ASX:SLM

- Solis Minerals Ltd

We have had success Investing in Latin Resources which made a hard rock lithium discovery in Brazil and re-rated to a peak market cap of ~$1BN. Latin is now being called “Sigma 2.0” due to it following the nearby $1.8BN Brazilian lithium producer Sigma Lithium. In a similar way, we hope to see SLM become a “Latin 2.0”.

SLM is backed by the same team that delivered Latin Resources discovery last year. Latin’s Managing Director Chris Gale is SLM’s non-executive Chairman. Chris Gale has taken Latin from a ~$5M market cap multi-asset early stage explorer (similar to where SLM is now) to a peak market cap of almost $1BN off its lithium discovery in Brazil. Latin is now fully focused on bringing its Brazilian lithium discovery into production.

Latin Resources holds ~15.3% of the company (as of 3 May 2024) which should mean they are incentivised to see SLM succeed. We hope that SLM can leverage its Latin Resources connection to deliver success in acquiring valuable projects in South America..

SLM should benefit from the crowd of investors that follow (and have made money from) Latin Resources (Latin Resources has ~12,900 shareholders).

Copper is trading at US$4.60/lb and could push higher as the electrification and decarbonisation macro themes get stronger.

SLM has publicly stated it is looking at making new lithium acquisitions. With the current bear market in lithium stocks, SLM could find interesting exploration ground at a reasonable valuation.

At the time of this memo SLM has an EV of ~$2M, which we think means that the company is highly leveraged to a re-rate in the event of successful drilling results.

We have written extensively about the broader lithium market and the decade long investment thematic we are in.

Once it gets to full capacity, Sigma Lithium will be one of the world’s largest lithium producers.

Off the back of this, “Lithium Valley” was launched in the State of Minas Gerais with the ultimate view of promoting foreign investment in Brazilian lithium projects.

We think a tidal wave of capital is going to come into Brazilian lithium projects. SLM is an early stage Investment in this sector.

Sigma has gone from a junior developer with a market cap of <$200M to now trade at $6.5BN. Latin Resources has also gone from <$40M to now trade at $470M. Exploration success in Brazil is typically rewarded with a re-rate in a company’s market cap.

We have had success Investing in our other Portfolio Company Latin Resources which made a hard rock lithium discovery in March 2022 and has since gone from a share price of ~3.5c to 18.5c per share. Latin is now being called “Sigma 2.0”.

In a similar way, we hope to see SLM become a “Latin 2.0” (while remembering that just because Latin performed well doesn’t mean that SLM will do the same).

SLM is backed by the same team that delivered Latin Resources discovery last year.

Latin’s Managing Director Chris Gale is SLM’s non-executive Chairman.

Chris Gale has taken Latin Resources from pre-discovery to a maiden JORC resource in <12 months and managed to raise $72M along the way.

SLM Managing Director Matt Boyes also holds a country manager role at Latin Resources. He has also had previous success in early stage lithium - overseeing Red Dirt Mining as it grew from a $15M market cap to $200M.

As of the 8th September, Latin Resources holds 15.25% of SLM shares - which means they are incentivised to see SLM succeed. We hope that SLM can leverage its Latin Resources connection to deliver success in Brazil for itself.

The SLM to Latin Resources structure has some similarities to how Kuniko was spun out of Vulcan Energy Resources. KNI had an outrageous run from 20c to touch $3.60 in the peak of the bull market, and has now settled at 40c.

We like to back a successful management team in sectors with strong momentum. We certainly aren’t expecting anything like this again, but note that the management team does play a role in the market's interest in a company.

We also have a view that a lot of the interest in Kuniko initially came from investors that had success with Vulcan, wanting to follow the Vulcan team’s new venture.

SLM’s MD Matthew Boyes has been there and done it before.

Boyes was the Managing Director at Red Dirt Metals where he oversaw early development of the Mt Ida lithium project - which took Red Dirt’s market cap from ~$15M to in excess of $200M.

SLM has only ~87 million shares on issue with the largest position held by Latin Resources.

As of 22 August 2023, Latin Resources held 15.25% of SLM shares and participated in the 55c placement. Latin Resources potentially hold more than 15.25% given the recent share price action on SLM - we expect LRS is continuing to back SLM.

We note there are a relatively low ~9 million options on issue too, with the majority having an exercise price of 30c.

SLM has plenty of room to re-rate if it makes a successful discovery.

SLM should benefit from the crowd of investors that follow (and have made money from) Latin Resources (Latin Resources has ~12,300 shareholders).

SLM is following a similar style exploration process and so investors who have had success with Latin Resources may look to buy into SLM with the hope SLM becomes “Latin 2.0”.

