We had previously ascribed only a nominal value for James Bay in our NAV of $30m (100%), but based on a move to a 60% risk-adjusted resource multiple valuation, we have increased this to $80m ($40m attributable to GMM).
JAMES BAY SPODUMENE PROJECT– A RE-CAP
- The James Bay lithium pegmatite project is located in north-west Quebec, Canada. The project is currently 100% owned by GXY, but is subject to an earn-in by GMM whereby it can earn 50% of the project by spending US$5m over a 3 year period. The project was acquired by GXY in through its merger with Lithium One in 2012.
- Lithium mineralisation at James Bay is associated with spodumene-bearing pegmatite dyke swarms, which vary in width from 60-100m. The dykes generally outcrop at surface, and form a dis-continuous corridor over a strike length of 4km. Almost all the pegmatites at James Bay are known to be spodumene-bearing, with coarse crystals ranging from 5cm to 80cm.
- The project currently hosts resources of 22Mt at 1.3% Li2O (2010), and is currently at the pre-DFS stage. We understand that a project team is currently being assembled, with an infill and extensional drilling program planned to commence in mid’16 on completion of the North American winter. We expect this to lead to upgrades to the current resource ahead of feasibility studies which could commence in 2017.
- While the project is relatively early stage, the geometry of the current resource appears amenable to open pit mining, while the coarse grained spodumene mineralisation is likely to respond well to conventional processing. Subject to the completion of feasibility studies, we note a number of similarities to Mt Cattlin in terms of project scale and potential production potential, and anticipate Mt Cattlin could serve as a potential development blueprint for the project (i.e. 1-2 Mtpa plant capacity, 100-200ktpa spodumene concentrate production).
We highlight that James Bay compares favourably to other hard rock projects held by ASX-listed companies in terms of project size, grade and stage of development. Filtering this list further to include only hard rock projects with resources, and widening the scope to include TSX-listed companies (Figure 3), we see that James Bay is one of only a few advanced, hard rock lithium projects in the world.
- In our view, James Bay is being ascribed very little value, if any, in both GMM and GXY’s market value. Assuming James Bay was held in a separate company with 100% ownership, we believe it would command a significantly higher value than is currently being ascribed to it by the market.
- While we believe resource multiples are a crude metric to be used for high level comparisons only, based on the group average, we estimate an implied “value” for James Bay (100%) of $212m. Noting James Bay’s earlier stage of development versus its closest ASX peers in AJM and PLS (both PFS-stage), risk adjusting this by 60% could suggest a market valuation of ~$80m, versus GMM’s market capitalisation of ~$180m (which also incorporates GMM’s right).
