Armada Metals (ASX: AMM) shares are up 50% today. The reason for this - this half again on AMM shares - is that they’ve now a deal to take over some exploration areas in Brazil. Which might, you know and maybe, contain some lithium. It’s not a bad bet that the areas will contain lithium too. But it’s worth keeping in mind that this is all hope value here. There’s no proof of anything, no substantive evidence. Given the starting point of a $6 million market capitalisation (and that in bijou Australian dollars) then there’s nothin unreasonable about this 50% share price rise. But it is all hope about what will be found, nothing more.
The announcement itself: “ARMADA METALS LIMITED (ACN 649 292 080) (‘Armada’ or ‘Company’) is pleased to announce the signing of a Binding Term Sheet (Term Sheet) with Antares Minerais Estratégicos Ltda. (Antares Minerais), a Brazilian exploration company, to acquire legal ownership and title over certain Exploration Permits and Applications for Exploration covering an area of 16,750.28 hectares in the eastern portion of Minas Gerais State, Brazil. The acquisition consists of 14 mineral rights (“the Permits”) divided into 4 blocks, namely (i) the Agua Boa Project, where pegmatite bodies have been observed (ii) the Rio Doce Project, (iii) the Resplendor Project, and (iv) the Mendes Pimentel Project.”
There is lithium in Brazil. There’s long been mining in this area of Brazil - the name of the State, Minas Gerais, means “general mines”. So, sure, we can have hope value here.
Armada Metals share price from Google Finance
Now comes the problem of course. All too often in these sorts of deals we see an excess of hope over the actual results that arrive. Or even, ew see those hope values gently declining over time as it becomes obvious how much work has to be done to prove the existence - or not - of the target mineral. We’ve seen this with so many of these junior miners. Pure Resources, Foremost Lithium, Golden State Mining, the list goes on and on. It’s entirely true that a small cap explorer gains mightily from actually finding something worth mining. But in between the announcement that they’ve got somewhere to look and their actually finding something we can get a bit too much, an excess of, hope value built into the share price.
