PFE now drilling for manganese - with a tiny enterprise value

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.

In case you hadn't noticed, we like investing in exploration stocks.

We are also rather fond of battery metals.

High-risk, high-reward exploration stocks, which make a significant mineral discovery, can see their share prices quickly re-rate.

However, new metals discoveries are rare - that’s what makes these investments high risk.

Share prices can languish if a company spends money on exploration that doesn't lead to a discovery that is interesting enough for the market.

Pantera Minerals (ASX:PFE), currently capped at ~$7.4M with $3.9M in bank, is one of our early stage mining exploration “bets”.

Since its 20c IPO, PFE has drilled a number of projects, but hasn't delivered that elusive discovery yet, and is currently trading at less than 10c...

However with $3.9M in the bank, it's got enough cash to have a few more rolls of the exploration dice - and that starts with a drilling campaign that it just kicked off.

We originally invested for the iron ore project (with a custom built heli-rig), which didn’t deliver. Luckily, PFE had a number of other projects to switch its attention to.

Today PFE confirmed that it has started a new exploration drilling campaign, this time for manganese - a crucial battery metal.

PFE has already found a number of high grade rock chips (up to 44% Mn), and is now drill testing an 800m long, 5m thick outcropping of high grade manganese.

PFE is currently capped at $7.4M — a fraction of its regional manganese peer Element 25, a company actually producing manganese in the area, which is capped at $162M.

PFE has the same rocks, in the same geological setting as Element 25 - now PFE needs to drill test that manganese outcropping and see if it can deliver a discovery.

So in summary, here’s why we like the potential of PFE’s current manganese exploration drilling:

• Tiny market cap of $7.4M with ~ $3.9M cash in the bank - this means there is share price upside in the event of a discovery.
• Near two significant manganese deposits in the area - including $162M capped Element 25’s producing mine.
• Geophysics support nearology - PFE has high grade rock chip samples up to 44% Mn over drill targets and 800m of identified outcropping.
• Greenfields exploration - project has never been drilled before - so potential for an entirely fresh discovery.
• Pathway to development - if PFE makes and defines a discovery it may be part of a consolidation play in the area given there are other manganese players, including a mine in the area.

PFE’s Weelarrana project has four identified areas of manganese outcropping. The current 1,200m RC drilling program will test the first area of interest ‘Mn Area 1’, with the next three areas to be drilled in early 2023:

So who are the key WA manganese players in the region PFE is exploring?

PFE’s Weelarrana Project is 45km from the Butcherbird manganese mine (263Mt @10% Mn), owned by $160M capped Element 25.

Element 25 has manganese processing facilities in the area, however, because Element 25’s deposit is relatively low grade, we think the company will likely want to find (or buy) some more high grade manganese to improve on its production margins.

Other bigger players are in the area including ~$450M OM Holdings which signed a farm-in and joint venture agreement to explore the 701 Mile manganese project, which sits along strike from PFE (recent drilling showed grades between 8-15% Mn).

We think that if PFE can discover and define a significant manganese deposit of high grade it could be a prime takeover target by Element 25, OM Holdings - or another bigger company looking for WA manganese exposure.

Here is how we will judge PFE’s first drilling campaign:

• Bull Case: Mn grades of 20%; deposit open in at least one direction
• Base Case: Mn grades of 8-15% in line with Element 25’s manganese deposit
• Bear Case: No manganese (or trace manganese) found in assays.

Remember, at PFE’s current $7.4M market cap, it has an enterprise value of just ~$3.5M - meaning that PFE is highly leveraged to a high grade manganese discovery.

The PFE 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:

What we like about PFE’s manganese project - Weelaranna

Earlier in the year, PFE identified some high grade manganese rock chip samples in four key areas of interest while mapping its Weelaranna project area.

These areas of interest included Mn Area 1, which PFE is drilling now, which has up to 800m of manganese outcropping.

A key part of what we like about Weelaranna is its geological setting.

Weelaranna is within the Ilgagari Formation manganiferous shales or Backdoor Formation manganiferous shales of northern WA.

These are the very same rocks that host Element 25 Butcherbird deposit and Firebird Metals’ 616 manganese deposits, not too far from PFE’s ground.

PFE’s deposit has “Even Better Nearology” on our nearology scale (see link below) - because it is geographically close AND has the same geological structures AND supports exploration work.

Read, how to evaluate ‘nearology’ investments

The exploration work done to date at Weelarrana found high grade manganese (between 11% to 43% grades) from 16 out of 22 rock chip samples.

Three areas of outcropping high grade manganese mineralisation have now been identified along a strike length of ~280 to 800m.

