Western Mines Group (ASX: WMG) shares have been up as much as 270% (180% at pixel time) over the day on the announcement of drill results at Mulga Tank. It does need to be said that this is a very preliminary result but given the implications of it if it all pans out the declaration and announcement is necessary. The indications are - and they are at this stage only indications - that there could be a large nickel, cobalt, platinum group metals deposit at the site. That obviously has implications for the valuation of a tiny junior mining company like Western Mines Group.
To strip the geology of all of its detail, such mineral deposits are found where the magma has welled up beneath the surface. Think something like a volcano that doesn't, in fact, pop. The various metals contained within that magma then crystalise out in different places. This is almost entirely wrong in detail but it's a useful way to think about it. As the rock cools underground we get deposits of different types in different places throughout the system. How large each deposit is depends upon a number of factors but we can generally put it down to “happenstance” for our purposes.
Western Mines Group share price from ASX
The specific metals identified here are a series we often do find together. Nickel, cobalt and the pgms. It's well known how to refine these so assuming that the deposit is at scale and concentration then there's definitely significant value there. Thus the jump in the WGM share price of course. The indication is that they've found a large concentration of these metals.
We do need to realise though that this is very early days. Even if everything is confirmed and proven there's still a considerable - 10 to 20 years is a useful estimate - time before there's any production There's also considerable risk. What we've actually got here is the results from one drill campaign. We aren't even claiming a resource as yet, it's still too early to tell, and we're certainly not talking about a proven reserve. So there will be some years of further work just to define exactly what the deposit is. And of course there is risk in that it might not pan out, these early results might be atypical.
The other issue is financing. Western Mines depends entirely upon shareholder capital at present. From the last results they spend/lose (there is no revenue) some $500,000 a half year. They have a cash runway of perhaps two years.There will be more fundraisings simply because that's where exploration expenses come from - shareholders.