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Tyranna Resources Limited

ASX:TYX

Last Price:

$0.025

Our Investment Summary

Date of Initial Coverage

06-Sep-22

Initial Entry Price

$0.017

Returns from Initial Entry

47%


Our Big Bet for TYX

TYX discovers and defines a large, simple to process lithium resource, that is on par with world class multi-billion dollar ASX peers such as Pilbara Minerals, Core Exploration, and Liontown Resources, AVZ Minerals and Sayona Mining

Investment Memo: Tyranna Resources Limited (ASX:TYX) - LIVE

Opened: 30-Nov-2022

Shares Held at Open: 37,950,000


What does TYX do?

Tyranna Resources (ASX: TYX) is a junior exploration company, focused on making a new hard rock lithium discovery in Angola, West Africa.

This is a very simple story - TYX’s project has over 600 lithium bearing rocks sticking out at the surface and they are a few months away from the first ever lithium exploration drillhole on the project, hoping for a material lithium discovery.

TYX owns 80% of the project.

What is the macro theme?

Lithium is one of the most critical raw materials in producing lithium-ion batteries.

These batteries are required to power electric vehicles (EVs) AND to store energy for managing the ongoing global energy crisis.

Given the increasing focus on decarbonisation, shift away from traditional fossil fuels and global energy crisis we expect to see demand for the raw materials used in these batteries to remain strong and, in turn, expect to see the capital pour into new discoveries.

Lithium prices have been rising since 2020, remain at all time highs and continue to rise each month.

Why did we invest in TYX?

Hundreds of outcropping pegmatites

Pegmatites are the main source for hard rock lithium deposits. TYX has over 600 different outcropping pegmatites spanning a 25km x 10km strike zone.

Never been drilled and has never been explored for lithium

TYX’s pegmatite fields were discovered in the 1960s. The focus at the time was on feldspar and beryl mineralisation. The outcropping pegmatites have never been drill tested, and the project has only had rock chip sampling undertaken on less than 1% of the project's prospects - plenty more analysis to come.

Spodumene bearing pegmatites included in academic research

TYX has confirmed the presence of high quality spodumene bearing pegmatites in its project. Spodumene presence is generally an indicator for high grade lithium mineralisation. TYX will also benefit from extensive academic research completed investigating spodumene presence across its pegmatite fields.

Sampling of the outcropping pegmatites returned high grade lithium

Recent rock chip sampling returned lithium grades as high as 9.75%. The peak grade across the high quality spodumene bearing pegmatites was 7.88% - very high grades. This is a strong sign ahead of drilling.

TYX Technical advisor worked on AVZ Minerals - 4.3c to a peak of $1.35

Peter Spitalny acted as chief technical adviser to AVZ Minerals (capped at $2.7BN, prior to its suspension) for its lithium/tin project in the Democratic Republic of the Congo. Peter Spitalny is TYX’s principal technical advisor. Having successfully defined a large multi-billion dollar lithium resource, we hope Peter can do it all again with TYX.

We have had previous success Investing in Angola

We have been Invested in Angolan fertiliser & green ammonia developer Minbos Resources for over two years. During that time we watched Minbos’ successful progress its project in Angola seeing its share price rise from 3c to a peak of 21.5c per share (~615%) and more recently we have started to see large investor appetite for battery materials projects inside Angola.

What do we expect TYX to deliver?

Objective #1: Fieldwork to confirm spodumene presence and define drill targets

We want to see TYX conduct several field trips to map out and take samples from its project with the aim of identifying the presence of spodumene bearing pegmatites.

Milestones

Rock chip sampling

Geochemical mapping

Define the highest priority drilling targets in a drilling program

Objective #2: Drilling of the targets identified in objective #1

We want to see TYX drill test high priority targets identified after the ground truthing programs are completed across the project area.

Milestones

Drilling permitting

Drilling commencement

Drilling results

Objective #3: Make a lithium discovery

With drilling slated for Q4 2022, we think that if TYX can return assays grading at or above 1% lithium then the company could confirm a new discovery.

