Lanthanein Resources (ASX:LNR)

Investment Memo:

Lanthanein Resources (ASX:LNR)

- LIVE

Opened: 10-Feb-2022

Shares Held at Open: 12,823,582

What does LNR do?

Lanthanein Resources Limited (ASX:LNR) is exploring for rare earths in the Gascoyne region, WA located in close proximity to Hasting Technology Metals’ advanced Yangibana Rare Earths project.

What is the macro theme?

Rare earths are crucial for the clean energy transition. As China is by far the world’s largest producer of Rare Earths, there is a strong geopolitical element to the industry as major global powers look to secure domestic or friendly supply of strategic resources.

Specific to LNR, rare earths like Neodymium (Nd) and Praseodymium (Pr) are used in the permanent magnets found in EVs and wind turbines, where we expect demand to surge over the next decade.

Our Big Bet for LNR Big Bet Tooltip

LNR discovers and proves a rare earths deposit significant enough to become an acquisition target for one of its bigger neighbours Dreadnought or Hastings - OR LNR becomes part of a consolidation play for all three companies.

Why did we invest in LNR?

Rare earths are strategic resources and highly leveraged to energy transition

With demand for the specific Rare Earths that LNR is exploring for (Nd, Pr) set to quintuple by 2030 - governments and investors are quickly moving to secure or get exposure to Rare Earth resources. This is because Nd and Pr are essential for the manufacture of permanent magnets found in EVs and wind turbines.

10,000m+ rare earths drilling program to start in April. [03-Mar-2023]

LNR's tenements are adjacent to the “next major Rare Earths project in Australia”

Hastings’ Yangibana project is due to come into production in 2023 and it boasts the highest grade of its peers in the rare earth space. Additionally, we believe LNR's geology setting could lead to another rare earths discovery in the region.

Rare Earths neighbourhood heating up - enter Andrew Forrest [26-Aug-2022]
Neighbour Dreadnought confirms significant discovery [05-Sep-2022]
10,000m+ rare earths drilling program to start in April. [03-Mar-2023]

Key catalysts in the pipeline

As this is a high risk, very early stage exploration company there are a large number of catalysts to look forward to. This includes EM surveys, drilling and assays.

Optionality for project commercialisation

Depending on LNR's progress, they could become an acquisition target, or should the exploration yield a sizeable deposit they could look to bring in a development/JV partner to de-risk or carve their own path. This is a long way off though, which we highlight in our risks section.

What do we expect LNR to deliver?

Objective #1: Complete EM surveys to generate targets

EM surveys are the first step LNR needs to take in order to get the exploration project in the Gascoyne region up and running. Prior to our investment, LNR signalled that these EM surveys were imminent and we want to see drilling targets generated from the EM surveys.

Objective #2: Delivering a drilling campaign on WA rare earths project

Initial drilling and the subsequent assays should give LNR a basic understanding of the grounds they are working with.

Heritage surveys completed, drilling soon. [23-Aug-2022]
Siteworks commenced for maiden rare earths drill program [30-Aug-2022]
Rare earths drilling almost 50% complete [19-Sep-2022]
LNR: rare earths drilling to start in coming days [21-Apr-2023]
LNR starts diamond drilling at big carbonatite targets [09-May-2023]

Objective #3: Deliver enough successful Rare Earths drilling results to warrant further drilling campaigns

Early stage exploration is risky, and successfully striking enough rare earths to warrant more drilling programs to determine if there is a commercial quantity would be an excellent result in our opinion during 2022.
Getting positive drilling results is not in the companies control so this objective is partly reliant on exploration luck

LNR releases rare earths assays, big target to test in 2023 [14-Dec-2022]
LNR Heritage surveys completed - 10,000m+ drill program next. [24-Mar-2023]
LNR release assays from project next to Dreadnaught & Hastings [31-Aug-2023]

What could go wrong?

Exploration risk

Despite LNR’s tenements existing in an established rare earths region - there is no guarantee that EM surveys deliver any attractive drill targets. Even if the targets they generate are worthy of further exploration, drilling could return limited or no mineralisation. If they do return significant mineralisation the potential deposits may not prove economic.

Visuals from LNR’s first WA rare earths drill [20-Oct-2022]
LNR starts diamond drilling at big carbonatite targets [09-May-2023]

Commodity pricing

While the two rare earths that LNR are seeking are trading at elevated prices with significant further demand projected, a number of market factors could impact the underlying commodity prices. This includes but is not limited to, an increase in Chinese production or a “flooded market” scenario, new resources coming online, cooling investor interest or a lack of government support for new projects.

Delay risk

Metals exploration is booming at the moment, meaning many companies want to be drilling. We understand there is currently a shortage of drill rigs, drill crews and delays at assay labs, which means the companies drilling timelines may blow out.

What is our investment plan?

LNR is a new portfolio addition, our position was taken at ~2.93¢.

As with all our new investments, we have a 90 day trading blackout. After 90 days we are allowed to sell a maximum of 20% of our total position, which we will do if the LNR share price has risen from a positive drilling campaign or pre-drill speculation.

This is our standard plan across all early stage exploration investments.

The rest of the investment will be held into the drilling results, and hopefully over several further delineation drill campaigns if the initial drill campaign delivers encouraging results.

Disclosure: The authors of this memo and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 12,823,582 LNR shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by LNR to share our commentary on the progress of our investment in LNR over time.