Gold retains its status as the metal attracting the biggest exploration budgets, but for the best stock market performance these days it’s hard to beat lithium, which is why Breaker Resources (ASX: BRB), a stock with a foot in both camps, could be worth a look on the basis that history can repeat.
Not an inspiring performer over the past month with its share price down 21% from $0.42 to $0.33, Breaker has an asset base with the same hallmarks as earlier gold explorers which blossomed after their lithium interests won greater recognition.
Whether Breaker can follow the lead set by past gold-to-lithium success stories such as Kidman Resources, Pilbara Minerals (ASX: PLS) and Liontown Resources (ASX: LTR), remains to be seen but the geological evidence is getting stronger – even if management appears to be uncertain about which way to turn.
Manna lithium discovery a ‘distraction’ from Breaker’s gold focus
The internal ambiguity was evident in last week’s update by Breaker on its Manna lithium discovery which lies inside the company’s Lake Roe gold project about 100km east of Western Australia’s gold capital, Kalgoorlie.
Rather than shout from the roof tops that the latest drilling at Manna had returned highly encouraging results such as 17 metres at 1.54% lithium oxide from a 38m depth, Breaker chief executive officer Tom Sanders implied that the discovery might become a “distraction”.
“It’s a bit ironic that we have discovered a cluster of pegmatite intrusions with outcropping spodumene and other significant lithium-related anomalies while trying to not distract ourselves from a major gold discovery at Bombora, our core focus,” Mr Sanders said in a statement.
One interpretation of that comment, and the fact that Manna was listed in a presentation at the company’s annual meeting last month as “non-core”, is that Breaker is more likely to spin-off or sell the lithium discovery than develop it.
For investors, the development or spin-off options for Manna should be a win either way as previous gold-to-lithium situations have evolved, though hanging on to replicate a billion-dollar lithium bonanza must also be appealing to some shareholders.
Earlier examples of lithium discoveries getting in way of gold exploration
Two years ago, the first of three big gold-to-lithium pay days hit the headlines when Kidman Resources, trading then at around $0.30, was acquired by Wesfarmers (ASX: WES) at $1.90 a share in a deal valued at $776 million.
Kidman’s discovery of the Earl Grey lithium deposit at Mt Holland in WA was an early example of lithium-rich pegmatites (a type of geological intrusion) “distracting” a determined gold explorer from its focus – until a scramble developed for lithium assets which easily outvalued the company’s gold.
Pilbara Minerals, with a checkered history chasing gold in Papua New Guinea and then tantalum in the north-west of WA, was eventually bowled over by the high grades of lithium in what was originally known as the Pilgangoora tantalum prospect.
After a false start when the lithium price tanked last year, Pilbara has stormed up into the top 150 companies on the ASX, currently ranked at 76th with a market value of $7.7 billion, a remarkable achievement for a stock priced at $0.15 just 18 months ago and to now be trading at $2.58 – a 1,600% rise.
Liontown is the third gold-to-lithium success story with an early interest in Tanzanian gold exploration before hitting on the Kathleen Valley lithium deposit in WA, a discovery which elevated Liontown from the ranks of penny dreadfuls when it was a $0.02 stock just two years ago to a company trading at $1.92 with a market value of $3.7 billion and 122nd spot on the top 150.
Investors and banks are today falling over themselves to get a slice of Liontown, which yesterday raised a handy $450 million to fund the first stages of what will become a world-class lithium project.
It’s with that background of companies swapping gold for lithium, and making fat profits for investors in the process, that Breaker is mulling what to do with the “distraction” of a potentially high-value lithium discovery which seems to be messing up its plans to become a gold miner.
Manna follow-up drilling planned
Mr Sanders was out of the office this week but said in last week’s statement that the objectives of the latest drilling program had been achieved with “every hole successfully intersecting spodumene-bearing (lithium) pegmatite.”
“All areas of spodumene mineralisation are open along strike and at depth, and the discovery remains sparsely tested.”
The nature of the Manna discovery appears to be a series of stacked pegmatite dykes over a 130m wide zone which the company said shows little sign of weathering and in a “favorable configuration for open pit mining with preliminary test work indicating the potential to produce a high-grade low impurity spodumene concentrate”.
“The lithium-bearing pegmatite at Manna appears to be part of a cluster of deep-seated crustal faulting into which fractionated pegmatites have intruded,” he said.
Mr Sanders said more work is required at Manna and planning is underway for the next round of drilling.
A look back in time reveals similar comments by management at Kidman, Pilbara and Liontown when they first drilled into lithium-rich pegmatites, though it can also be said that the early thicknesses were higher with Kidman’s bonanza hit measuring 93m thick at a grade of 1.53% lithium, with a core of 8m at 2.33% lithium.
The debate around the boardroom table at Breaker must be interesting at this stage of a gold project moving towards a development decision (as the gold price retreats) while a lithium discovery is being worked up into something of significant value (as the lithium price rises).
Gold heavy board
The board of Breaker is “gold heavy” led by career hard-rock miner Peter Cook as chairman, backed by other directors with gold backgrounds and three big US-based shareholders sharing the gold bias – Electrum Strategic Opportunities with a 10% stake, Paulson & Co also on 10%, and Franklin Templeton at 6%.
It’s that management and ownership structure which points to Manna being floated off, providing current Breaker shareholders with a chance to ride the lithium boom while the company pushes ahead with the 1.4-million-ounce (and growing) Bombora gold project.
At its latest share price of $0.33, Breaker is capitalised at a lowly $104 million, modest for a stock with proven gold in the ground and a lithium-flavoured cherry on top.