Investment Memo:
Tyranna Resources Limited
(ASX:TYX)
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LIVE
Opened: 28-Jul-2023
Shares Held at Open: 29,630,000
What does TYX do?
Tyranna Resources (ASX: TYX) is a junior exploration company defining a hard rock lithium discovery in Angola, West Africa.
TYX made a discovery in February 2023 and has explored ~2% of the outcropping pegmatites scattered over its project area.
TYX owns 70% of the project, Sinomine recently acquired 10% of the project for $10M.
What is the macro theme?
Lithium is one of the most critical raw materials in producing lithium-ion batteries.
These batteries are required to power electric vehicles (EVs) AND to store energy for managing the ongoing global energy crisis.
Given the increasing focus on decarbonisation, shift away from traditional fossil fuels and global energy crisis we expect to see demand for the raw materials used in these batteries to remain strong and, in turn, expect to see the capital pour into new discoveries.
Our Big Bet for TYX
TYX discovers and defines a large, simple to process lithium resource, that is on par with world class multi-billion dollar ASX peers such as Pilbara Minerals, Core Exploration, and Liontown Resources, AVZ Minerals and Sayona Mining
Why did we invest in TYX?
Lithium discovery already made
TYX has already made its discovery with its first drill program. Now it is about growing the size/scale of its project through additional drilling.
High grade outcropping pegmatites
TYX’s project has over 1,000 outcropping pegmatites over a ~25km x 10km strike zone. Rock chip samples have returned grades up to 7.49% lithium.
Explored less than 2% of the project area to date
TYX to date has explored less than 2% of its project area. TYX, therefore, has plenty of exploration upside. Of the ~1,000 outcropping pegmatites, only 34 have been sampled.
$6.9BN mining giant invested in TYX and at the project level
TYX signed a deal with $6.9BN capped mining giant Sinomine worth up to ~$31M. Having a multi billion dollar project partner with deep experience in African EV metals projects provides TYX with a derisked pathway to finance project level progress.
Offtake agreement with a US$10M prepayment
TYX also signed an offtake deal with its project partner, the $6.9BN capped Sinomine. Under the terms of the offtake deal Sinomine pays TYX a prepayment of US$10M while the project is in construction.
First mover in Angola
Angola has no operating lithium mine at the moment, TYX has a first mover advantage in the lithium space in Angola. The Angolan government is looking to support the build out of its lithium industry and has mentioned TYX in presentations in the past.
TYX Technical advisor worked on AVZ Minerals (4.3c to a peak of $1.35)
Peter Spitalny acted as chief technical adviser to AVZ Minerals (capped at $2.7BN, prior to its suspension). Peter Spitalny is TYX’s principal technical advisor. Having successfully defined a large multi-billion dollar lithium resource, we hope Peter can do it all again with TYX.
We have had previous success Investing in Angola
We have had success Investing in Angola with our other Investment Minbos Resources going from a share price of ~3c to a peak of 21.5c (~615% increase).
What do we expect TYX to deliver?
Objective #1: Follow up drilling at the Muvero discovery
We want to see TYX drill out its Muvero discovery which includes testing the pegmatite swarms to the east at the Muvero East prospect.
Milestones
Rock chip sampling
Drilling at Muvero
Drilling at Muvero East
Drill results
Objective #2: Drilling of other prospects
We want to see TYX run a project wide geochemical/geophysical survey program to define other high priority drill targets. We want to see TYX drill at least one of these other targets.
Milestones
Rock chip sampling across the project
Project wide geophysics
High priority drill targets defined
Objective #3: Maiden resource estimate
We want to see TYX define a maiden JORC resource estimate. A JORC resource would allow TYX to engage with potential offtake partners and let the market compare it with peers.
We will be putting out our expectations for the JORC resource after the company’s drill programs.
Milestones
Resource definition drilling starts
Resource definition drilling completed
Maiden resource estimate announced
Objective #4: Feasibility studies
We want to see TYX start a feasibility study (scoping study or pre-feasibility study) at some point over the next 12 months following resource definition (Objective #3). We also want to see TYX look at whether or not the project can produce Direct Shipping Ore (DSO).
Milestones
Feasibility study commenced
Direct Shipping Ore (DSO) suitability testwork
Exploration risk
TYX has already made a discovery at its Muvero prospect, but the company is yet to put together a JORC resource estimate for its project. As a result, there is no guarantee that the discovery becomes an economically recoverable lithium project.
Commodity pricing
Any negative change in the lithium price may impact demand for new discoveries. This would particularly hurt the share price of junior explorers like TYX that are still early in the exploration cycle.
Market risk
If the broader market sells off, there is a chance that investors shy away from high risk investment opportunities such as early stage junior explorers. During market downturns, investors will generally look to pull capital away from the highest risk investments.
Geopolitical risk
TYX’s lithium project is located in Angola, which is a developing country in the west of Africa.
There have been several coups in neighbouring countries and the region has a history of geopolitical uncertainty.
We have also seen several licensing problems across other African countries, which have impacted other ASX listed companies.
