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Errawarra Resources (ASX: ERW) jumps 54% on survey - no results, just the survey news

If a mining stock price jumps just because they say they’ve completed a survey - with no results as yet - then, well….

Update : 25 Aug 2023, 03:00 PM

Errawarra Resources (ASX: ERW) shares are up 54% on Thursday. ERW shares bounced simply on the announcement that they’ve completed their aerial survey. They didn;t share the results of that survey in terms of lithium finds or anything - mostly because that’s not what an aerial survey does. It’s possible to think that this is a bit too much price action for what is, after all, a fairly anodyne corporate announcement: “ The pegmatites within Errawarra’s tenement E47/4352 are located 3km west of recent lithium pegmatite reported by Raiden Resources  and 10km SW of the major lithium pegmatite discovered by Azure

Resources. With high grade lithium pegmatite reported by both Greentech Metals and Artemis Resources less than 20km to the west, Errawarra is strategically located within a highly prospective lithium pegmatite zone. Errawarra will continue to methodically explore its 100km2  tenement for lithium bearing pegmatites.” And, well, good luck and all that but it’s not exactly the most Earth shattering of new information, is it? They’ve found some outcrops of the right sort of rock. 

As we’ve said before about Errawarra: “The bull case is that geology does work in areas. The sort of rock that produces lithium right here is also likely to produce lithium over there. And if we've some vast range of the same sort of rock then yes, if there's lithium in one bit of it then we're likely enough to find lithium in another part of it. Thus the Errawarra excitement: “Errawarra has a significant and strategic tenement land holding of 100km2 adjacent to Azure Minerals and their recent lithium discovery. This has given Errawarra confidence that its ongoing exploration work will deliver further potential targets for testing. This region has been under-explored for battery metals including lithium.”” And the share price jump that engendered did all fade away again until today’s jump.

Errawara Resources

Errawarra Resources share price from Google Finance

The problem for us is that there’s a great deal of circularity about the varied announcements here. As we can see above part of the argument is that if there’s lithium next door, at Azure Minerals: “Azure Minerals (ASX: AZS) is up 34% today on very preliminary news of a lithium find. Actually, it's so preliminary that the board has had to release a second information sheet pointing out how preliminary it is. They've got the right mineral but aren't sure how much lithium there is in it. This is value additive, the information so far, but those pesky little details do matter as to how valuable it actually is.” And if they’ve got some then so might we. But this is also the argument being used by Raiden Resources. And Artemis Resources: “The point for us to understand here is that this is still at a very early stage. Yes, the right rocks (pegmatites) have been found. Also, some interesting lithium values have been found in some of those rocks. It's even true that this seems to be an extension of a mineral deposit from the claims next door. But that's all we've got to so far. This is not proof that there is indeed a lithium deposit there worth mining.”

But do you see how this argument is developing now? All of the different mining companies are pointing to each others’ results - very preliminary results too - to insist that as they might have something then so might we too. But given the very preliminary nature of all of these finds then each new claim is being built on the shaky foundations of the very preliminary claim.

The difficult thing is that this is proof of absolutely nothing. For if there were a major new lithium resource out there in that Andover area then this is exactly what the different mining companies would be reporting at this point. But it’s also what they’d be reporting if Andover was an entire miss. Interesting rock which turns out to be less interesting on closer examination.

We do thing that 54% up on merely the announcement of completing an aerial survey is too much and we’d expect a slip back in that price. At least until any real results are made known. But the bigger problem, to which we have no solution, is to consider how much these varied claims are each building upon each other, not upon objective news from the ground.

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