ASX Shells going to the green pastures of Quebec & Ontario – Part 1

Australian small caps have been going to the green pastures of Quebec and Ontario for a long time. Pre-2020, many of the small caps’ exploration focus was base metals and gold, and post-2020, a renewable thematic kicked off in a way we haven’t seen before.  

Within land packages once considered ripe for base metal discoveries, suddenly, lithium was found in legacy drill holes. Investors and speculators started staking land as if there would not be a tomorrow. 

Hungry Australian investors and companies looking for a new opportunity have found plenty of potential upside in Canada’s nascent lithium sector.  

Some of these adventurers chose to take the more expensive IPO route on the ASX, while others backed the Canucks in their local market.  

In the current wave, which started 12 to 18 months ago, we saw and are seeing the ASX-listed or dormant companies coming out of hibernation by vending lithium land into shells.  

• Size of the land vended into shell varies from tiny 600 hectares to a massive land position of 60,000 hectares.  
• Quebec’s tier-one lithium discoveries have led to a frenzy of land sales to Australian companies. Ontario is also popular, and Manitoba may be next. 
• This Op-ed is two-part series, where we have analysed the ASX shells below A$100M market cap, which have tended assets over the last 12 months. 

ASX Listed Shells Investment in Canadian Landscape Part 1  

Market Cap 

It is getting harder to justify a Market cap above A$50/60M without an MRE in place or the market at least expecting a clear pathway to MRE. Cash of A$2.5M is required to kick off a field program, especially in Quebec, where access via Helicopter is expensive. 

Size of the Land Package 

The size of the land package can unlock value to some extent, but drilling and finding spodumene is the critical kicker. 

 Market Cap vs Land Package 

The average land holding of the companies analysed is around 19,000 hectares with an A$20M market cap. Initiating fieldwork and finding high-grade rock chips can excite the market. However, a barren outcrop with high K/Rb ratios will lead to a market-penalised share price. Price reversal requires a heavy-handed effort, and in return, companies, in most instances, have seen close funding at a lower price, with heavy dilution to existing shareholders. 

Part two of this op-ed will be released in the next edition of the weekly Market Open(ed) newsletter.

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