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EU Auto Giant Stellantis to Take Stake in WA Manganese Producer - Right Near Our Microcap Explorer


Published 13-JAN-2023 10:22 A.M.


9 minute read

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,410,000 PFE shares and 227,500 options; the Company’s staff own 25,000 PFE shares at the time of publishing this article. The Company has been engaged by PFE to share our commentary on the progress of our Investment in PFE over time.

The hunt by giant automakers for battery metals rolls on...

On Monday - one of the world’s largest, Stellantis, signed a $30M deal to get its hands on high purity manganese sourced from outback WA.

And yesterday’s note on Euro Manganese’s first offtake term sheet came just 3 days later.

Evidence that the high purity manganese market is now definitely heating up.

Monday’s manganese deal was a “world first” - an upstream investment by a top tier automaker into a listed manganese company - and we bet it won't be the last.

The best part of this deal for us is that it was signed with a manganese producer in the same region as our micro cap manganese exploration Investment Pantera Minerals (ASX:PFE).

This world first manganese deal could prove to be great timing for the $9M capped PFE, which has manganese drill assay results due any week now.

These assay results are from drilling that hit visual manganese intercepts from near-surface, as reported in November.

Given manganese was sighted, we can reasonably expect some manganese in those drill assays - the % grade and lengths of intercepts will be important to see.

Seeing Stellantis directly invest in a manganese producer that has a mine near PFE, should put a bigger spotlight on PFE’s pending assay results.

Stellantis is the biggest car company you've likely never heard of — here’s all the car brands it owns:

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This is the same Stellantis that is the second largest shareholder of our best ever Investment, Vulcan Energy Resources. You may remember that Stellantis also signed an offtake agreement with Vulcan for its lithium.

On Monday, the $214M capped Element 25 signed a deal with Stellantis to ultimately produce battery grade high purity manganese in the USA.

The Element 25 deal will see it send its WA manganese ore to the USA, where it will be processed into high purity manganese sulphate - that final processed product is what Stellantis is investing for.

Element 25’s WA manganese production asset sits only a short drive (45km) away from PFE’s manganese exploration ground:

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PFE just finished the first of multiple planned drilling programs at the site, hitting semi massive to massive manganese with thickness ranging between 2m to 12m.

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Should the imminent assay results return high grade manganese, we hope that both Element 25 (and maybe even Stellantis) start to take an interest in PFE’s project.

We think that once Stellantis ramps up the demand for the raw manganese from Element 25, securing more nearby manganese supply could become a priority to leverage Element 25’s export infrastructure.

PFE could “piggy back” on the Stellantis development and in doing so, PFE’s manganese could eventually hitch a ride all the way to the US electric vehicle market.

Of course, that's the bull case here assuming everything goes right - which is unlikely - PFE remains a micro cap stock and a high risk investment.

First things first - we need to see those manganese assay results - which were due December 2022 - so surely must be arriving any week now...

With a tiny market cap of $9M, we think PFE has a significant room to re-rate, should the imminent drill results deliver.

We base this on the fact that the $214M capped Element 25’s project hosts a 263Mt manganese resource with grades of 10% and PFE’s other neighbour, the $535M capped OM Holdings is hitting manganese assays with grades of ~8-15%.

We have set up our expectations for PFE’s upcoming assay results as follows:

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We think that if PFE can discover and define a significant high grade manganese deposit, it could one day be a prime takeover target by Element 25, OM Holdings, or any other companies looking for high grade manganese assets in WA.

Element 25 could specifically benefit from a new high grade manganese discovery given its already existing manganese processing facilities in the area.

Any supplemental manganese ore from a project (hopefully PFE’s) with a higher grade than Element 25’s own (which sits at ~10%) could improve the economics of operating its plant and make for a good bolt-on acquisition.

What do we know so far from this round of PFE drilling?

Early signs are good here, as we noted above.

PFE confirmed visual manganese mineralisation over a ~800m strike, open in three directions to the north, east and west.

Interestingly, PFE also confirmed semi-massive to massive manganese shales - the type of manganese that has a visually estimated 20-50%+ Mn grade.

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These structures were identified closest to surface:

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In the most recent drilling update on 14 November, PFE confirmed that the intercepts of visual mineralisation ranged from ~2m to 12m of thickness across 25 drillholes.

We expect to see the results from the assays in the coming weeks.

While the visuals look positive so far, there is always a risk that the assays deliver lower grade manganese mineralisation, or in the worst case scenario, no mineralisation of interest.

PFE could end up with disappointing results at or below our bear case expectation - we just won’t know until the assays come in (see our risks section).