As a result, there is a risk of the regulatory environment changes impacting project permitting, tax laws or tenure requirements.
What is our investment plan?
As with all our exploration investments, if the share price runs by more than 300%, we may de-risk by Top Slicing 20% of our Total Position, in the hope to achieve Free Carry into the remaining drill campaigns, but are less likely to do so with the amount of funding TYX has recently secured from Sinomine.
The rest of the Investment plan depends on the outcomes of the company’s drill campaign and will be updated accordingly, and be governed by the 2 to 3 year holding periods as defined in our trading and hold policy disclosure.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 29,630,000 TYX shares and 10,000,000 TYX options at the time of publishing this memo. The Company has been engaged by TYX to share our commentary on the progress of our Investment in TYX over time.
Investment Memo:
Tyranna Resources Limited
(ASX:TYX)
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CLOSED
Opened: 30-Nov-2022
Closed:
28-Jul-2023
Shares Held at Open:
37,950,000
Shares Held at Close:
29,630,000
Reason Memo Closed:
Big funding agreement
What does TYX do?
Tyranna Resources (ASX: TYX) is a junior exploration company, focused on making a new hard rock lithium discovery in Angola, West Africa.
This is a very simple story - TYX’s project has over 600 lithium bearing rocks sticking out at the surface and they are a few months away from the first ever lithium exploration drillhole on the project, hoping for a material lithium discovery.
TYX owns 80% of the project.
What is the macro theme?
Lithium is one of the most critical raw materials in producing lithium-ion batteries.
These batteries are required to power electric vehicles (EVs) AND to store energy for managing the ongoing global energy crisis.
Given the increasing focus on decarbonisation, shift away from traditional fossil fuels and global energy crisis we expect to see demand for the raw materials used in these batteries to remain strong and, in turn, expect to see the capital pour into new discoveries.
Lithium prices have been rising since 2020, remain at all time highs and continue to rise each month.
[Memo Assessment - 28-Jul-2023]:
Sentiment = Strong
Lithium prices halved but the share prices for companies exploring or developing hard rock lithium projects are still fairly strong. Lithium is a decade long investment thematic. As a result, we think sentiment is still strong.
Our Big Bet for TYX
TYX discovers and defines a large, simple to process lithium resource, that is on par with world class multi-billion dollar ASX peers such as Pilbara Minerals, Core Exploration, and Liontown Resources, AVZ Minerals and Sayona Mining
Why did we invest in TYX?
Hundreds of outcropping pegmatites
Pegmatites are the main source for hard rock lithium deposits. TYX has over 600 different outcropping pegmatites spanning a 25km x 10km strike zone.
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX has actually mapped out even more outcropping pegmatites over its project since we first launched our Investment Memo. The company now has ~1,000+ outcropping pegmatites scattered over its project area.
Never been drilled and has never been explored for lithium
TYX’s pegmatite fields were discovered in the 1960s. The focus at the time was on feldspar and beryl mineralisation. The outcropping pegmatites have never been drill tested, and the project has only had rock chip sampling undertaken on less than 1% of the project's prospects - plenty more analysis to come.
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX put the first drillhole into the project and made a lithium discovery with a 23m intercept and lithium grades up to 2.02%.
Spodumene bearing pegmatites included in academic research
TYX has confirmed the presence of high quality spodumene bearing pegmatites in its project. Spodumene presence is generally an indicator for high grade lithium mineralisation. TYX will also benefit from extensive academic research completed investigating spodumene presence across its pegmatite fields.
[Memo Assessment - 28-Jul-2023]:
Sentiment = Unchanged
TYX’s project is still covered by the same academic research.
Sampling of the outcropping pegmatites returned high grade lithium
Recent rock chip sampling returned lithium grades as high as 9.75%. The peak grade across the high quality spodumene bearing pegmatites was 7.88% - very high grades. This is a strong sign ahead of drilling.
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX drilled below its high grade rock chips and made a new lithium discovery.
TYX Technical advisor worked on AVZ Minerals - 4.3c to a peak of $1.35
Peter Spitalny acted as chief technical adviser to AVZ Minerals (capped at $2.7BN, prior to its suspension) for its lithium/tin project in the Democratic Republic of the Congo. Peter Spitalny is TYX’s principal technical advisor. Having successfully defined a large multi-billion dollar lithium resource, we hope Peter can do it all again with TYX.
[Memo Assessment - 28-Jul-2023]:
Grade = A
While Peter’s involvement so far has led to a new discovery being made, the company’s share price has mostly traded sideways. At this stage, Peter has delivered project level progress but the market is yet to re-rate the company’s share price.
We have had previous success Investing in Angola
We have been Invested in Angolan fertiliser & green ammonia developer Minbos Resources for over two years. During that time we watched Minbos’ successful progress its project in Angola seeing its share price rise from 3c to a peak of 21.5c per share (~615%) and more recently we have started to see large investor appetite for battery materials projects inside Angola.
[Memo Assessment - 28-Jul-2023]:
Sentiment = Unchanged
We are still comfortable Investing in Angola and continue to hold TYX and MNB as our Angolan exposures. While some other African jurisdictions have had geopolitical troubles, Angola has been relatively stable of a jurisdiction for our Investments to date.
