Drilling results from ASX explorers: Here are 4 key things to look for

Nick Sundich Nick Sundich, December 29, 2023

Drilling results from ASX explorers are seen on the Market Announcements platform each day. Why do some results cause some stocks to rise anywhere between 20% and 200% while others can see it go crashing? Well, obviously because some are good and some are not, but what exactly separates the good results from the bad? We’ll look at this question.

 

What to look for in drilling results from ASX explorers:

1. Grade

This is the most important consideration, at least so far as determining the short-term direction of the share price is concerned. Each commodity has its own thresholds for what is considered high-grade or not.

For example, anything above 5g/t would be considered high-grade for gold whilst anything below 1g/t would be low-grade. In respect of uranium, anything below 1,000ppm would be low-grade, whilst anything in five figures ppm would be high-grade. For lithium, anything above 1.5% is considered good.

 

2. Depth

It is all well and good to get a good drilling hit, but it is a lot harder to extract the resource if it is far below ground. At the exploration stage, most ASX explorers won’t have done much economic modelling (if any), although it would not be unreasonable to assume that it would be costly to extract a resource that is well below the ground.

Once again, there’s no ‘one size fits all’ for each commodity, although when you hear the term ‘at surface’, it means it is close to the surface. Please note that ‘surface mining’ is different to exploring for resources and finding ‘at surface’ results. The former term may be a deep, operating mine, although one where the resource is accessible.

 

3. Purity

The cleaner any concentrate (particularly in respect of lithium) or any mineral, the better the margins. This is both because the producer will see lower costs, but also because of the higher prices that will be paid by the downstream processor. Even before you consider eventual production, wet and compromised samples can mean these results may not ultimately be used.

 

4. Abundance

Essentially what we mean here is that it is all well and good to have one or two good holes, but little use if they are far apart and no other drill holes in a set of results are good. It is also important to note the width of any interceptions – a 36cm width for Norfolk Minerals (ASX:NFK) was considered a bad enough result for its shares to plunge earlier this month.

 

Other considerations

Those four points above are key to determining the direction of an ASX explorers’ share price. We would note a couple of further points in conclusion.

First of all, it is all well and good to have a solid deposit, but it is pointless if it cannot be economically feasible to extract the resource. This is why Scoping and Feasibility studies are conducted.

Secondly, one or two good drilling results doth not a good deposit make. And so investors should not get carried away by the first drilling results, even if they appear to be nearly perfect.

All of today’s major miners on the ASX all started as small cap explorers in one decade or another, but the harsh reality is that the odds are stacked against most other explorers today. At the same time, there have been recent examples of large scale mines being discovered by ASX small caps, all starting with one good set of drilling results – such as Nova-Bollinger which was discovered by Sirius Resources in 2012 as well as the more recent Julimar and Kathleen Valley discoveries.

By taking into account the above points, investors should at the very least have clarity as to why their company’s share price is moving the way it is in the aftermath of drilling results – particularly if it is moving down even in spite of management claiming the results were good.

 

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