There’s a difficult point in every miner’s life
Sadly I have no specific information as to the outcome here for Arbor Metals (TSXV:ABR:CA) (OTCPK:ABRMF) and if I did have then it would be inside information and me telling you would mean we all went to jail if we traded upon it. In the absence of us all liking cold oatmeal for dinner therefore let’s not do that.
However, it is possible to describe the basic background here. Over and above anything else Arbor depends upon the outcome of the exploration work being done up at James Bay in Canada. If this turns out to be a big new lithium province and they own the right part of that then they’re very much more valuable than they are now. If James Bay isn’t that rich, or they’ve got just the wrong little bit of it, then they’re probably not worth what they are now. So, we’re at a fairly binary stage. There’s lithium in them thar’ hills or there ain’t.
The background
This is the sort of analysis that will horrify actual geologists but it’s a good introduction for non-specialists. There are several possible sources of lithium. The clay deposits like Thacker Pass (Lithium Americas), the salars or salt pans of Latin America (Lithium Americas Argentina, SQM and others), geothermal waters (Salton Sea, Vulcan Energy) and the thing we’re looking at here, spodumene or hard rock mining (Ganfeng as a processor, Core Lithium as a miner, Altura and Pilbara as a joint fun story).
Hard rock lithium mining
Hard rock mining means just that. The trick is to find pegmatites. Once that’s been done, check to see if they contain spodumene. Then check to see if the spodumene contains lithium. This process can fail at any point – not all pegamatites contain spodumene, not all spodumene contains lithium. That last can vary from trivial levels of 0.1% (“Son, let’s go home” levels) to 1.5% and above (“Tell Ma to buy that place in Beverly Hills” levels). Well, that last is then economic if there’s enough volume there to support the infrastructure necessary to mine and build a concentration plant. Or perhaps just the transport infrastructure to ship DSO (direct shipping ore).
We can see that there are a number of possible failure points here. It’s also true that passing any of them is value additive. Rather like pharma development investing – passing Phase I testing adds value, the next test is Phase II which can be failed – total blowout, all money so far lost – or passed which is value additive until Phase III is passed or failed. We have those trigger points, valuation moments, in the hard rock lithium mining process.
Passing each test does indeed increase corporate or mine valuation. But that value add is always conditional – it’s based on having passed the one test (pegmatites!) but is subject to passing the next (spodumene!). We can have a blowout to low or zero value at any stage. Which is, of course, the risk of an exploration miner.
That hope value of having passed that first stage followed by the blow out of not passing one of the subsequent ones. And, we need to face this, most don’t pass all of the stages.
Except, well, new minerals.
Sometimes lots of exploration does work. Say, something’s been so unfashionable, or low value at least, that no one’s really paid attention to going mining for it. That means there’s been very little exploration. Then demand changes, everyone starts sending the men with hammers off on their mules. Now, it might be true at this point that lots of exploration expeditions are successful. Simply because no one really bothered before and then we find out that actually, this thing we’re looking for is really plentiful.
Arguably this could be true of lithium. It’s not that long ago – within my adult lifetime, certainly and while old I’m not yet elderly – that lithium was more often a byproduct of tantalum mining than anything else. At least in this hard rock, not salar, sense – the Greenbushes Mine, then owned by Sons of Gwalia, was mined for the Ta content in the wodginite (which I do think is a lovely name for a mineral) and the Li was the byproduct. So, the demand for Li from EVs, this has pushed a vast expansion in exploration. I’ve seen a list on SA here of over 200 lithium explorers. And if not much exploration was done for decades then maybe many of them will find it?
Or, at least, the odds of finding economic deposits is higher than with some other minerals that folk might explore for. Of course, if all 200 find economic deposits then the value of any specific deposit plummets – demand has risen, sure, but it’s nowhere near the levels where it’s going to exhaust the Earth’s capacity to supply (my own estimate is that we’re some 10 orders of magnitude below – note, below – that sort of level of demand).
So where’s Arbor then?
There’s one more little bit here. We do tend to think that geology is similar in nearby areas. Not exactly the same, but similar. Therefore we’ve that series of iron ore mines in the Pilbara. Actually, we’ve got what looks like a new lithium province at Andover near to or in the Pilbara. A “province” is a large area of similar mineralisation which leads to a cluster of mines all producing the same thing. Think the gold reefs in South Africa say, or the coal fields of Appalachia perhaps.
We also need to be careful about such provinces. Because there will always be those who say that because Jimmy’s got the right mineral 10km from my claim then I’ve also got the right mineral on my claim. Which isn’t, necessarily, true. Because while we do have provinces, nearby geology isn’t going to be the same, just similar.
James Bay
The James Bay area of Canada is one of those “highly prospective” areas for a new lithium province. The geology looks right for there to be lithium there. People are producing good results in their hunts for lithium. That base geology extends over a large area. We’d expect some of it to be true, therefore we’ll end up with the necessary infrastructure to be able to exploit good deposits.