Our bull/base/bear case expectations for the drilling results are:

Bull case = Grades of greater than 1.5% lithium

Base case = Grades of greater than 1% lithium

Bear case = Grades of less than 1% lithium

What could go wrong?

Exploration risk

Although TYX has over 600 confirmed outcropping pegmatites across its project, there is no guarantee that these pegmatites host economically recoverable lithium mineralisation. As with any exploration company, there is always a chance that after drill testing its targets, TYX returns uneconomic lithium grades and the project is considered “stranded”.

Commodity pricing

The lithium price is currently trading near all time highs and rising. Any negative change in the lithium price may impact demand for new discoveries. This would particularly hurt the share price of junior explorers like TYX that are still early in the exploration cycle.

Funding risk

TYX is a junior explorer that has no revenues to fall back on, as a result the company is reliant on fresh funding for future exploration programs, this will mean TYX comes to market to raise more capital from investors to finance major exploration programs.

Market risk

If the broader market sells off there is a chance that investors shy away from high risk investment opportunities such as early stage junior explorers. During market downturns, investors will generally look to pull capital away from the highest risk investments. TYX is an early stage explorer and may be impacted by these market wide sell offs.

Geopolitical risk

TYX’s lithium project is located in Angola which is a developing country in the west of Africa. There have been several coups in neighbouring countries and the region has a history of geopolitical uncertainty. As a result there is a risk the regulatory environment changes impacting project permitting, tax laws or tenure requirements.

What is our investment plan?

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: S3 Consortium Pty Ltd (The Company) and Associated Entities own 37,950,000 TYX shares and 10,000,000 TYX options at the time of publishing this Investment Memo. The Company has been engaged by TYX to share our commentary on the progress of our Investment in TYX over time.


Investment Milestones for TYX

Initial Investment: @1.7c
🔲 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

Maiden lithium drilling program complete - assays in Feb

ASX:TYX  

Dec 06, 2022

Announcement

Investment Memo: TYX IM1
Objective 2 : Drilling of the targets identified in objective #1
Milestone 3 : Drilling results


This morning our 2022 Catalyst Hunter Pick Of The Year Tyranna Resources (ASX: TYX) completed its first ever drilling program at its Angolan lithium project.

The program saw TYX drill a total of 9 diamond drill holes with TYX confirming visible lithium mineralisation in drillholes 4, 5, 6 and 7.

TYX has now completed the sampling and cutting of the drillcores with the samples expected to be shipped to Australia by the end of December.

TYX expects the assay results from the drilling program to be received in February 2023.

While the main focus here is on lithium, we note that TYX detailed the discovery of ‘pollucite’ which contains caesium. Pollucite is used to create a product that is used by drill rigs targeting oil and gas discoveries.

The significance of this is that should TYX be able to delineate a large lithium resource it could also have a pollucite by-product that it can sell, improving overall project economics.

TYX confirmed that it would include some of these pollucite targets in its 2023 drilling plan.

What’s next?

Assays from 9 hole diamond drilling program 🔄

TYX is yet to ship the samples to Australia. Assays from the program are expected in February 2023.

Metallurgical testing of bulk samples 🔄

Concurrent to its drilling results TYX will also be running a metallurgical testwork program to see if the mineralisation at its project can be extracted economically.

The metwork program is expected to start in early January with results due in March 2023.

Brokers comparing LRS to $5.7BN capped Sigma Lithium

ASX:LRS  

Nov 02, 2022

Macro: Lithium

Investment Memo: LRS IM-2022
Investment Thesis 5 : Favourable peer comparison


Late last week we saw both Bell Potter and PAC Partners initiate coverage and release research reports on our lithium exploration Investment Latin Resources (ASX: LRS).

Both reports made mention of LRS’s upcoming maiden mineral resource estimate, while also detailing how LRS’s project could grow into a project analogous to that of its $5.7BN neighbour, Sigma Lithium.

