“The Last Frontier”: LYN (finally) closer to drilling WA1 Resources look-alike target in the next few months

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,401,250 LYN shares and 300,000 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.

A mammoth nearby discovery.

West Arunta - everyone in the small cap space knows this one.

A discovery which generated a 10,000% re-rate.

Yes, ten thousand percent.

And it’s one of the “last frontiers for major critical metals and IOCG discoveries in Australia”.

Our micro cap exploration Investment, ~$9M capped Lycaon Resources (ASX:LYN) is about to drill three look-alike magnetic features in the same region.

LYN’s drilling will take place just 90 kms away to the north of wildly successful explorer WA1 Resources capped at ~$985M.

WA1 went from 12.5c to $15 from its niobium and rare earth elements discovery.

Now just because WA1 delivered a stunning discovery and great share price success does NOT mean LYN will do the same - exploration is risky.

But we are exploration Investors, and we are taking a high risk, high reward bet here that LYN might be able to find something.

And the LYN Technical Director says that this region is “one of the last frontiers” for major critical mineral and IOCG discoveries in Australia:

(Source)

Drilling is getting closer for LYN which this morning signed further land access agreements to carry out exploration works at its West Arunta project in WA.

We’ve been eagerly waiting for this for almost 18 months.

LYN had the land in West Arunta before WA1 had its share price run, but has been delayed for 18 months trying to get all the necessary approvals to begin drilling.

We wanted to LYN drill their targets back in 2022 when WA1 was trading at around $2 after its initial discovery.

Fast forward to today, WA1 is at $15 and LYN has FINALLY gotten the land access approval to progress its drilling.

So we are now extremely close to seeing if LYN can hit something similar to WA1, which is up over 10,000% off the back of a major niobium discovery in 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.

Frankly, we would be delighted if LYN can deliver a (relatively) measly 500% re-rate off a smaller discovery than WA1.

We also hope that some of the many newly minted WA1 millionaires out there might take a bet on LYN and its upcoming drill campaign.

Either way we will find out in the coming months after this morning's critical land access approval from the Aboriginal Affairs Minister has (finally) paved the way for finishing heritage surveys and then drilling.

From a permitting perspective, heritage surveys are now the only thing between LYN and the long awaited drilling.

Those surveys are due to be completed by mid-year.

Then LYN will do a gravity survey to further refine the targets.

And once that is complete - it's time to drill.

Pending heritage surveys, that could be in a few short months.

LYN has very few shares on issue (44M), which means it can re-rate sharply upwards in the event of a material discovery.

However this is a classic near term exploration “roll of the dice” - so in the downside case, if drilling is NOT a success, the small amount of shares on issue means LYN could find another asset without incurring too much dilution for current shareholders.

Aside from WA1, a couple other junior companies in the West Arunta region are pushing up the charts too:

Norwest Metals - up 85% in the last week after a gravity survey, capped at $20M.

CGN Resources - up 35% in the last month after completing geophysics, capped at $28M.

Neither of these companies have drilled yet, and we’re hoping LYN can beat them to the punch and deliver a discovery in the vein of WA1 discovery.

With $2.6M in cash as of 31 December 2023, the ~$9M capped LYN is hunting for niobium, rare earths and/or a copper-gold discovery.

Niobium is used in an increasing number of high tech applications and there are only 3 mines that produce it in the world - it’s listed as a critical mineral in Australia.

Meanwhile copper is essential to the electrification thematic and is pushing up the charts, while gold is the classic hedge against inflation and geopolitical instability and is at all time highs.

We’re hoping a discovery here could unlock a substantial re-rate - we’d be pleased with even a fraction of the re-rate we mentioned at the start of this note.

WA1 Resources ~10,000% re-rate effectively opened up the West Arunta region in WA with its niobium discovery.

Pre-discovery WA1 Resources was just another micro cap explorer, with a share price of ~13.5c per share - now WA1 shares currently sit at ~$15 per share, and its capped at ~$985M.

