James Bay Minerals Ltd (ASX:JBY)

Investment Memo:

James Bay Minerals Ltd (ASX:JBY)

- LIVE

Opened: 25-Nov-2024

Shares Held at Open: 1,979,167

What does JBY do?

James Bay Minerals (ASX:JBY) is a gold explorer developing its project in Nevada, USA.

JBY also owns lithium exploration assets in Quebec, Canada.

What is the macro theme?

Gold price is trading near all time highs and looks like it wants to go higher against a backdrop of high inflation and global uncertainty.

Nevada is home to some of the world’s biggest, lowest cost operating gold mines with gold majors like Barrick and Newmont active in the region.

JBY also has lithium projects in Canada which gives us a chance to pick up lithium exposure during the lithium winter. We think these projects can come good when sentiment improves.

Our Big Bet for JBY

“JBY re-rates to a +$300M market cap by expanding its large US gold resource and moving into development studies and/or attracting a takeover bid at multiples of our Initial Entry Price”

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 JBY Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Why did we invest in JBY?

JBY has a 1.18Moz gold and 7.6Moz silver resource with exploration upside.

JBY already has a foreign resource estimate of 1.18Moz gold, 7.6Moz silver. Inside this sits a 796Koz high-grade component (3.8Mt at 6.53g/t gold). The current resource is open at depth and in all directions with scope to upgrade that resource number. Right now, we think it is cheaper and lower risk to Invest in “already discovered” ounces in the ground - provided there is enough exploration upside at the project as well.

JBY has the same team and backers as our 2024 Small Cap Pick of the Year SS1.

Board, management, corporate advisor and top 20 shareholders are very similar across JBY and SS1 (our 2024 Small Cap Pick of the Year that IPOd at 20c and hit over $1.18 within nine months). We have observed them to be very hard workers and good holders so far - We are backing the same group to deliver a win with JBY. They also have a knack for securing quality, advanced projects on good deal terms, and maintaining good tight cap structures with no options overhang.

We like the gold macro thematic for 2025 and beyond.

Gold is currently trading at all time highs and we think it will continue running. We are yet to see a wave of new production being brought online during this cycle, our expectations is that a lot more projects will get into production and start producing gold while spot prices are high. We are hoping JBY’s project is one that gets into production during this gold bull market window OR they build a resource big enough to be taken out by a bigger player in the region.

Nevada a top 3 Fraser Institute mining jurisdiction every year for the past 10 years.

Nevada was ranked as the best mining jurisdiction in the world in 2022 by the Fraser Institute. Nevada has also consistently ranked in the top 3 every year for the past 10 years.

We have success in Nevada in silver with SS1, JBY’s project is similar, but for gold.

Nevada is home to some of the biggest gold and silver mines in the world, including Barrick's “Goldstrike” project which was the asset that put the company on the map. The gold and silver deposits in Nevada are known for being easy to mine and process at a low cost. We have had success in Nevada with SS1, we are hoping that JBY can replicate this success.

JBY is right next door to a mine operated by Barrick and Newmont.

JBY’s project sits right in the middle of Barrick and Newmont’s Phoenix Joint Venture. Barrick and Newmont have sunk billions of dollars into mine infrastructure and are currently producing gold from the project. Barrick and Nemont have both committed to growing production at the Phoenix operation and there is always a chance that they look at a bolt on acquisition with a project like JBY.

JBY is surrounded by low cost heap leach mines with same geology

JBY’s project is surrounded by some of the lowest cost gold mining operations in the world. Barrick and Nemont’s Nevada Gold Mines JV has pits operating with AISC (all in sustaining cost) to produce at below ~US$1,000 per ounce. $19BN Kinross’ Bald Mountain asset operated with a cost of sales of ~US$1,241 per ounce in 2023. Great margins at the current spot price of ~US$2,700 per ounce.

Previous owners spent >US$25M on this project and have completed a Preliminary Economic Assessment (PEA)

JBY’s project has had over US$25M in capital spent to get the project to where it is today. The project also has a 2022 PEA which showed 32,050 ounces of gold per year for 6 years at an all-in sustaining cost of US$1,078 per ounce. By our calcs that is US$86M in revenues per year assuming a US$2,700 ounce gold price. That PEA only covered a small portion of JBY’s existing foreign resource, excluding the high grade skarn which contains a resource of 796Koz ounces of gold.

