Iris Metals (ASX: IR1) shares have jumped 33% on their relisting. They've been suspended since last year, essentially as people worked on pulling together the varied aspects of the project and financing. Today was that relisting following the sign off on everything, including a $15 million capital raise. So, now there's a funded mining company with some claims and so what happens next?
The background here is lithium claims in South Dakota. An area that has historically been mined for lithium, is known to hold lithium bearing pegmatites. As Iris says: “The Beecher pegmatite trend was mined sporadically between the 1920's and 1950's for lithium,
beryllium, tantalum, mica and feldspar. Limited amounts of lithium spodumene ore from the Beecher mines was shipped to Hill City during the 1940's where it was processed through a flotation circuit. IRIS' local partner has been granted mining licenses permitting lithium pegmatite mining for these patented claims.” It's actually that second that might be more important.
Iris Metals has prospecting rights over quite large areas. But there are those two specific claims where they've already got actual exploitation licences. This means that they can't be tied down for decades by those opposing such mining - they've already got the licences. Given the litigiousness of the American environmentalists this could be important.
Iris Metals share price from ASX
There is one more point of interest here. They're looking for spodumene and that has a specific market character. As and when - if of course - substantial deposits are found then the usual capital structure is that the spodumene concentrate processor comes in and funds the building of the concentrating plant. In return for an offtake contract - a guaranteed supply. This alleviates some at least of the capital cost of development to the equity share holders in the mining company.
The effect of this is that lithium works a little different from most other metals. Once the reserve is proven - so, we know how much, how to process, have shown we can make a profit, we've got the licences to do so - then there usually isn't the massive cash call to shareholders to build the mine. That comes from the purchaser of the concentrate to be produced. Or, as has also been happening recently, a processor buys out the mine in its entirety once it is derisked.
We do not say this will definitely happen at Iris. But the market set up is such that if there isn't at least such an offer then we'd probably think that the deposit wasn't all that good. For good deposits do get such offers.
What this really means is that Iris Metals is left with really only the one major risk. Just how much lithium is there up there in the Black Hills of South Dakota? We know there's some, but how much?
