We couldn't go past this West Arunta company any longer
We've been watching this West Arunta player for months. Here's why we finally pulled the trigger and added it to our portfolio
Remember when we couldn't stop talking about the West Arunta? First in May, again in June, and once more in July – calling it the hottest region in Australia.
Well, dare we say it. We were right
Over the past couple of months, we've analysed companies from around the world, but we kept coming back to the West Arunta. It's become impossible to ignore.
That's why Lycaon Resources (ASX: LYN) was a no-brainer for our second investment.
LYN is on the cusp of a drill campaign at their Stansmore project right in the heart of the West Arunta, riding the wave of excitement that's sweeping through the West Australian region. But what's driving this excitement? It all comes down to one element: niobium.
The frenzy began with the discovery of substantial niobium deposits in the West Arunta. These findings could spark a transformation of the global critical minerals landscape and significantly alter the supply dynamics of niobium. Let's break down why this matters.
As we said in May, Brazil has had a near monopoly on niobium—more than 90% of the world's supply comes from a single mine there. The West Arunta discoveries have the potential to disrupt this dominance, diversify the supply chain, and reduce reliance on a single source.
Why niobium matters
Niobium will be revolutionary for the car industry. It has the potential to increase the battery life of electric vehicles by up to 10 times while also strengthening the vehicle and reducing its weight. This means significant improvements in efficiency and could help ease concerns about driving range.
Recognising the strategic importance of critical minerals like niobium, the Australian Government committed in May to supporting their processing under the Future Made in Australia Framework. This framework aims to bolster the domestic processing of these valuable resources, ensuring Australia remains a key player in the global market.
"Imagine the payoff if you'd invested in WA1 before their discovery. In our eyes, that's what Lycaon Resources potentially presents to investors."
- Equities Club, 1 May
Our investment in LYN
Witnessing WA1 Resources’ staggering rise from 20c to $22 after their niobium discovery, we knew we had to get a piece of the action. So, last week, the Equities Club team made our move and started buying LYN stock on the market.
We recently had the opportunity to speak with the LYN team and were impressed to learn they had pegged their ground even before WA1. Their foresight and strategic approach to exploration indicate a deep understanding of the region's potential. Did they see this as the best target of the lot?
This presents a unique opportunity to invest in LYN before their upcoming drill campaign kicks off. Beyond our investment, Lycaon Resources has engaged us to provide regular updates as they progress through their drilling program, including progress reports, key findings, and any significant developments.
The Top 5 Reasons We Chose LYN
1. Similar target to WA1 and ENR
The West Arunta is one of the last frontiers for significant discoveries in Australia, and LYN is right in the thick of it.
WA1 and Encounter Resources’ (ASX: ENR) identification of niobium nearby in their maiden drill programs signifies the extreme prospective and underexplored nature of the West Arunta.
LYN's Stansmore target is nearly identical to the discrete, coincident gravity-magnetic anomalies that led to WA1 and ENR's discoveries.
Carbonatites, rare types of rocks that contain niobium, are often found in areas with significant geological activity, suggesting the potential for more valuable finds in the West Arunta region.
The most exciting part for us was that LYN acquired its ground before WA1 and ENR. Were they onto it before everyone else? We'll know shortly.
2. Cheap valuation compared to peers
When comparing the targets for the companies, it's also essential to compare the stages of the lifecycle and the valuations.
We only have to look at WA1, which has gone from a 20c stock to $22 on a world-class discovery in the West Arunta, and ENR, which has had its value increase from $150 to $400 million.
Now, let's turn our attention to Lycaon Resources. Currently trading at 33 cents with a market cap of just $17 million, LYN is gearing up for its maiden drilling campaign in the same promising region. The potential here is massive. Any discovery could send the share to many multiples of its current valuation.
We missed WA1 and ENR, but we are in with LYN. It presents a compelling entry point for investors wanting to capitalise on the untapped riches of the West Arunta.
3. A small amount of shares on issue
LYN's tight share structure, with only 37 million shares on issue, creates the potential for explosive share price growth. A smaller pool of shares means any surge in demand could send the price skyrocketing, especially if a major discovery is made.
WA1's niobium discovery ignited a buying frenzy, catapulting their share price a staggering 11,000%.
We're not saying LYN will go from 33c to $33, but we've seen what a world-class discovery does to a share price. This scarcity factor could make LYN a prime target for investors who want to get in early on a potential multi-bagger.
If LYN can replicate the similar success of WA1 and ENR, this could see the share price multiply many times over.
- Equities Club, 3 July
4. Drills turning imminently
Today's announcement of the completion of the Heritage Clearance Survey means LYN is one step closer to drilling its targets. The company is now eagerly awaiting the final survey report, which will give them the green light to start spinning those drills.
But LYN isn't just twiddling its thumbs in the meantime. The plan is to drill several holes to test the anomalies present in the targets. Just as WA1 and ENR tested their anomalies, LYN will also drill to depth.
LYN’s Stansmore target consists of a prominent 700m long magnetic feature analogous to WA1's discovery; in simple terms, it's a very similar-looking target to the one that led WA1 to success.
Equities Club, 1 May
With targets identified and drill contractor discussions underway, LYN is firmly focused on one thing: drilling.
As active investors, we're excited to see the team get to work and drill these high-priority targets as soon as possible.
5. A strong bank balance
When we consider an investment, we don't just look at the rocks—we look at the finances behind the company and whether it’s diligently run.
After a successful capital raise in April, LYN has $4.5 million in cash. This not only fully funds their upcoming drilling campaign but also provides a comfortable cushion for any follow-up campaign if a discovery is made.
LYN is also running a tight ship. If we look at the last quarterly report on their finances, they are only spending $150k, ensuring the majority of their funds go towards exploration.
Like every company we invest in, this is true exploration—it's high risk and high reward. LYN's ground has never been drilled at depth, but the targets we see represent serious potential.
The combination of a similar target to a world-class discovery, a small capital structure with few shares on issue, and a management team as frugal as they come made this too good to ignore. That's why we've been scooping up LYN shares over the past week and now hold 80,000.
We may take some profits off the table to manage our risk. We encourage all investors to do their own research and assess their risk tolerance.
As always, if we see significant price appreciation in the lead-up to drilling, we'll de-risk some of our positions and encourage all investors to assess their own situations.
We're really excited at what Lycaon offers to an investor.
Over the coming months, we'll be telling the story as we meet with management regularly to keep you in the loop on all the latest developments. We hope LYN's drilling campaign is a success for all involved, company and shareholders.