Note this rough calculation doesn’t take into account capex or opex etc and assumes a gold price that could move down (or up).

Clean, tight cap structure, ~89M shares post transaction, no options overhang

We like JBY’s capital structure because there are no option overhangs and only 89m shares on issue. We have seen a similar style clean structure for SS1 which has so far worked out well. A lot of the top 20 shareholders are the same across both companies and they appear to be stable long term holders so far. A clean structure with no options overhang allows for the company’s share price to rise off the back of strong positive news.

Well-known retail stock with potential to re-rate.

JBY appears to have a large retail following and the potential for share price re-rates on good news. The company promotes well, it was a hot IPO back in September of 2023, when James Bay lithium stocks were popular amongst investors and right before the lithium sentiment crash. As a result, we think that if the company can deliver material news on their gold project, there will be enough eyeballs on the stock for the share price to re-rate.

Our full JBY Investment Memo is at the end of this note, including objectives we want to see JBY achieve, risks we have identified and accepted and our Investment plan.

What do we expect JBY to deliver?

Objective #1: Complete acquisition of gold project in Nevada, USA

We want to see JBY complete the acquisition of its gold project. The AGM is set for 29th November after which we hope to see the transaction close.

Milestones

in-progress JBY completes acquisition of gold project

Objective #2: Convert foreign resource estimate into a JORC resource

We want to see JBY convert its existing foreign resource estimate into a JORC resource.

Milestones

complete JORC conversion commenced

not done JORC resource estimate completed

Objective #3: Upgrade existing resource estimate

We want to see JBY run an extensional drill program to expand its existing resource beyond the 1.18m ounce gold & 7.6m ounce silver resource.

Milestones

not done Drilling commenced

not done Drilling results

not done Resource upgrade

Objective #4: Identify lithium drilling targets on Canadian projects

We want to see JBY identify and rank high-priority lithium drill targets. We want to see JBY have these targets ready when lithium prices increase, and the market is rewarding drilling success again.

Milestones

in-progress Geochemical work

in-progress Geophysical work

not done Drill targets identified

What could go wrong?

Exploration risk

There is no guarantee that JBY can increase its existing resource estimate through exploration drilling. There is always a chance that drill programs fail to find any economic mineralisation that may not add to the project’s overall resource estimate.

Resource risk

At the moment, JBY’s project has a “foreign resource estimate”. This means it is built on a different set of assumptions & guidelines relative to the JORC code that we are more accustomed to seeing on the ASX. There is no guarantee that JBY can convert all of its foreign resources into a JORC resource. If this risk were to materialise it may have a negative impact on the company's share price.

Funding risk/dilution risk

JBY is a small cap that is not generating any revenues at the moment. As a result, the company is reliant on access to financing from the market. If there is any negative news (macro or fundamental) then JBY may be forced to raise capital at lower share prices. Capital raises at lower valuations could dilute the ownership of existing shareholders and cap the upside potential of the company’s share price.

Commodity price risk

The performance of commodity stocks are often closely linked to the value of the underlying commodities they are seeking to extract. Should gold prices fall there could be a negative impact on JBY’s share price.

Market risk

There is always the possibility that broader market sentiment gets worse and shares as a whole trade lower. In this scenario we would expect JBY’s share price to re-rate lower. Given JBY is pre-revenue and considered a lot riskier than revenue generating companies, JBY’s share price could be impacted the most in a “risk-off” market.

Development/delay risk

Should any or all of the above risks materialise, JBY could wind up stuck in “development purgatory” where newsflow dries up and the project remains stagnant for a prolonged period of time, hurting the share price.

What is our investment plan?

We are Invested in JBY to see it expand its resource and progress its project into development.

Our plan is to hold the majority of our position in JBY for 3 to 5 years which we hope is enough time to see JBY to move towards development (see “our long term bet” above).

After 12 months we will apply our standard de-risking strategy.

We may look to sell up to 20% of our holding if the company delivers on one or more of our Investment Memo objectives and/or the share price materially re-rates.

Any sell downs will be in accordance with our trading and hold policy disclosure.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 1,979,167 JBY shares at the time of publishing this article. The Company has been engaged by JBY to share our commentary on the progress of our Investment in JBY over time.