Bell Potter said that they “expect that the deposit could notionally support +200ktpa spodumene concentrate operation. A potential analogue of Salinas is Sigma Lithium’s project located around 100km to the southeast”.

An interesting point that we took from the PAC Partners report was a comparison of Sigma Lithium’s rise to where LRS finds itself today.

PAC speculated that LRS’s maiden mineral resource estimate “could be of size range 11Mt to 17Mt with a grade range 1.3% to 1.5%” and that, “For comparison, Brazil peer Sigma’s initial mineral resource estimate was 13Mt at 1.56% in 2018”.

When Sigma announced that resource estimate, its market cap was around the same as LRS’s is today.

Sigma has since defined a total of five different deposits.

In a similar fashion, LRS is now putting together its first JORC resource and has just announced a new discovery, just 500m from its first discovery.

The following chart showing Sigma’s share price and notable events puts LRS’s progress into perspective:

Sigma now trades with a $5.7BN market cap, or 25 times as much as LRS’s $230M market cap.

To see the two broker reports click on the following links:

  1. PAC Partners research report
  2. Bell Potter research report

What’s next:

We want to see LRS’s maiden mineral resource estimate, for which we previously set our expectations as follows:

  • Bull case (exceptional) = >15Mt JORC resource
  • Base case = 5-15Mt JORC resource
  • Bear case = <5Mt JORC resource

Read our latest LRS article to see the reasoning behind our expectations: Lithium deposit getting bigger - plenty more drilling to come

McKinsey on Battery Materials Demand

Oct 21, 2022

Macro: Lithium


There’s a really interesting article here from McKinsey on the huge demand EVs will create AND how the battery materials supply chain can meet this demand.

Key takeaways:

  • Lithium and nickel - “the battery industry’s demand for lithium is expected to grow at an annual compound growth rate of 25 percent from 2020 to 2030, while demand for nickel could multiply as battery demand shifts to nickel-rich products”
  • Asia making the batteries and Europe buying - “70 percent of the key equipment suppliers, for both coating and general cell assembly equipment, are based in Asia…companies in North America and Europe may need to consider developing strong international sourcing relationships.”
  • Geopolitics a major factor - lithium is widely abundant, but ~70 percent of current global production is in Australia and Chile, meanwhile the majority of global cobalt production is in the Democratic Republic of the Congo - which has faced criticism over its mining practices

There’s a great chart here too, which shows the demand growth from EVs and the geography and battery chemistry breakdown:

We’re Invested in a broad spectrum of battery materials companies as part of a decade long investment thesis.

To find out what what battery materials companies we hold in our Portfolio click the button below:

TYX: Civil works started, drilling to start shortly

ASX:TYX  

Oct 14, 2022

Announcement


Yesterday, our lithium exploration investment, Tyranna Resources (ASX:TYX), started pre-drilling works at the company’s Muvero prospect in Angola.

This includes repairing access tracks, mobilising equipment to site and preparing drill pads.

Below is where the first drillhole will go in:

We’re hoping that TYX gets off to a good start with its maiden drill campaign under the guidance of highly respected lithium geologist and explorer Peter Spitalny.

For a quick helicopter level rundown of TXY, read our TYX Investment Memo

What’s next for TXY?

TYX said the company plans to commence drilling “shortly” after a couple small delays.

Lithium supply shortage to continue

Sep 26, 2022

Macro: Lithium


The lithium supply shortage is set to continue for at least the rest of this decade and into the 2030s, says a key adviser to the London Metals Exchange and LME lithium committee inaugural chairman Ron Mitchell.

As reported in the AFR this morning, Mitchell said that for lithium production to come anywhere near meeting upcoming demand, a lot of new mines would be needed and that “a lot is going to have to go right if we’re going to get the tonnes we need in the market”.

The increasing demand from European car makers has driven a steep rise in prices for the key battery ingredient since 2020.

