BN Lynas Rare Earths Mount Weld rare earths project.
Low EV, leveraged to a discovery
MEG is currently trading with a market cap of $11.2M, has $3.5M in cash in the bank trading with a tiny Enterprise Value of $7.7M.
What do we expect MEG to deliver?
Objective #1: Complete target generation works at Canadian lithium project
Milestones
Geological mapping
Rock chip sampling
Define high priority drill targets
Objective #2: Complete target generation works at US rare earths project
We want to see MEG put together a list of high priority drill targets.
Milestones
Geological mapping
Rock chip sampling
Geophysics
Define high priority drill targets
Objective #3: Drill program at Canadian lithium project
We want to see MEG drill test the high priority targets identified in Objective #1.
Milestones
Drilling permitting
Drilling commencement
Drilling results
Objective #4: Drill program at US rare earths project
We want to see MEG drill test the high priority targets identified in Objective #2.
Milestones
Drilling permitting
Drilling commencement
Drilling results
What could go wrong?
Exploration risk
The projects that MEG is working on are early stage projects. As with any exploration company, there is always a chance that after drill testing its targets, MEG returns no mineralisation or uneconomic lithium grades and the project is considered “stranded”. The same risk applies to the drill targets that MEG defines at its rare earths project.
Market risk (macro)
Broader market conditions could change for the worse. This could mean that small cap exploration stocks like MEG suffer from a “risk off” market move.
Commodity price risk
Lithium and rare earths prices could fall, or enter a prolonged downturn. In turn, hurting the economics of any future project that could come from MEG’s drill programs. Even if MEG makes a discovery there is no guarantee that lithium and rare earths maintain their appeal in the market.
Funding risk
As a junior exploration company, MEG will need to seek additional capital to advance the company’s projects. Access to this capital could be impacted by any of the three risks above.
Delay risk
It is possible that there are delays getting permits or weather preventing drilling from proceeding. Any delays with material newsflow can impact a small cap stock like MEG as investors may lose interest as a result of the delays.
What is our investment plan?
After investing in an earlier round as part of the rare earths acquisition, our Initial Entry Price for MEG is $0.039 cents.
As with all our new exploration investments, if the share price runs in the lead up to drilling or on a great drill result (by more than 300%), we will likely de-risk by Top Slicing 20% of our Total Position, in the hope to achieve Free Carry into the remaining drill campaigns.
This is our standard plan across all early stage exploration Investments.
The rest of the Investment plan depends on the outcomes of the company’s drill campaign and will be updated accordingly, and be governed by the 2 to 3 year holding periods as defined in our trading and hold policy disclosure.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 9,740,545 MEG shares and 350,000 MEG options at the time of publishing this memo. The Company has been engaged by MEG to share our commentary on the progress of our Investment in MEG over time.
$2BN Patriot - Can Jody Dahrouge do it again?
May 24, 2023
May 24, 2023 |
11 min
Our Canadian lithium investment, Megado Minerals (ASX: MEG), neighbours the ~$2.2Bn capped Patriot Battery Metals. The Dahrouges, as major shareholders in MEG, are motivated to ensure successful exploration. They hold a blueprint for lithium discovery that has already proven successful in the case of Patriot's $2.2Bn Corvette project.
New Investment: Lithium in Canada with a side of US Rare Earths
Feb 17, 2023
Feb 17, 2023 |
15 min
Today we’ve added a new Portfolio Investment, Megado Minerals (ASX: MEG), who has just acquired a lithium project in the same region of Canada as lithium market darling, the ~$1.5BN Patriot Battery Metals.
MEG finding pegmatites at its James Bay lithium project
Sep 4, 2023
Sep 4, 2023 |
2 min
Our North American critical minerals Investment Megado Minerals (ASX:MEG) has started mapping its lithium project in the James Bay region in Canada.
MEG: Field Work Recommenced at James Bay Lithium Project
Aug 21, 2023
Aug 21, 2023 |
2 min
Our North American critical minerals Investment, Megado Minerals (ASX:MEG) announced today that the company has recommenced field work at its lithium project in James Bay, Canada.
MEG in the field in James Bay, Canada in mid-June
May 29, 2023
May 29, 2023 |
2 min
Our North American critical minerals Investment, Megado Minerals (ASX:MEG) is ready to get on the ground at its James Bay lithium project in Canada.
MEG firming up lithium targets before drilling in James Bay
May 15, 2023
May 15, 2023 |
2 min
Our lithium investment, Megado Minerals (ASX: MEG), has just announced that a promising follow up to their last exploration update suggesting potential for lithium bearing pegmatites.
Megado reveals 415 potential pegmatite outcroppings
Apr 17, 2023
Apr 17, 2023 |
2 min
Our North American critical minerals Investment, Megado Minerals (ASX:MEG), announced it has identified 415 occurrences of potential lithium bearing pegmatite within its James Bay lithium project.
Who will process the world's critical minerals?
May 27, 2023
May 27, 2023 |
11 min
In this weekender, we look at how countries will process the critical minerals that are required for the hallmark transition to decarbonisation and green energy. At this point, almost all of the minerals are processed inside China, but this may soon change due to bipartisan treaties being signed between global superpowers to reduce reliance on China.
What happened at RIU Sydney?
May 13, 2023
May 13, 2023 |
15 min
This week we were at the RIU conference in Sydney, meeting our portfolio companies and looking at new investment opportunities. During this time, we saw Latin Resources (ASX:LRS) - our Brazilian Lithium Investment, have a nice little share price run. Let's dive in!
Why the US needs Uranium Enrichment
Feb 20, 2023
Feb 20, 2023 |
15 min
We have been looking at new Investment opportunities in the US uranium space for a while now but it was only yesterday that we finalised an Investment in a company that fits the bill.
