Is the critical minerals BUS about to get moving?
Bubalus Resources has two promising projects and two billionaire neighbours. With government backing fuelling the sector, could this be the perfect recipe for a breakout stock?
The Aussie government tends to have our back when it comes to national security and critical minerals. We've seen it again recently.
For those who haven't been paying attention, the critical minerals industry – the minerals that go into your smartphone, laptop, electric vehicle, and so many of the technologies we rely on – has been dominated by China. They control over 90% of global rare earths and lithium processing. That's a problem when tensions with China keep rising. What if they cut off exports of processed critical minerals?
Well, this risk could soon be a lot smaller with the Aussie government making a huge financial investment in an industry that desperately needs geopolitical diversification.
To underline the magnitude of this, here’s what Australian Prime Minister Anthony Albanese said this month about the government's commitment to the lithium and critical minerals sectors:
"We've engaged with the United States Inflation Reduction Act and have doubled our investment in the Critical Minerals Facility."
"By tapping into some of the largest critical minerals deposits on earth, we open the door to creating the crucial technologies needed to underpin not only the energy sector, but also national security."
Those are pretty strong words from the PM.
For too long, Australia has dug up its mineral-rich land, only to ship it off for another country to process and realise the economic benefit. The Albanese government is pushing for change, recognising our unique position to seize the opportunities presented by our natural resources.
The Australian Federal government's $840m commitment to the first combined rare earths mine and refinery in the Northern Territory signals this serious approach. While we've seen funding for rare earth refinery projects in WA before, this represents a one-stop-shop, extracting and refining rare earths in one hub, allowing Australia to benefit from not only the raw mineral but also its beneficiation.
As we said, rare earth elements are becoming increasingly common in our everyday lives. If you're reading this on a smartphone or tablet, rare earths are in the screen, and the same goes for your smart TV. And as the world invests in industries to cut pollution, rare earths are essential for technologies like electric vehicles, solar panels and wind turbines. For Australia to seize our opportunity to become a renewable energy superpower, we need to win on the world stage.
Booming critical minerals
It's not just rare earths that have government backing; lithium projects are also receiving significant support.
The team at Equities Club believes this is a strategic move by the Australian government. It demonstrates forward-thinking investment in ourselves (for once) and also targets an industry experiencing extraordinary growth. The rare earth sector is projected to expand by 300% by 2030, while the lithium sector is also anticipated to grow by just over 300%. Very few industries are seeing growth like this.
This brings us to a company we believe is significantly undervalued given its project potential and proximity to major industry players: Bubalus Resources.
When the Australian government's $840 million support package was announced, we immediately focused on nearby projects with the potential to feed into this hub. Our research kept leading us back to Bubalus Resources and their Nolans East rare earth project.
Neighbours with benefits
Bubalus has snagged a front-row seat to a major development. Their Nolans East project is a stone's throw away from Arafura's Nolans Bore deposit – the lucky recipient of that massive $840 million government investment we mentioned above.
This upcoming mine and rare earth refinery, also backed by iron ore billionaire Gina Rinehart, will drive significant regional infrastructure upgrades. Bubalus stands to reap the benefits of these developments without spending a cent.
Let's look at the mineral resource at the Nolans Bore project. It boasts a substantial 56 million tonnes at an average grade of 2.6% total rare earth oxides (TREO), including a high proportion of neodymium-praesidium (NdPr) oxides. Importantly, high-value NdPr averages 26% of the TREO content in ARU’s Nolans Bore.
Excitingly, surface samples from Bubalus' own Nolans East project demonstrate comparable results, with NdPr content reported at 22%.
What’s that mean in layman’s terms?
Think of Nolans Bore like a giant rock pile filled with rare and valuable metals. Those metals are called rare earth oxides, and NdPr is one of the most sought-after kinds – like the shiny gold nuggets in a prospector's pan. The very good news for Bubalus is that their Nolans East project, based on early sampling, seems to have a similar makeup.
Before starting drilling, Bubalus Resources is awaiting the results of a heritage survey conducted by Aboriginal Traditional Owners. This step is essential for ensuring drilling does not negatively impact culturally significant sites. It also highlights the company's commitment to working within regulatory frameworks and respecting the rights and interests of indigenous communities. This collaboration is crucial for the project's long-term success and sustainability.
At this stage of the lifecycle and with its exploration targets, we believe no other company is better positioned than Bubalus to capitalise on Arafura's success. How often does a $5 mil market cap company with $3 mil cash have neighbours get backed by a billionaire and the Australian Federal government? We see the potential for a re-rate on the rare earths alone to be very high.
Bubalus' potential extends beyond rare earths
Their Yinnietharra Lithium Project is strategically located just 2km east of Delta Lithium's Malinda Prospect. Why is this significant? Well, Delta lithium is backed by billionaire Chris Ellison who just happens to be the chairman and has done deals with surrounding companies looking to farm into early-stage lithium projects.
Delta describes their Malinda prospect as “One of the most exciting Lithium exploration projects in Australia” and we couldn’t help but agree, it boasts an impressive 26mt resource at 1% lithium with the potential to expand.
Delta's drilling at Malinda has confirmed spodumene-hosted lithium mineralisation over a 1.6km distance and down to 350m depth. This indicates this region is lithium bearing and there is potential there could be more. Notably, the spodumene-bearing pegmatites identified by Delta strike in an east-west orientation towards Bubalus' Yinnietharra Project boundary, representing an obvious walk-up target for initial activities.
To date, no drilling has been conducted on the Bubalus-owned Yinnietharra Project. However, systematic soil sampling has confirmed anomalous lithium and caesium on the surface, a promising indicator of potential undercover spodumene-bearing pegmatites. Drilling is required to confirm this, and Bubalus is actively pursuing the necessary clearances.
While Bubalus awaits drilling approval, it's important to consider the value of deals struck by Delta in the area. These deals underscore the region's potential and could offer insights into the value Bubalus might unlock through exploration.
Equities Club believes value lies in a company that has not currently drilled, or done a deal, and the best option in that regard is Bubalus. BUS remains the cheapest entry into this proven lithium region with those having done a deal trading at twice the value of BUS.
We see an interesting dynamic here: government backing, billionaire neighbours seeking partnerships, and two highly promising drill targets. This combination is rare, especially for a company in Bubalus' position with more than $3 million in cash. This suggests their current $5 million valuation could be significantly undervalued.
When factoring in recent deals and comparable valuations, there's strong potential for a re-rate even before drilling. Bubalus presents a unique opportunity, two bites at the cherry, and should either drilling campaign prove successful, Bubalus' value could be multiple times its current valuation.