Yet the market still has a lack of price transparency, which was largely behind the reason that the LME joined forces with reporting agency Fastmarkets in mid-2021 to launch a futures contract for lithium hydroxide.

But even with this lithium futures contract, it remains hard to compare lithium to other commodities. Because it is a nuanced specialty chemical, every lithium product is different, making it difficult to trade off a futures index and apply discounts or premiums based on quality.

Mitchell also highlighted the challenges around the shelf-life of the material that make it hard for physical trading as well, explaining that “you can’t just store it in a shed and leave it there for two or three months and then as the price increases bring it to market. There’s risk in doing that.”

Mitchell also commented on the trend of car makers taking equity positions in lithium producers and explorers, such as Toyota with Allkem, Ford with Liontown and Great Wall with Pilbara Minerals. We’d add Vulcan Energy Resources (ASX: VUL) to that list which last year received a A$76M (€50M) equity investment from Stellantis N.V.

Looking ahead, Mitchell expects that trend to continue and it to also extend to producers and explorers of other battery minerals

.

Lithium prices now trading at all time highs

Sep 20, 2022

Macro: Lithium


The following Bloomberg article touches on the structural supply shortages experienced across the lithium supply chain.

This comes as the lithium price traded at a record high on Friday at US$71,315 per tonne.

For us, it points to just how important it is for the mining industry to make new lithium discoveries match the exponentially increasing demand for lithium.

Without massive investment in new exploration, we simply won’t have enough lithium to catch up with the demand from battery makers.

Last week, we saw a presentation from Benchmark Minerals Intelligence senior lithium analyst Dr Cameron Perks, who touched on the timing differential between building upstream (new lithium mines) and downstream demand (battery manufacturing facilities).

Whilst it could take ~25 years for a new discovery to be put into production, downstream facilities can be built as quickly as <24 months.

As a result, we see the shortage lasting for at least the next five years.

Read the full article here.

Our key takeaways:

  • Lithium carbonate traded at all time highs on Friday (US$71,315/ tonne) - almost 3x higher than this time last year.
  • Price increases coming from higher electric vehicle (EV) sales forecasts which are expected to hit a record 6 million this year, double the 2021 total.
  • Soc. Quimica & Minera de Chile SA (SQM), the world’s No. 2 lithium producer, predicted a “very tight market” in the years ahead.
  • Battery-makers and automakers are rushing to lock in reliable and stable lithium supplies. Still, the lithium price continues to remain extremely high.

We hold investments from the exploration stage up to development ready projects in the lithium space.

Below is a list of our lithium Investments:

Vulcan Energy Resources (ASX: VUL) - Next Investors Portfolio

  • Zero Carbon Lithium, development stage, Germany (European Union)

European Metals Holdings (ASX: EMH) - Wise Owl Portfolio

  • Lithium, development stage, Czech Republic (European Union)

Tyranna Resources (ASX: TYX) - Catalyst Hunter Portfolio

  • Lithium, exploration stage, Angola

Latin Resources (ASX: LRS) - Catalyst Hunter Portfolio

  • Lithium, exploration stage, Brazil

Ragusa Minerals (ASX: RAS) - Catalyst Hunter Portfolio

  • Lithium, exploration stage, Northern Territory

Battery materials demand will need more than 300 new mine

Sep 16, 2022

Macro: Lithium


The battery materials thematic is a major part of our Portfolio.

After a nasty down day for the market two days ago driven by inflation fears emanating from the US, we remain confident that this theme will be part of a decade long trend.

A recent Benchmark Mineral Intelligence report highlights just how much battery materials are needed for the world to reach its ambitious decarbonisation goals.

The report notes that, “At least 384 new mines for graphite, lithium, nickel and cobalt are required to meet demand by 2035.

