L1M drilling booked in - 2 weeks to go

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 7,625,696 L1M shares and 3,523,077 L1M Options at the time of publishing this article. The Company has been engaged by L1M to share our commentary on the progress of our Investment in L1M over time.

The drill rig is now contracted.

The start of drilling is locked in - the week of February 15th.

Will it deliver some shiny purple drill cores?

And can it repeat the success of one of our all time best Investments?

Our ~$8M capped Investment, Lightning Minerals (ASX:L1M) is now less than two weeks away from drilling its lithium project in Minas Gerais Brazil.

L1M’s project is now sandwiched between ~$7.5BN Pilbara Minerals and ~$2BN Sigma Lithium - the two biggest players in the lithium space in Brazil.

Pilbara just closed out a $560M all scrip (shares) deal to takeover LRS - LRS was one of our best ever wins... we were Invested well before the company made a game changing discovery just to the north of L1M.

We are substantial holders in L1M.

We are Invested in L1M to hopefully see it do what its neighbour Latin Resources did - deliver a major valuation re-rate off a big lithium discovery.

Latin Resources was one of our best ever Investments - it went from ~3c to ~43c off the back of a discovery on ground to the north of L1M.

At its peak, Latin hit a market cap of $1BN.

There are a lot of people out there that made money on LRS’s lithium discovery (including us) who want to try and do it again in the same region.

With a bit of exploration luck and a turn in market sentiment for lithium we are hoping L1M can re-rate to multiples of its current valuation.

(and fingers crossed attract the likes of a Pilbara or Sigma - just like LRS managed to)

Right now, L1M is capped at just ~$8M - so any exploration success could move the needle quite a bit from these levels...

There are also murmurs of a lithium market bottom being in, just ask the CEO of Australia’s largest lithium miner, Pilbara minerals:

(Source)

As we mentioned before, despite lithium prices being low, Pilbara Minerals is still capped at $7.5BN with $1.2BN in cash as of 31 December 2024.

And Pilbara Minerals has just deployed some of that cash to scoop up one of our all time best Investments, Latin Resources in a $560M acquisition.

At its peak Latin Resources was up 2332% on our Initial Entry Price.

Latin Resources is the model for success for our ~$8M capped L1M.

The ideal scenario for us as L1M Investors is a major lithium discovery gets announced by L1M just as the market starts to turn.

(We first Invested in Latin Resources when lithium prices were at a low ebb too, we might add)

Remembering that small cap investing is high risk and discoveries are rare, of course.

What does aid L1M’s exploration efforts though, is that high grade spodumene has already been discovered in rock chips in an artisanal mine at its project:

We also got a first look at the precise locations of drill locations at the first round of drilling at one of three projects that L1M is looking to drill:

Lithium exploration playbook - one final step left for L1M...

Most of the world’s lithium is produced from spodumene bearing pegmatites.

So finding spodumene is big when it comes to lithium exploration.

So far L1M is three steps of the way through the tried and tested playbook that has led to the discovery of some of the world's biggest lithium deposits.

Most of which were “company makers” - creating hundreds of millions of dollars (and sometimes billions) of value.

The lithium exploration process playbook for a company is broadly as follows:

1. Map outcropping pegmatite structures which are likely to host lithium mineralisation
   
   L1M has mapped pegmatites across its project. More soil sampling results are now in. ✅
2. Sample these outcrops to confirm if there is lithium mineralisation
   
   L1M has shown its pegmatites have lithium... November’s announcement had grades up to 4.04%. ✅
3. Confirms if spodumene hosted mineralisation
   
   Spodumene is the source rock for the majority of the world’s lithium supply. Today, L1M confirmed again that its pegmatites contain spodumene. ✅
4. Drill into the outcropping pegmatites to determine if there is a large lithium bearing structure
   
   The only thing left to do is drill to see if these pegmatites are part of a bigger lithium system.
   
   L1M will be drilling in under two weeks time...

Our L1M Big Bet:

“L1M returns 1,000%+ by making a discovery significant enough to move into development studies, or attract a takeover offer.”

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 - just some of which we list in our L1M Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true

We went to site, and liked what we saw

Given our material shareholding in the company, we had one of our team members go on a site visit a few months back while in Brazil with the L1M team.

At the time, the historic artisanal mine that yielded the high grade lithium bearing pegmatite was not known.

But we did hike up some pretty interesting looking outcrops:

Check out the write up from our Brazil site visit here

At the same time as our L1M site visit, we attended the “Brazil Lithium Summit” in Belo Horizonte, the capital of Minas Gerais, Brazil.

You can also read that note here:

What’s next for L1M?

Exploration drilling across Brazilian lithium projects 🔄

After today’s announcement L1M has the week starting on the 15th locked in for drilling to start.

Next it's all about seeing L1M go out and drill test these targets.

Objective #2: Drill high priority targets

We want to see L1M drill its best targets

Milestones
✅ Drilling permits
🔲 Drilling starts
🔲 Drilling completed
🔲 Assay results

Source: “What do we expect L1M to deliver” section - L1M Investment Memo 2 May 2024

What are the risks?

In the short term there are two key risks to be aware of that may negatively impact L1M’s share price.

First is the obvious one - “exploration risk”.

There is no guarantee that L1M’s drilling delivers anything of economic value and in that case we would expect to see L1M’s share price re-rate lower.

Exploration risk

L1M’s project is an early stage exploration asset. There is always a risk that L1M finds no targets worthy of drilling or that, even after drilling, the company fails to find any economic lithium mineralisation. As a result, exploration risk is one of the primary risks for L1M.

Source: What could go wrong? - L1M Investment Memo 22 April 2024

The second risk is “funding risk”.

L1M ended the 2024 December quarter with $1.9M cash in the bank.

The 2,000m diamond drilling program is likely to cost a fair bit to complete (diamond drilling is usually the most expensive type of drilling) and so L1M could be cutting it close with its cash balance.

There is a chance L1M will look to top up their cash balance with a capital raise over the coming weeks (either after drilling has started or just before).

A capital raise may put some short term pressure on L1M’s share price as more shares are issued to the market at whatever price L1M looks to raise cash.

Financing risk

L1M does not generate revenues and relies on raising capital to fund its exploration programs. If the market is unwilling to fund the company, it risks being unable to drill its project or offering large discounts to its share price when raising capital.

Source: What could go wrong? - L1M Investment Memo 22 April 2024

Our L1M Investment Memo

Our Investment Memo provides a short, high-level summary of our reasons for Investing. We use this memo to track the progress of all our Investments over time.

Below is our L1M Investment Memo, where you can find the following:

• What does L1M do?
• The macro theme for L1M
• Our L1M Big Bet
• What we want to see L1M achieve
• Why we are Invested in L1M
• The key risks to our Investment Thesis
• Our Investment Plan