Large parts of the tenement area are still to be assessed.

With targets in hand, the company completed a cultural and heritage survey covering the manganese area, thereby providing heritage clearance for drilling.

PFE’s geo team has been itching to drill this since the company secured the tenements late last year, noting its proximity to two substantial manganese discoveries.

With the rig now on site, a 1,200m RC drill program is set to kick off, comprising 30 planned holes testing an 800m long and up to 5m thick outcropping high grade manganese occurrence that’s returned surface grades of 12% Mn to 44% Mn.

All going to plan, we expect assays in December.

Once drilling at Mn Area 1 is done, the rig is expected to move on to the other prospects.

Of recent note, rock chip samples confirmed and extended outcropping manganese mineralisation at Mn Area 3, 600m east of previous sampling. Furthermore, additional samples and mapping have identified new mineralisation to the south, at Mn Area 4.

As mentioned, this drill program is a maiden campaign, meaning it is the first time that the manganese mineralisation within the tenement area will be drill tested.

Given the high grades reported in the rock chip samples, we’re keen to see what the assays reveal.

Here is how we will assess those results:

• Bull Case: Mn grades of 20%; deposit open in at least one direction
• Base Case: Mn grades of 8-15% in line with Element 25’s manganese deposit
• Bear Case: No manganese (or trace manganese) found in assays.

In early May, PFE increased its landholding in the area from 401km2 to 758km2 with three new tenement applications, which should be granted in the first half of 2023.

We like that PFE has increased its landholdings ahead of drilling. If a discovery is made, or key learnings identified, then PFE will have more ground to define a deposit.

Why is manganese important? Hint: it’s in batteries

Manganese is very abundant in the earth's crust and used in traditional industrial applications like making but also has as emerging use cases in EV batteries and energy storage.

Manganese is the fourth most used metal in terms of tonnage - there is no substitute for its use in steelmaking.

However most interestingly, manganese is also crucial in the manufacture of next-gen electric battery chemistries - where high purity manganese is very desirable.

New, lower cost battery chemistries are expected to use an increasing amount of manganese.

And the world needs to 10x its high purity manganese supply to meet demand by 2030:

Source: Euro Manganese

We expect the established uses of manganese to collide with emerging uses at some point in the next few years creating a significant increase in demand.

The battery chemistries above require high-purity manganese - i.e. they have to be processed extensively before they can be used in an EV.

We’ve had success with this type of manganese before - our Investment in Euro Manganese, for example.

If PFE can discover and develop a high grade manganese deposit, then we expect the company to be immediately more interesting to neighbouring manganese producer Element 25, or other big mining companies looking to grow a manganese business in WA.

Element 25 is explicitly pursuing a high purity manganese strategy with a scoping study complete on potential processing plants to convert the manganese it has in WA into the high purity manganese that EV customers are looking for.

PFE’s 4 exploration projects

Aside from Weelaranna, PFE has three other WA exploration projects with potential for a discovery, that are prospective for a host of commodities including lead, zinc, iron, gold and copper.

Our last note on PFE covered the recent drilling starting at Hellcat.

Hellcat is a polymetallic exploration project near $98M capped Galena Mining’s globally significant Abra base metals mine, which is set to commence production from next year.

Drilling was completed last quarter and the assays are now at the labs - we anticipate those to be delivered sometime in the current quarter.

PFE completed drilling in September and you can read our quick take on the visuals announced.

Drilling at both Weelaranna and Hellcat underline the key reasons we continue to hold PFE in our Portfolio, with objectives 2 and 3 of our PFE Investment Memo pertaining to these.

We note that our #1 objective (iron ore drilling at Yampi) did not deliver the results we were hoping for, but have turned our attention to the possibility of copper and gold within Yampi.

To see all of the key reasons we are Invested in PFE, check out our 2022 Investment Memo by clicking the image below:

What’s next?

Looking ahead we’re keeping track of progress on:

🔄 Weelaranna - Drilling Mn Area 1 - Now

🔄 Hellcat - Assay Results Q4-22

🔲 Weelaranna - Drilling Mn Area ‘2’, ‘3’ & ‘4’ Q1-23

🔲 Weelaranna - Assay Results Q1-23

🔲 Weelaranna - decision on granting of new ELAs Q1-23

Our PFE Investment Memo for 2022

Below is our 2022 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 current thinking in order to benchmark the company's performance against 12 months from now.

In our PFE Investment Memo you’ll find:

• Key objectives we want to see PFE achieve in 2022
• Why we Invested in PFE
• What the key risks to our investment thesis are
• Our Investment Plan

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.