Here are the companies in our Portfolio that we hold as exposure to each of the four battery materials referred to in the report (click the company name to see our Investment Memo):

Graphite:

Sarytogan Graphite (ASX:SGA) - early stage development, Kazakhstan

Evolution Energy Minerals (ASX:EV1) - late stage development, Tanzania

Lithium:

Tyranna Resources (ASX:TYX) - exploration, Angola

Latin Resources (ASX:LRS) - resource definition, Brazil

Vulcan Energy Resources (ASX:VUL) - development, Europe

Ragusa Minerals (ASX:RAS) - exploration, Northern Territory (recently acquired)

European Metals Holdings (ASX:EMH) - development, Europe

Nickel:

Galileo Mining (ASX:GAL) - exploration, Western Australia (currently in resource definition mode on PGE project)

Cobalt:

Kuniko (ASX:KNI) - exploration, Europe (KNI also has a nickel project)

The report also had a great infographic outlining the required tonnages of the various materials which can be found below:

We note that one Barrenjoey analyst recently upgraded their forecasts for the lithium prices for 2023 and 2024 by 36% to and 86% respectively.

As a bellwether of the battery materials space, the lithium price remains strong:

We remain confident in our battery materials Investments now, as well as over a long term +3 year timeframe.

Structural shortage in lithium supply now a bigger problem

Aug 24, 2022

Macro: Lithium


The following Bloomberg article is more proof of how fragile the lithium industry's supply-demand situation is.

A shutdown in a particular part of China can quickly cascade into supply shortages, leading to increased prices and scenarios where end users cannot purchase the amount of lithium they need.

Read the full article here.

Our key takeaways:

  • Sichuan, a city home to more than a fifth of China's lithium production, is experiencing industrial power cuts. This means the already tight lithium market is experiencing more by way of supply shocks.
  • Supply disruptions are expected to lead to increased lithium prices.
  • Rystad Energy analyst (Susan Zou) said the following - "We are estimating the lithium price momentum will last for a while, and the spot price for lithium carbonate will climb to 500,000 yuan per ton (US$73,000 per tonne) shortly,"

Another article highlighting the structural supply shortages in the lithium industry.

For us, it points to just how important it is for the mining industry to make new lithium discoveries match the exponentially increasing demand for lithium.

Without massive investment in new exploration, we won't have enough lithium to catch up with the demand from battery makers.

We hold investments from the exploration stage up to development ready projects in the lithium space.

Below is a list of our lithium Investments:

Vulcan Energy Resources (ASX: VUL) - Next Investors Portfolio

  • Zero Carbon Lithium development stage, Germany (European Union)

European Metals Holdings (ASX: EMH) - Wise Owl Portfolio

  • Lithium, development stage, Czech Republic (European Union)

Latin Resources (ASX: LRS) - Catalyst Hunter Portfolio

  • Lithium, exploration stage, Brazil

Ragusa Minerals (ASX: RAS) - Catalyst Hunter Portfolio

  • Lithium, exploration stage, Northern Territory

Tesla profit jumps, ASX lithium stocks jump

Jul 22, 2022

Macro: Lithium


Yesterday, Elon Musk’s Tesla notched a 57 per cent jump in adjusted earnings per share (EPS) in its latest quarter, a 42% rise in revenue on this time last year and forecasted annual sales growth of 50 for the foreseeable future:

The good numbers out of Tesla were enough to see a number of ASX listed lithium stocks jump on the news, including three of our lithium Investments.

These include the following (with yesterday’s moves):

Vulcan Energy Resources (ASX:VUL) - +8.76%

Latin Resources (ASX:LRS) - +8.33%

European Metals Holdings - +5.33%

What we think is playing out here is perhaps a bit of market pushback against bearish lithium narratives - which in part originated out of Goldman Sachs and Credit Suisse in mid-June.

This, despite the lithium price holding steady at a very elevated level for the last three months:

After tax loss selling in June slowly ground to an end - we’re seeing a bit of life coming back into the market - with potentially a bit of bargain hunting going on.

We remain bullish on lithium’s prospects as part of a decade-long battery metals boom and remain long-term holders of the three companies listed above.

There’s an easy way to see these companies on our portfolio page, along with our other portfolio filters (click the image to see our lithium companies all in one place):

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