LYN about to drop holes in West Arunta

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 1,545,000 LYN shares and 300,000 LYN Options at the time of publishing this article. The Company has been engaged by LYN to share our commentary on the progress of our Investment in LYN over time.

Two years in the making.

And we are almost there.

Today our WA exploration Investment Lycaon Resources (ASX:LYN) received its long awaited heritage clearance...

... the final step that clears the pathway to drilling in the West Arunta.

In a few weeks LYN will be drilling three EM targets that bear early stage similarities to WA1 Resources pre discovery.

WA1 Resources made a giant niobium/rare earths discovery in the West Arunta and went from a share price of ~13c to $23.20 in less than two years, a ~17,700% gain.

At its peak WA1 Resources market cap was over $1BN.

This kind of discovery doesn't happen every day, but it is the kind of discovery that all small cap investors are in it for.

Since then Encounter Resources made a discovery nearby, and is currently valued at $210M.

A series of other nearology exploration stocks in the West Arunta have also drill tested their own targets, and had material share price runs.

Perhaps LYN is next?

It's notoriously hard to get a drilling permit in this region, and LYN is almost there.

LYN’s capital structure looks solid - there’s not many shares on issue, so in the event of pre-drill speculation and a potential discovery, we think a re-rate could unfold quite quickly.

Of course, there’s no guarantee of success here - small cap exploration is risky.

LYN is capped at ~$15M and had $4.6M in the tin as of June 30th.

LYN expects to start drilling in late October.

Drilling is expected to take 2-4 weeks to complete so we should get a final result before the end of the year.

As we mentioned above, there is a powerful example of success nearby in West Arunta.

The West Arunta region was put on the map two years ago when WA1 Resources made a huge niobium discovery.

At its peak, WA1 hit a market cap of over $1BN and was up >170x from its pre-discovery share price:

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Before making the discovery, WA1 was drilling into a set of geophysical anomalies, which are similar to LYN’s.

WA1 was initially targeting copper-gold but just so happened to make one of the biggest discoveries of the last few decades.

When WA1 drilled the targets on the right, it made a huge niobium / rare earths discovery, and continued to make discoveries over its project.

LYN sits just 90km away in the same region of West Arunta, where WA1 and another regional peer, Encounter Resources have both made niobium discoveries:

LYN’s ground in the West Arunta was picked up BEFORE WA1 made its discovery in 2022.

And the ground has only ever been drilled once - by BHP in the 1980’s. At the time BHP was drilling for diamonds and only tested down to ~12m depths.

So LYN is having the first “real” crack at a discovery on this ground.

We think that it's important to set drilling expectations BEFORE LYN goes and tests the targets, that way we can objectively evaluate the merits of the results as Investors.

Going into the drill program our expectations are as follows:

• Bull Case - LYN intersects a carbonatite or IOCG target that is worthy of follow up drilling.
• Bear Case - LYN intersects nothing of economic interest.

Given LYN’s drill program is a first drilling attempt at a discovery, success for us would be if LYN hits the right type of geology that is worthy of following up with additional drilling.

Regional ASX peers all rallied into drilling... LYN’s turn over the coming weeks?

Now that there is only a few weeks to go before LYN is drilling in the West Arunta, we think market interest in the stock could start to increase.

We have talked about the below in the context of oil & gas stocks, but it can also apply to junior explorers too.

As a company builds up to and then starts drilling a project, interest in the company should increase on the off chance the company makes a valuable discovery.

It's something we have seen happen across other explorers with projects in the West Arunta.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Some of those stocks rallied hard and their share prices managed to protect the share price gains.

Others didn't fare as well and have come back to their pre-drill share price.

Investing in exploration stocks is risky and the above charts show how volatile the rides can be.

Ultimately, it is the drill results and the general market interest in the underlying commodity that determines where a share price settles after a company drills.

LYN may get similar market interest in the lead up to drilling, and then into the results, like its peers above.

Ultimately, beyond this, we are hoping LYN can deliver a discovery and consolidate any pre-drilling rally that may happen.

This is a big part of our Big Bet which is as follows:

Our LYN “Big Bet”:

“LYN’s share price re-rates by over 1,000% off the back of a new discovery and the definition of 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 - just some of which we list in our LYN Investment Memo . Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

What are LYN's drilling plans?

LYN is expected to start drilling in late October and it will take about 2-4 weeks to complete.

Seven drill holes are planned to test three high priority targets.

The program was built from a set of geophysical anomalies similar to the ones WA1 drilled before it made its billion dollar discovery.

WA1 was drilling what it thought was an IOCG target (Iron-Oxide Copper Gold)... and they found niobium.

Like WA1 going into its first drill campaign, LYN’s prospects have not been drilled at depth.

LYN’s ground has only ever been drilled once before by BHP back in the 1980s.

At the time BHP was looking for diamonds and only drilled to shallow depths of ~12m...

The EM targets of interest are at depths of ~ 150m.

So the question then is - what can LYN find at depth?

Here is a side-by-side view of LYN’s drill targets compared to WA1 Resources (pre-discovery).

Notice the distinct geophysical “hot spots”:

LYN’s plan is to drill straight through its geophysical anomalies.

LYN’s first anomaly is considered to be a 500m “pipelike body”, starting from ~120m depth, and dipping to the south.

Below are the second and third targets that LYN will test.

Again, these targets are geophysical targets that LYN is hoping to test. Will it find copper and gold, or will it find niobium?

Or nothing?

“Dusters” do happen - the chance of making a discovery is low. However the rewards are large - which keeps investors returning to micro cap stocks in the hope of a “WA1 style” discovery.

Now that the heritage surveys are complete, LYN has a clear runway to see if there is anything interesting underground.

For investors in small cap resources exploration stocks, drilling events are always the most interesting part - anything can and will happen.

We have been waiting for about two years for LYN to drill test these targets and if LYN is able to replicate even a portion of WA1 Resources and Encounter Resources’ success, we’d be satisfied.

What is coming up next for LYN?

LYN has just ticked off a big milestone towards drilling its West Arunta project.

The drill program is now expected to commence in late October - once underway it should take ~2-4 weeks to complete.

In the next few weeks, we want to see LYN mobilise its rig to site and start drilling.

Objective #2: Drilling at its niobium & rare earths project in WA.

We want to see LYN get on the ground and drill its project in the West Arunta region.

Milestones
✅ Complete Heritage Surveys 🔄 ➡ ✅
🔲 Commence Drilling Program
🔲 Drilling visuals (Maybe)
🔲 Publish Assay Results

Investment Memo: Lycaon Resources Ltd (ASX:LYN), November 2022

What are the key risks?

Ultimately, LYN is looking to replicate the success of WA1 and Encounter Resources.

The only way to identify exactly what is under LYN’s ground is to drill it.

If the results fall into our bear case scenario, it could have a meaningful impact on the company’s share price in a negative way.

Exploration Risk

LYN is yet to make an economic discovery, with all of its projects considered early stage prospects. Inherently there is a risk that future drilling programs return nothing and LYN’s projects are considered stranded. There is plenty of time before drilling starts in 2023 - so there could be periods of share price weakness prior to drilling.

Investment Memo: Lycaon Resources Ltd (ASX:LYN), November 2022

Our LYN 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 LYN Investment Memo , where you can find the following:

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