Doré Copper + Cygnus Metals, match made in heaven?

TSX Venture-listed Doré Copper is a high-grade #coppper / #gold junior with a very attractive PEA-stage project in Quebec. CEO Earnest Mast is an experienced (30+ years) mining exec. with a track record of success. On October 15th the Company announced a merger of equals with Australian-listed #lithium (“Li“) junior Cygnus Metals.

The proposal calls for Doré shareholders to receive 1.83 shares in Cygnus per share of Doré. The combined company will be dual-listed in Australia & Canada. This is a BIG & bold move for both companies.

As I write, Cygnus shares are trading at A$0.12, which, multiplied by 1.83, and converted to C$, would be ~C$0.20 per Doré share. This week Cygnus is going to raise A$11M = C$10M.

According to Cygnus, the combined company will have ~C$17M in cash! Cygnus shares trading meaningfully higher in Australia shows that Australian investors like Doré’s Cu/Au assets! At first blush, this merger seems questionable as operating synergies might not be easy or fast.

Pontax is surrounded by much larger projects/companies…

However, Mr. Mast and an impressive Australian team will have a lot of opportunities to develop the combined company into a valuable Cu/Au/Li development story. I’ve written extensively about Doré’s Cu/Au project, see here & here.

Make no mistake, Li has been out of favor for the past 18 months, but Li prices appear to have bottomed (for this cycle) in September. Four recent events support a rebound narrative. First Pilbara Minerals announced the acquisition of Brazil’s Latin Resources, and Rio Tinto is acquiring producer Arcadium in a blockbuster C$10B deal.

Thirdly, this week GM & Lithium Americas (“LAC“) released a very positive reworking of GM’s involvement. LAC shares are up +57% from the lows of September, and fourth, early-stage Quebec explorer Q2 Metals’ stock is up +650% from its 52-week low on very strong drill results (in bear markets, strong drill results are ignored).

For readers uneasy about a move into Li, that’s understandable, but investing near the bottom of the cycle can be rewarding. Low Li, nickel & cobalt prices have slashed the cost of Li-ion batteries. As a result, new end uses for batteries are being announced every week.

In addition to use in EVs, Li is needed in batteries for retail, commercial & grid-scale stationary storage systems, a market growing faster than EVs. The current Li price of ~US$10,500/t is unsustainable. Curtailments of global production are well underway.

I’m confident prices will rebound by next year, the question is how big a bounce. The price topped out at > $80,000/t in 4Q/22. Most Feasibility Studies from 2021-2024 use long-term price assumptions of $20-$30,000/t. I think pricing has to move back into that range or dozens of projects on the drawing board will not get built. 

So, Cygnus Metals, is it a good Li company? The short answer is YES. It already has a small, but not tiny, 10.1M tonne resource at Pontax with a grade of 1.04 Li2O. That grade is on the low end of a range of 0.90 to 1.50% Li2O, but anything over 1.00% is widely accepted as good.

This 10.1M tonnes equates to ~260,000 tonnes of Lithium Carbonate Equiv. (“LCE“). For a hard rock Li project to be truly exciting it probably needs a million tonnes of LCE, but Cygnus is off to a good start. 

Why is 10.1M tonnes a good start? Among hundreds of pre-construction stage Li juniors around the world, I estimate only about two dozen have booked a resource of at least 10M tonnes.

Booking a resource, even if small, takes time & money and the mineralization has to show continuity. If/when Li prices improve, companies like Cygnus/Doré, with access to capital, a strong management team & proximity to Canada’s best Li projects should do well. 

Pontax resource is small at 10.1M tonnes, but wide open in all directions…

According to the Cygnus website, “The Pontax project remains heavily underexplored with a large portion of the ground at Pontax under shallow glacial cover with only ~2% outcrop and minimal drilling.”

Quebec now hosts Rio Tinto (acquiring Arcadium), Sayona Mining, Patriot Battery Metals, Q2 Metals & Winsome Resources. In my view, to the extent that Cygnus can rub elbows with companies like these, it can only lead to good things. If Cygnus only had one resource at Pontax I would not be as excited.

Importantly, it also has the 417 sq. km Auclair project which is pre-resource but has an excellent drill hole interval of 55.7 m at 1.40% Li20. Wait, just one high-grade hit? Well, there are others like 43.7 m at 1.15% Li2O, but the width x grade of 55.7 x 1.4 = 78 is a very good hole!

It’s Top-30 among hard rock drill results, taking the single best drill hole per project (otherwise Patriot would have many of the top intercepts). This means that Cygnus could develop into a company with two 10M+ tonne resources. 

Or, at the very least, Pontax’s resource size could grow. If Auclair could come in at 10M tonnes over 1.00% Li20 (far from a sure thing!), that would be amazing.

The clear benefit of being fairly close to serious Li players is that 10M tonnes, or 260,000 tonnes LCE is already enough to be a satellite deposit for a third party. How much could 260k tonnes of LCE be worth? In a depressed market, those tonnes might be worth C$25-$50 each.

However, several resources that have a PEA or PFS on them are valued at $50-$$100 tonne. When Li was hot back in late 2022, and early 2023, the Enterprise Value (market cap + debt – cash} divided by tonnes LCE for many juniors reached $200-$450/t. 

I’m not suggesting we’re headed back to those levels, but if $100/t a year from now for Pontax, that would be C$26M before accounting for any growth in Pontax, and giving zero credit for Auclair (not a forecast or company guidance). Finally, there’s a third 118 sq. km property named Sakami 44 km west of Patriot’s Corvette asset, and adjacent to Winsome’s Cancet discovery.

According to the Cygnus website, “Cygnus considers the Sakami project to have immense potential for the discovery of significant lithium mineralization with the right geology, surrounding discoveries, and lack of lithium exploration to date.”

Critical Elements has a far more advanced (BFS-stage) project hosting roughly 3x the number of tonnes of LCE as Pontax, with a grade of 0.90% Li2O. It’s valued at ~C$160/t of LCE (in a still depressed market). It has traded as high as C$450/t within the past year.

Readers of my articles on Doré Copper know about the Cu/Au assets, see here & here. I look forward to learning more about plans to explore & develop the combined company’s Li assets.

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