Investment Memo: Ragusa Minerals (ASX:RAS)

Published on May 23rd 2022

What does RAS do?

Ragusa Minerals (ASX: RAS) is a junior exploration company focused on its hard rock lithium project in the Northern Territory.

RAS also holds gold prospects in the USA and a halloysite project in Western Australia.

What is the macro theme?

Lithium is one of the most critical raw materials that go into producing lithium-ion batteries. These batteries are specifically required to power electric vehicles (EV’s). Lithium is considered a critical material for the transition away from fossil fuels by the USA, AUS, India, EU and Japan.

Halloysite has traditionally been used in ceramics and the energy sector. Halloysite is expected to be a critical mineral in up and coming technologies including – energy storage, batteries, supercapacitors, carbon capture, and cancer therapeutics.

Gold has historically outperformed during times of market volatility (e.g market bubble crash, inflation taking hold). We believe gold provides a good hedge to a portfolio of longer term investments.

Why do we continue to hold RAS in 2022?

1. Lithium projects along strike to Core Lithium (currently capped at $2.3 billion): RAS holds ground along strike Core Lithium’s hard rock Finnis deposit which has a 15mt JORC resource with lithium grades of 1.03%. RAS’ project also sits next door to explorer Lithium Plus’s (Currently capped at $61M) NT lithium projects.
2. Gold projects neighbouring ~16 million ounces of gold resources: RAS holds a portfolio of gold projects which sit next door to Nova Minerals (currently capped at $116M) ~9.6m ounce gold resource as well as GoldMining Inc’s (currently capped at $234M) 6.5+ million ounce gold resource in Alaska, USA.
3. Halloysite next door to Latin Resources: The company’s Halloysite project in WA borders Latin Resources’ Cloud Nine Halloysite-Kaolin deposit which has a 207 million tonne inferred mineral resource. We think the Cloud-Nine deposit extends into RAS grounds.
4. Low enterprise value (EV) means leverage to a discovery: Company has 125 million shares on issue with ~2.2 million currently escrowed. With a current market cap of $10M and $3.2M cash in the bank, the enterprise value is only $6.8M. This makes the stock highly leveraged to any discovery.

What do we expect the company to deliver in 2022?

Objective #1: Complete due diligence on NT lithium project:

RAS will have a 12 month due diligence period over these projects. In that time we want to see the company do enough exploration work to be informed enough to make a decision on whether or not to proceed with the acquisition.

Milestones:

🔁 Geochemical mapping
🔁 Geochemical sampling
🔁 Define high priority drilling targets
🔲 Undertake at least one drilling program
🔁 Complete due diligence and proceed with farm in agreement

Objective #2: Drilling results from the Halloysite project in WA

With drilling recently completed (4th May 2022), we want to see the results from the drilling program confirm that Latin Resource’s deposit does in fact extend into RAS’ grounds.

Milestones:

🔁 Drilling results

Objective #3: Define a maiden JORC resource at its WA halloysite project

Pending a successful drilling program, we want to see RAS put together a maiden JORC resource estimate at its WA halloysite project. This will be contingent on Objective #2 being successfully completed.

Objective #4: Drilling at the company’s Alaskan Gold project

Initial desk-top studies leading to sampling and other target generation work early in 2022 hoping to see the assets drilled in Q3-4 2022.

Milestones:

🔁 Desktop studies
🔁 Geochemical sampling/geophysical surveys
🔁 Define high priority drilling targets

What could go wrong?

Exploration risk - A large part of the investment thesis in RAS is based on “nearology” with little in the way of exploration drilling conducted to date. This means the company’s assets are all highly speculative at the moment. There is a risk that once further drilling is completed, RAS may make no discovery & the valuation of the company goes down as a result.

Commodity risk - Lithium markets are still in the relatively early stages of growth, with demand mostly based on electric vehicle (EV) uptake. The price of lithium could stay volatile as end user markets continue to evolve. Halloysite is considered a mineral for the future. If the use-cases don't scale there is a risk that halloysite deposits are not considered important by the markets and RAS’s project is not of interest to investors.

Funding risk - RAS is a very early stage exploration company and is reliant on continuous funding of high-risk exploration programs. There is a risk that market conditions deteriorate and investors shun high-risk explorers like RAS.

Market risk - RAS is an early stage exploration company chasing new discoveries. There is always a risk that a market wide sell off will hurt RAS’s share price the most, given investors will look to withdraw capital from the high risk high reward investments in their portfolios first.

What is our investment plan?

Our investment plan for RAS is the same as for all our early stage, exploration investments:

• Invest early (way before the main, initial drilling event)
• Patiently wait till the drilling event approaches
• Free carry and take some profit prior to the initial drill results
• Hold a position into the result
• Reassess the plan based on the initial results.

Disclosure: The authors of this article and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 2,610,000 RAS shares at the time of publication. S3 Consortium Pty Ltd has been engaged by RAS to share our commentary and opinion on the progress of our investment in RAS over time.

We have revised our 2022 RAS Investment Memo to incorporate RAS’s new project acquisition.

Read the original RAS memo here..

We periodically revise our Investment memo’s when key material events take place that impact the Investment thesis - see our Investment Memo revision policy for more details.

Investment Milestones for RAS

✅ Initial Investment: @6.5c
✅ Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years