What do we expect TYX to deliver?
Objective #1: Fieldwork to confirm spodumene presence and define drill targets
We want to see TYX conduct several field trips to map out and take samples from its project with the aim of identifying the presence of spodumene bearing pegmatites.
Milestones
Rock chip sampling
Geochemical mapping
Define the highest priority drilling targets in a drilling program
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX successfully identified spodumene bearing pegmatites.
Objective #2: Drilling of the targets identified in objective #1
We want to see TYX drill test high priority targets identified after the ground truthing programs are completed across the project area.
Milestones
Drilling permitting
Drilling commencement
Drilling results
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX drilled the spodumene bearing pegmatites found from its field programs and delivered a new lithium discovery.
Objective #3: Make a lithium discovery
With drilling slated for Q4 2022, we think that if TYX can return assays grading at or above 1% lithium then the company could confirm a new discovery.
Our bull/base/bear case expectations for the drilling results are:
Bull case = Grades of greater than 1.5% lithium [Achieved ✅]
Base case = Grades of greater than 1% lithium
Bear case = Grades of less than 1% lithium
[Memo Assessment - 28-Jul-2023]:
Grade = A
TYX delivered a new discovery with its first drill program. The discovery hole was a 23m intercept with lithium grades up to 2.02%.
Exploration risk
Although TYX has over 600 confirmed outcropping pegmatites across its project, there is no guarantee that these pegmatites host economically recoverable lithium mineralisation. As with any exploration company, there is always a chance that after drill testing its targets, TYX returns uneconomic lithium grades and the project is considered “stranded”.
[Memo Assessment - 28-Jul-2023]:
Risk = Decreased
TYX delivered a discovery earlier in the year and so from an exploration perspective has de-risked its project. There is still some level of exploration risk given TYX needs to grow its discovery, by demonstrating that it has sufficient size/scale for an economically viable lithium project.
Commodity pricing
The lithium price is currently trading near all time highs and rising. Any negative change in the lithium price may impact demand for new discoveries. This would particularly hurt the share price of junior explorers like TYX that are still early in the exploration cycle.
[Memo Assessment - 28-Jul-2023]:
Risk = Materialised
The lithium price has come off by ~50% from its peak and so commodity pricing risk has materialised for the duration of this memo. To date, the price falls have mostly impacted lithium companies exploring for brine or those that are experiencing ramp up issues. The companies exploring for hard rock projects have seen their share prices move higher or remain relatively stable.
Funding risk
TYX is a junior explorer that has no revenues to fall back on, as a result the company is reliant on fresh funding for future exploration programs, this will mean TYX comes to market to raise more capital from investors to finance major exploration programs.
[Memo Assessment - 28-Jul-2023]:
Risk = Decreased
TYX signed a deal with multi billion dollar mining giant $6.4BN capped Sinomine for a $31M funding deal. TYX has already received the first $14.5M from the deal and so has managed to decrease funding risk significantly over the near and mid term.
Market risk
If the broader market sells off there is a chance that investors shy away from high risk investment opportunities such as early stage junior explorers. During market downturns, investors will generally look to pull capital away from the highest risk investments. TYX is an early stage explorer and may be impacted by these market wide sell offs.
[Memo Assessment - 28-Jul-2023]:
Risk = Materialised
Over the last 12 or so months we have seen a market wide sell off across micro cap companies. Markets like these make it difficult for companies to build any sort of momentum because good news is met with selling instead of buying pressure. We think this has had an impact on TYX’s share price.
Geopolitical risk
TYX’s lithium project is located in Angola which is a developing country in the west of Africa. There have been several coups in neighbouring countries and the region has a history of geopolitical uncertainty. As a result there is a risk the regulatory environment changes impacting project permitting, tax laws or tenure requirements.
[Memo Assessment - 28-Jul-2023]:
Risk = Unchanged
To date TYX is unaffected by this. We will carry this risk into our new TYX Investment Memo.
What is our investment plan?
As with all our new exploration investments, if the share price runs in the lead up to drilling or on a great drill result (by more than 300%), we will likely De-Risk by Top Slicing 20% of our Total Position, in the hope to achieve Free Carry into the remaining drill campaigns.
This is our standard plan across all early stage exploration Investments.
The rest of the Investment plan depends on the outcomes of the company’s drill campaign and will be updated accordingly, and be governed by the 2 to 3 year holding periods as defined in our trading and hold policy disclosure.
[Memo Assessment - 28-Jul-2023]:
Grade = C
Although the share price increased by more than 300% in anticipation of drill results, we held 100% of our position into the drilling results.
Unfortunately the share price came off after a combination of results not meeting high market expectations and broader weakness in the lithium price.
To date, we have sold 8.32M shares in TYX (~22% of our position), but did not get the best price for our TYX shares, had we followed our Investment Plan.
Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 37,950,000 TYX shares and 10,000,000 TYX options at the time of publishing this Investment Memo. The Company has been engaged by TYX to share our commentary on the progress of our Investment in TYX over time.