SLM has an extensive package of tenements across ~25,000 hectares at the Borborema Project which is home to a 2km of known stretch pegmatite outcropping, as well as a minimum of 9 known pegmatite outcroppings across just two of the 24 tenements within the project.

The project has already turned up rock chip samples from a spodumene bearing pegmatite with lithium grades of up to 7.6%.

Adding to that, are grab samples which returned grades of 3.45% and 3.07% lithium from outcropping pegmatites.

We think there are plenty of opportunities for a lithium discovery on the two tenements which SLM is initially focussed on, with optionality to drill other tenements as well.

NOTE: This reason #10 is the only change in our Investment thesis for SLM from our previous Memo

“SLM” is the ASX stock code and the primary listing, but we also note that SLM is also already listed on the following other global small cap exchanges: TSXV: SLMN 🇨🇦 OTCQB: SLMFF 🇺🇸 FSE: 08W 🇩🇪.

This means that the potential investor pool that can invest in SLM is not just limited to Australian investors, but also much larger pools of investors in the USA, Canada and Germany.

We have written excessively about the broader lithium market and the decade long investment thematic we are in.

Once it gets to full capacity, Sigma Lithium will be one of the world’s largest lithium producers.

Off the back of this, “Lithium Valley” was launched in the State of Minas Gerais with the ultimate view of promoting foreign investment in Brazilian lithium projects.

We think a tidal wave of capital is going to come into Brazilian lithium projects. SLM is an early stage Investment in this sector.

Sigma has gone from a junior developer with a market cap of <$200M to now trade at $6.5BN. Latin Resources has also gone from <$40M to now trade at $470M. Exploration success in Brazil is typically rewarded with a re-rate in a company’s market cap.

We have had success Investing in our other Portfolio Company Latin Resources which made a hard rock lithium discovery in March 2022 and has since gone from a share price of ~3.5c to 18.5c per share. Latin is now being called “Sigma 2.0”.

In a similar way, we hope to see SLM become a “Latin 2.0” (while remembering that just because Latin performed well doesn’t mean that SLM will do the same).

SLM is backed by the same team that delivered Latin Resources discovery last year.

Latin’s Managing Director Chris Gale is SLM’s non-executive Chairman.

Chris Gale has taken Latin Resources from pre-discovery to a maiden JORC resource in <12 months and managed to raise $72M along the way.

SLM Managing Director Matt Boyes also holds a country manager role at Latin Resources. He has also had previous success in early stage lithium - overseeing Red Dirt Mining as it grew from a $15M market cap to $200M.

Latin Resources hold 17.79% of SLM shares - which means they are incentivised to see SLM succeed. We hope that SLM can leverage its Latin Resources connection to deliver success in Brazil for itself.

The SLM to Latin Resources structure has some similarities to how Kuniko was spun out of Vulcan Energy Resources. KNI had an outrageous run from 20c to touch $3.60 in the peak of the bull market, and has now settled at 40c.

We like to back a successful management team in sectors with strong momentum. We certainly aren’t expecting anything like this again, but note that the management team does play a role in the market's interest in a company.

We also have a view that a lot of the interest in Kuniko initially came from investors that had success with Vulcan, wanting to follow the Vulcan team’s new venture.

SLM’s MD Matthew Boyes has been there and done it before.

Boyes was the Managing Director at Red Dirt Metals where he oversaw early development of the Mt Ida lithium project - which took Red Dirt’s market cap from ~$15M to in excess of $200M.

SLM has only ~75 million shares on issue with the majority held by Latin Resources (17.79%).

We note there are ~27 million options on issue too, with the majority having an exercise price of 30c.

SLM has plenty of room to re-rate if it makes a successful discovery.

SLM should benefit from the crowd of investors that follow (and have made money from) Latin Resources (Latin Resources has ~12,300 shareholders).

SLM is following a similar style exploration process and so investors who have had success with Latin Resources may look to buy into SLM with the hope SLM becomes “Latin 2.0”.

In the photo on the acquisition announcement, you can see the exposed spodumene crystals on SLM’s project.

SLM expects to drill test this area within the 90 day due diligence period and see what kind of high grade intersections it can deliver.

“SLM” is the ASX stock code and the primary listing, but we also note that SLM is also already listed on the following other global small cap exchanges: TSXV: SLMN 🇨🇦 OTCQB: SLMFF 🇺🇸 FSE: 08W 🇩🇪.

This means that the potential investor pool that can invest in SLM is not just limited to Australian investors, but also much larger pools of investors in the USA, Canada and Germany.