Investment Memo: Mandrake Resources (ASX:MAN)
What we want to see from our investment in MAN during 2022.
Mar 25th 2022
This investment memo is a short, high level summary of why we continue to hold MAN and what we expect the company to deliver in 2022. The purpose is to record our current thinking as a benchmark to assess the company's performance against our expectations 12 months from now.
What does MAN do?
Mandrake Resources (ASX:MAN) is a junior exploration company chasing a large scale copper porphyry discovery in a region of northern Chile that hosts the world's largest copper mine. MAN also holds ground 30km from Chalice Mining’s Julimar project in WA, Australia.
What is the macro theme behind MAN?
We see MAN as being leveraged to the global electrification boom and anticipated commodities super cycle over the coming decade.
Copper is already the third most widely used metal in the world, used primarily in buildings and infrastructure projects - two sources of demand likely to benefit from pandemic stimulus. Copper also has a growing demand source from technology - EVs have up to 3.5 times more copper in them than a standard petrol car.
Why do we continue to hold in 2022?
- Copper project in a part of Chile home to large porphyry discoveries: MAN’s new copper acquisition sits in a region that hosts the world's largest copper mine - the 11.2bt @ 0.8% copper project owned by BHP/Rio Tinto, as well as the the 10.5bt @ 0.6% copper project controlled by state owned Codelco. Both of these are large scale porphyry deposits. MAN’s project sits on similar geological structures and has potential for a large copper discovery.
- Historical drilling data indicative of high grade copper mineralisation: MAN’s new acquisition has ~15,000m of historical RC/Diamond drilling results which have returned a peak intercept of 86m @ 4.83% copper from 121m - which includes higher grade sections of 27m @ 7.1% copper from 134m, and 3m @ 14.4% copper from 164m.
- Strong balance sheet: At 25 March 2022, MAN had $16.4M in cash. That’s a lot of cash in the bank for a small cap explorer, so MAN is well positioned to aggressively explore any potential discovery it makes across its project portfolio.
What do we expect MAN to deliver in 2022?
Objective #1: Complete 12 week due diligence period and proceed with acquisition:
- MAN has set an initial 12 week due diligence period before it commits to the acquisition. We want to see MAN complete this due diligence work and make a firm decision to proceed with the project.
Objective #2: Drilling program at the newly acquired copper project this year
- Target generation works include geochemical sampling (rock chip sampling) and geophysical survey results to produce high priority drilling targets.
- We’ll be watching for permitting and regulatory approvals after MAN puts together some high priority drilling targets.
- We want to see the company conduct at least one drilling program by the end of 2022.
Objective #3: Maiden JORC resource at the newly acquired copper project.
- With ~15,000m of historical RC/Diamond drilling results and the addition of new drilling data that MAN completes in 2022, we hope to see MAN put together a maiden JORC resource for the new copper project either very late in 2022 or early in 2023.
What could go wrong?
- Acquisition risk: The newly announced copper acquisition in Chile is via an option agreement which gives MAN until at least 31 May 2023 to decide if it wants to acquire the copper project. Until then, MAN could pull out of the transaction at any time should exploration work yield no results. There is a risk that MAN elects to not proceed with the transaction and would then need to look for a new project.
- Environmental permitting risk: The Chilean government has signalled that it will put more focus on environmental permitting across the mining industry going forward. There is always a risk the government rejects new mine developments due to environmental concerns and so this is a key risk in Chile.
- Exploration risk: MAN is an early stage explorer with no discovery made as yet. As a result the company has no cash flows to fall back on should they fail to make a discovery. There is a risk that nothing will be found.
- Commodity risk: Junior exploration companies rely on elevated commodity prices to access capital. There is always a risk that the copper price falls and markets are no longer willing to finance new exploration.
What is our investment plan?
We plan to remain invested in MAN at least until it completes due diligence on the Chilean copper project. Given our confidence in the management team, if they choose not to proceed with the acquisition, we plan to continue holding until a new project is identified.
If all goes to plan and our investment objectives are met and the share price rerates, we will then look to take some profit and sell 20%, as per our standard investment plan for exploration companies.
Disclosure: The authors of this memo and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 2,150,000 MAN shares at the time of publication. S3 Consortium Pty Ltd has been engaged by MAN to share our commentary and opinion on the progress of our investment in MAN over time.
Catalyst Hunter Investment Milestones
✅ Initial Investment @ 8c
✅ Top Slice
🔲 Free Carry
✅ Increase Investment @ 20c
🔲 Free Carry
✅ Increase Investment @ 5.49c
🔲 Free Carry
🔲 Take Profit
✅ Price increases 250% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1,000% from initial entry
🔲 12 months capital gains tax discount
🔲 Hold remaining for 2 years