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Jindalee Resources Limited (ASX: JRL)

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Jindalee has a A$11m market capitalisation, with a portfolio of properties in the lithium, nickel
and gold commodity space. The 100% owned McDermitt Project in the USA has been receiving
the most attention, and in 18 months from acquisition as a greenfield exploration site, has
reported a maiden resource of 1.55Mt Lithium Carbonate Equivalent, with an exploration target
that remains larger. Comparable ASX listed companies are trading at market capitalizations
of A$30M to A$300M. These companies generally have completed scoping/PFS/DFS studies
that provide the market with specifics on project scope. if Jindalee can provide this level of
information to the market, we would expect the share price to be re-rated.
KEY POINTS
Jindalee is a geology driven project generator – The management has a track record of
acquiring projects early and cheaply, adding significant value during the early lower cost phase
of project generation, and partnering when assets entered more capital intensive development
phases. The company has been listed since 2002 and still has only 38.5M shares on issue.
McDermitt is one of a new class of lithium deposit – Current global lithium supply comes
from hard rock spodumene producers, typically in Australia, or brine based producers in Chile
and Argentina. McDermitt is a dried out lake deposit at surface, basically an open pit clay mine,
with the potential to have cash operating costs close to the bottom end of the brine producer
cost curve, while also having half the time to ramp up to full capacity of brine projects. Being
a new class of supply is a source of risk at present, translating to a higher discount at present,
but the discount is likely to wind back if similar projects are successfully developed.
Share price drivers – We expect the McDermitt project to deliver news flow relating to
additional drilling, and particularly additional metallurgical test work, which we expect will form
the basis of a scoping study, or possibly a PFS and Reserve announcement. The PFS/Reserve
would be the major share price driver, but we would expect interim announcements along the
way to create a positive share price trend.
Lithium price oversold – From our assessment of the cost curve, and more importantly by the
actions of some existing producers who are winding back production, it is clear that the current
lithium price will rebound, although that will probably have to wait for US/China trade wars,
Corona virus impacts, and the effects of the Chinese subsidy changes to ease.
Australian gold and nickel exploration – The newly applied for North Gruyere tenement is
certainly a focus, and if Jindalee is allowed to drill in the Dorothy Hills shear zone along strike
from the 6Moz Gruyere operation, we would expect that to spark some market interest.
VALUATION
As an exploration story, we find it difficult to place a specific value on the company’s assets.
Any valuation is contingent on the outcome of value adding activity. From a review of
comparable ASX listed lithium project developers, the median market capitalization per tonne
of lithium carbonate equivalent resource is around A$80/t LCE, and if Jindalee can convert all
its current 1.6 Mt LCE resource into a competitive project, with similar capex and opex metrics
to comparable companies, then it should trade at over A$3/sh. The risk is that in the process of
building an economic project, the resource typically shrinks, hence the market’s caution. The
nickel and gold exploration ground in WA provides diversification and additional upside.
Please note any comments on valuation are conditional on the occurrence of events
that have yet to happen. All the assets of this company are either at the exploration
stage, or very early in the project definition stage.