Another company, Encounter Resources, has also made a niobium discovery in the West Arunta region and is capped at $146M.

Smaller compared to WA1, but even still, it's many, many multiples of LYN right now.

LYN’s ground has the same type geophysical targets that WA1 Resources and Encounter had pre-discovery, the only difference is that LYN hasn't drilled its project yet:

LYN first announced its move into the West Arunta in November 2022 BUT its project was pegged way before WA1 Resources made its discovery.

Progress towards drilling has been slow, but today’s news moves LYN significantly closer towards drilling as it follows all the necessary protocols for drilling in West Arunta.

This is the process that must be followed in order to drill in the region:

Interest in West Arunta is growing, as more companies try to replicate some of WA1’s success.

A discovery forms the basis of our LYN 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.

LYN is taking the same approach to WA1 Resources

WA1’s discovery was made by running geophysical surveys, finding a big gravity target and then drilling into it to see if it was mineralised...

Lo and behold, WA1 managed to make a discovery - delivering a ~10,000% return in the process.

(remember that exploration is high risk - just because WA1 made a discovery and the share price performed well does not mean that LYN will do the same)

The WA1 Resources re-rate had a “secret sauce” too, which was a tight capital structure with few shares on issue.

We think LYN is in a good spot right now with its capital structure too - just 44M shares on issue and a register that appears to not want to sell, even when LYN was trading around the 17c mark.

We are substantial holders in LYN too - and obviously want to see it succeed with its upcoming drill program.

The WA1 Resources re-rate is a big reason why we remain Invested in LYN.

LYN is taking a similar approach to WA1 - it's in the same region and has a similar magnetic anomaly on its ground...

In today’s announcement LYN gave us more insight into the geophysics of the project, along with the proposed drill holes (pink and red lines):

(Source)

LYN previously had six drill targets identified with its main target being the Stansmore prospect.

Based on today’s announcement it looks like main Stansmore target, as well as the Volt and Ion targets which can be seen in the bigger geophysics map below:

(Source)

Hopefully with what looks like 6 drill holes to a depth of between 325m and 450m across the Stansmore, Volt and Ion targets, our exploration “roll of the dice” with LYN is that it can deliver a drill hit similar to what WA1 delivered with its discovery:

(Source)

Exploration is risky however, and we think of this upcoming drilling as a “roll of the dice” - hope for a win but be prepared for a loss. “Only invest what you can afford to lose” is a classic mantra in this space which we follow.

Here is a side by side of LYN’s projects compared to WA1 Resources (pre-discovery) - notice both had distinct geophysical “hot spots”.

(Source)

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What’s next for LYN’s West Arunta project?

🔄Heritage Surveys (mid-year) - precursor to final permits.

🔄Gravity surveys (next few months) - to refine targets.

🔄Drilling (next few months) - pending heritage surveys.

Risks

Delay risk: LYN has faced delays before - further delays could hurt the LYN share price.

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.

Macro Theme Risk: The West Arunta province is hot after WA1’s discovery and incredible share price run, but it could cool off before LYN drills its West Arunta prospect in the next few months.

Nearology Risk: We have observed that Nearology plays rarely succeed - as we have seen over the years with failed investments in the Fraser Range Nickel rush, the Julimar Province PGE rush and the Earaheedy Basin lead-zinc rush. Whilst LYN’s current key project sits near existing discoveries and is prospective, the chances of the company actually making a discovery are low.

Funding/dilution risk: LYN is a junior explorer with no revenues to fall back on to fund its exploration. As a result, the company relies on new funding for future exploration programs. LYN may need to regularly raise new capital from investors to finance its exploration programs. Capital raises could take place at a discount and incur dilution to existing shareholders.

Market risk: LYN is an early stage exploration company chasing new discoveries. There is always a risk that a market wide sell off will hurt LYN’s share price if investors look to withdraw capital from the higher risk investments in their portfolios first.

Our LYN Investment Memo

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

• Key objectives for LYN for the coming year
• Why we are Invested in LYN
• What the key risks to our Investment thesis are
• Our Investment plan