Industrial Minerals (ASX: IND) shares are up 127% on the company’s entrance into the Pilbara lithium game. IND shares haven’t risen on the mere lithium excitement so much as the method of that market entry. This is a very astute way of joining in the excitement. Of course, it may not work in the end, there’s still geology to consider. But it’s a clever way of minimising costs and maximising the chances of success. That’s why the shares have risen so much even though there’s a share issuance to pay for it (and the option price being paid is pretty small too).
The deal itself: “Industrial Minerals Ltd (ASX: IND or the Company) is pleased to announce the agreement of binding terms with North West Quarries Pty Ltd (NWQ) for the exclusive option to acquire an 80% interest in the non-construction material mineral rights, including lithium and HPQ, at the Pippinagarra Quarry Project (Pippinagarra) near Port Hedland. The project is located within world class Pilbara lithium province of Western Australia and near some of the world’s largest hard rock lithium mines. IND hold a number of tenements in the region that are prospective for HPQ and lithium, making the addition of this Project a logical expansion of IND’s activities in the Pilbara region. In addition, IND has also recently applied for further tenure proximal to the Pippingarra Project.”
There’s a cleverness to this which might not be apparent to those unversed in the intricacies of the mining world.
Industrial Minerals share price from Google Finance
When looking for lithium we need to find the right kind of rock, pegmatites. We then need to know that there’s spodumene in that rock. Finally, we need to know there’s lithium in the spodumene. Once we’ve done all of that we need to have the infrastructure to be able to mine. The cleverness here is that the site is already mined for construction materials (amusingly, for the rock that supports the other lithium mines in the area) so a large part of that infrastructure already exists. Further, exploration at the mine has shown one (but only one) result that indicates lithium. Further, the general geology, the presence of mica and columbite, indicates that we would expect there to be a good change of substantial lithium mineralisation.
So, Industrial Minerals has, at low cost, picked up an option on a highly prospective lithium exploration area which would, if it came to that, be relatively cheap to develop. That is an astute and canny deal.
Of course, everything is still probability - exploration needs to prove that there is economic lithium there. But the nett present value is the value of any find times the probability of a find - both are quite high here.