Which is all good and it does mean that any specific claim in the James Bay area now has value. Not objective value, but subjective – maybe that geology extends to my claim too? At which point we come back to that series of exploration tests, pegmatites, spodumene, lithium content. We’re at the sort of stage, with the James Bay Province, that anyone even with a claim there is going to see some value add. Just an announcement to the markets that you have a claim really will raise a stock market valuation. But that’s subjective. Or, perhaps, it’s tied to the value of passing those series of tests is a better description.
So, where’s Arbor?
Well, about here: “Arbor Metals Corp is pleased to announce the successful completion of its planned exploration program at the Jarnet Lithium Project in Quebec, Canada. The comprehensive program, which focused on mapping, prospecting activities, and drilling potential targets, has been concluded, and all collected samples have been diligently dispatched to the laboratory for testing and analysis.” And what’s Jarnet about? “The Jarnet lithium project , located in the James Bay region of Quebec, comprises 47 map-designated claims, covering an area of approximately 3,759 hectares. The Jarnet project is contiguous to the Corvette-FCI property, where diamond drilling has confirmed significant lithium mineralization, representing one of the highest-profile lithium exploration projects in the sector.”
As I said, having simple claims in the right new potential province will create value. Arbor is currently valued at some $100 million or so. Which is quite a lot for having some claims – although they’re over a large area and it is, rightly, one of those highly prospective provinces. We’ve also that news that next door has found some lithium mineralisation. So all of the bits that create prospective, even subjective, value are there. Hopium we could even call it. Now comes that series of tests to see whether there’s objective value there.
My long term view
My long term view on lithium is negative. Yes, I know about EVs and the rest. But as I keep insisting there’s a lot, lot, more lithium out there than anyone seems to realise. Therefore the scarcity value of any specific lithium deposit is going to decrease. Well, will decrease “says I” rather than stating an absolute fact about our universe. However, the value of an exploration miner isn’t wholly based upon that. An economic find will still be value boosting. Fin Resources is up 130% on finding spodumene crystals in their James Bay claim for example. Note, not just pegmatites, but spodumene in them, but not, as yet, lithium in the spodumene. There’s still value in passing each of those tests, even if I’m gloomy about the long term.
But Arbor’s position?
Well, we’re awaiting that information about the exploration program. We really just don’t know. They’re not claiming even pegmatites yet, not in the formal sense, let alone spodumene or lithium. So value depends upon those exploration findings.
We have just one little guidance. They’ve raised money off the back of having completed the exploration program. “The Company is also pleased to announce that it will conduct a non-brokered private placement (the “ Offering ”), under the Listed Issuer Financing Exemption (as defined below), of up to 3,333,334 units of the Company (each, a “ Unit ”) at a price of $1.50 per Unit to raise gross proceeds of up to $5,000,000.”
Think through this a little. We’ve those series of increases in valuation as targets are hit – pegmatites, spodumene and so on. So, if value increases with each of those then you want to be able to raise money *after* making such a release. If you make a raise after the exploration but before the full information release, well, it might be that you’re not entirely confident about the value of your exploration. Perhaps this is being cynical but if their drills were full of spodumene (you can indeed identify it by eye, but not the lithium content of it) then we’d expect the fund raise to be a little later.
But that’s me getting to the end of a pretty long chain of logic there.
The corporate finances
There’s really very little inside Arbor that is not this one project. There’s a little bit of debt left over from their last attempts at finding something but this is being paid off with the receipts from this stock issue. Last quarter’s turnover – and last quarter’s loss, given the entire absence of revenue – was some $80,000. That’s not evidence of doing anything, that’s evidence of having a market listing, a post box and an accountant if I’m allowed to be flippant about it.
Of the $5 million about $3 million will be “working capital”, $1.5 million those initial exploration expenses at Jarnet. They can definitely finish off the initial survey within that budget. They’ll also – near certainly – not be able to do detailed exploration within it. So, they’ll be able to survey for pegmatites, take samples, map out the area, aerial surveys, that level of work. They’ll not be able to do extensive drilling to map out any spodumene layers there might be. There’s a possibility that they’ll find some surface spodumene mineralisation, possibly even take samples of such surface finds and get them analysed for lithium content. But a detailed mapping and proof of lithium content in their area? No, there’s not enough to do that.
So, Arbor will do one of two things. Firstly, find nothing of interest and that’s that. Second, find perhaps extensive pegmatites with some indication of, possibly, decent spodumene mineralisation and possibly some indication of lithium content in that spodumene. That would be the next valuation point. At which point we should all expect another capital raise so that they can do more detailed research actually mapping out the full contents of the claim.
The current valuation of Arbor, at the $100 million and change, really is the prospective claim plus the $4 million or so of cash they’ve got. So it’s a pretty binary option here. Either there’s something interesting in them thar’ hills or there ain’t. Value will follow that.
They’ve enough money to get to the next traditional valuation point. What that value will be, well….
The investor view
Arbor is an exploration miner and the value of the company depends upon what they find. That sounds obvious enough but that is where we are. Until we know those exploration results the value at Arbor is that hopium that there might be something there. Not an exciting conclusion from me I know but the value is, well, what do you think they’ve got there?
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