We also note that the market has failed to react to manganese drilling results including PFE’s neighbour Firebird Metals which is capped at just $11.7M.

We hope the proximity to Element 25 means the market takes more of an interest in PFE’s results.

It’s important to note that these assays only represent the first of four planned manganese drilling areas for PFE to test. Drilling is expected for the other three areas in early 2023.

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Our hope is that with time and some exploration luck the market will re-rate PFE off the back of news that the company has made a NEW and potentially economic discovery.

This forms the basis for our PFE “Big Bet”, which is our standard big bet for early stage exploration companies, as follows:

PFE’s Big Bet

“PFE will return 10x by making a discovery and defining a deposit significant enough to move into development studies.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved, and it will require a significant amount of luck. There is no guarantee that it will ever come true. Some of these risks we list in our PFE Investment Memo.

To visualise what PFE has done since we Invested, check out our Progress Tracker for PFE:

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Larger capped neighbours - a regional overview

PFE’s Weelaranna projects cover ~958km2 of ground that is prospective for manganese, gold and silver.

The primary focus of PFE’s current drill program is the manganese potential.

The ground holds the same rock structures which are known to host economic manganese mineralisation at Element 25’s Butcherbird Deposit, where manganese is already being produced.

This means the type of manganese here is demonstrably economic to extract.

To put some more context behind PFE’s project, below is a high level summary of PFE’s much larger capped neighbours:

Neighbour #1: OM Holdings

Market cap: $524M

Cash: $73.5M (at 30 June 2022)

STATUS: Profitable producer

OM Holdings is already producing manganese from its projects in the Northern Territory but the company recently signed a farm-in and joint venture agreement to explore the 701 Mile manganese project.

That project sits immediately along strike from PFE’s ground and recent drilling has shown grades of between 8-15% manganese.

Neighbour #2: Element 25

Market cap: $214M

Cash: $15M (at 30 September 2022) + $35M placement completed in November.

STATUS: Marginally profitable producer - just signed deal with Stellantis

Element 25 holds the Butcherbird manganese mine ~45km away from PFE’s ground. The project hosts a JORC resource of 263Mt with manganese grades of ~10%.

Element 25 also owns manganese processing facilities which means that any new (and hopefully higher grade) discoveries in the area could become of interest as potential high grade, more economic feedstock.

At the moment, we’re most interested in Neighbour #2, Element 25.

As we covered above, Element 25 signed an offtake deal with global car giant Stellantis (capped at US$51BN), just a few days ago.

Part of that deal envisions Stellantis taking a sizable equity stake ($15M) in E25... BUT this is contingent on E25 quickly securing US$200M in financing over the next 6 months to start up a US processing facility for high purity manganese.

This high purity manganese is what could make up a growing portion of next-gen electric vehicle (EV) battery chemistries.

This is where PFE comes into play.

Below is a map of some of PFE’s landholding next to Element 25, and where it drilled for the upcoming assays:

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What are the risks?

With assays now due from PFE’s latest drill program the key risk to watch out for is ‘exploration risk’.

As with all junior exploration companies, no matter how good a project appears, no matter how close to other major projects, ultimately the fate of a project lies within the drill bit.

If PFE’s share price is to increase in the lead up to the assay results and then the results are disappointing we could see a fall in PFE’s share price.

We listed ‘exploration risk’ as one of the key risks to our Investment Thesis as part of our PFE Investment Memo which you can view in detail here or by clicking on the image below.

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What’s next?

Assays from Weelaranna manganese project 🔄

Drilling was completed on 14 November last year and assays from the drill program were expected in late December so we expect to see the results announced in the coming weeks.

More drilling at Weelarana 🔄

Drill permitting for areas two, three, and four are ongoing and we expect PFE to be drilling sometime in early 2023 according to its November announcement (source).

These are three areas where PFE has previously found manganese rock chips grading up to 43.6%.

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Mapping of new tenements 🔄

PFE is also planning to commence a new round of soil and rock chip sampling and mapping to firm up more drilling targets for 2023.

Of particular interest is the newly granted tenements that sit adjacent to land held by both neighbours OM Holdings and Element 25.

Our PFE Investment Memo

Below is our Investment Memo for PFE where you can find a short, high level summary of our reasons for Investing.

The ultimate purpose of the memo is to record our Investment thesis in order to benchmark the company's performance against our expectations.

In our PFE Investment Memo you’ll find:

  • Key objectives we want to see PFE achieve
  • Why we Invested in PFE
  • What the key risks to our Investment thesis are
  • Our Investment plan

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

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