LYN set to drill near West Arunta niobium runners WA1 and Encounter

WA1 hit a market cap above $1BN and just raised $60M in cash.

Encounter Resources is up 300% on the back of a discovery.

The share prices of both companies are running off niobium discoveries made in the West Arunta in WA.

With the immense success of WA1 and now Encounter, the West Arunta region is shaping up as a major niobium district.

Our Investment in the West Arunta region is Lycaon Resources (ASX:LYN).

AND LYN is gearing up to drill its project in the coming months.

(We have been Invested in LYN for nearly two years now and it’s been a long wait for this drilling to happen - meanwhile, WA1 and Encounter have been slotting discoveries and multi bagging)

The LYN share price has been steadily moving up in recent weeks, given the increased attention on West Arunta explorers - we are hoping in the lead up to LYN drilling, the interest in LYN will only increase.

To make their discoveries, WA1 drilled a geophysical anomaly, Encounter drilled a geophysical anomaly - and LYN has its own geophysical anomaly it wants to drill.

LYN should be kicking off Heritage Surveys any day now...

(They were scheduled to commence yesterday according to the LYN announcement on the 20th of June).

Once the heritage survey is complete, LYN plans to run ground gravity surveys to refine exactly where it will drill, with the aim to drill before the end of the year.

Here is why we are looking forward to finally see LYN drilling:

LYN’s project sits ~90 km north of WA1 and Encounter.

And the ground was picked up BEFORE the WA1 and Encounter discoveries.

Whilst they are very hard to find, investing in mining exploration is all about chasing a company making discovery...

Early investors in WA1 lived the small cap dream watching the company grow from a $9M microcap explorer to over $1BN in the space of two years.

(this is an extremely rare occurrence by the way - exploration investing is risky, and most exploration companies fail to make an economic discovery)

This week WA1 raised another $60M to continue drilling out its giant niobium discovery.

It is so big that WA1 has already defined a resource big enough to be the world's second largest niobium discovery.

Bigger than the Araxa deposit in Brazil which supplies ~80% of the world’s niobium.

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.

West Arunta peer Encounter Resources is rallying too

Now it looks like West Arunta success may not be a one off event.

The Encounter Resources share price started running a few weeks back too...

On the 24th of June, Encounter put out drill results from its first target and hit over 50m of niobium:

Post results, the company’s share price rallied from ~30c to 60c.

Earlier this week the company put out some more results, hitting more niobium at its first target and another one of its targets:

Again, the market liked the news, taking Encounter’s share price to a brief high of ~92c.

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.

Now Encounter trades with a market cap of $378M and is the second company to re-rate off the back of a discovery in the West Arunta.

No matter how tough a market we are in for junior explorers, the share price re-rates of WA1 and Encounter Resources demonstrate that the market will reward genuine discoveries.

Given LYN’s market cap of ~$16M we are hoping the same happens for them IF a discovery is made.

(remember that exploration is high risk, and discoveries are rare)

LYN was one of the first companies in our Portfolio to post their June quarterly - with a healthy cash balance of $4.6M to fund what we hope is a rapidly approaching drill program.

A good amount of runway, and sitting in a region that is delivering excellent results...

LYN is in the right place at the right time and is only a few months away from drilling its project.

LYN set to drill similar geophysical targets to WA1 and Encounter

LYN has a set of geophysical anomalies similar to the ones WA1 drilled before it made its billion dollar discovery.

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

Notice the distinct geophysical “hot spots”:

LYN has also spent the last nine months refining the targets to better plan its drill program.

These are the set of anomalies that LYN is set to drill:

LYN will also conduct ground-based gravity surveys over the area to further refine these targets once the heritage surveys are complete.

Ultimately, we want to see the company confirm a drill program, which is expected this quarter.

At the end of the day, we are Invested in LYN to see it try and replicate some of WA1’s success...

... and deliver us a company-making niobium discovery like Encounter Resources or WA1.

This brings us to our big bet for LYN...

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.

How does the news affect the LYN Investment Memo?

Encounter Resources drilling results

The recent drilling results published by Encounter Resources show what upside success could look like for LYN if it makes a discovery in the West Arunta region.

It sets an aspirational benchmark for the company as to what a bull case drilling result could be.

LYN pegged ground in the region BEFORE either WA1 or Encounter Resources’ discoveries were made.

We think that this bodes well for LYN’s upcoming drilling program.

Why we Invested: Ground Pegged before region opening discovery
LYN holds a GRANTED Exploration licence in an emerging rare earths/critical minerals region. This means LYN can start firming up a drilling program over the project area immediately. LYN’s project is ~94km north of WA1 Resources and Encounter Resources.

Source “Why we Invested” section - LYN Investment Memo 20-Nov-2022

WA1 $60M completes capital raise

The $60M capital raise completed by WA1 shows the continued interest in the West Arunta region from institutional investors.

As investors in microcap explorer in the region, it is always worthwhile keeping an eye on what the bigger players are doing and market appetite for their projects.

Ultimately, this raise is external validation of WA1’s project and by extension LYN’s prospective ground nearby.

Macro Theme: Niobium, West Arunta region of WA
Niobium and rare earths exploration in the newly opened West Arunta region in WA. WA1 Resources recently made a discovery here, which saw it run from 13c to over $2.

Niobium, rare earths, copper and nickel, are highly topical “energy transition metals”. New supplies are needed to move the world away from fossil fuels.

Source “What is the Macro Theme” Section - LYN Investment Memo 20-Nov-2022

What could go wrong?

Delay risk

This one isn't listed in our LYN Investment Memo, but we think one of LYN's key risks is “delay risk.”

This risk has somewhat materialised for LYN, as we expected the company to have drilled its project in 2023.

However, due to delays to key permits drilling has been pushed back to Q3 this year.

Any further delays to the drilling will likely be viewed unfavourably by the market.

Delay Risk
Project delays can and do happen with early stage exploration companies. If drilling programs are continuously delayed, investors can get bored of a stock and sell out of the position.

Exploration Risk

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

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

We will publish our bull/bear/base case for the drill results closer to the program.

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.

Source “What could go wrong” Section - LYN Investment Memo 20-Nov-2022

What is next for 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