Falcon Metals (ASX: FAL): A punt on the upcoming drill results

Behzad Golmohammadi Behzad Golmohammadi, April 5, 2022

Chalice Mining’s demerged gold assets

Falcon Metals Limited (ASX: FAL), based in West Perth, Australia, engages in the discovery, exploration and development of mineral deposits in Australia. Its flagship project is the Pyramid Hill Gold Project, which covers an area of approximately 5,000 square kilometres in the Bendigo region of Victoria. Falcon’s other project is its Mount Jackson Gold Project comprising one granted exploration license located in the Southern Cross region of Western Australia.

 

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Falcon Metals also holds an option to acquire 70% interest in the Viking Gold Project comprising two exploration licenses covering an area of approximately 308 square kilometres in the southeast of Norseman, Western Australia. Falcon Metals was formed in 2021 as a result of Chalice Mining (ASX: CHN) demerging its gold assets in Victoria and Western Australia.

Falcon’s first drilling results at the Karri prospect at the Pyramid Hill Gold Project are due shortly. We believe that with proper trade management in place, this stock is worth a punt in anticipation of the drilling results.

 

Insto’s drove up Falcon Metals’ share price initially

Falcon Metals was listed on ASX on 22 December 2021 and it therefore has only three months of trading history. Within this short period of time, Falcon stock traded across a wide range, all the way from 31.5 cents to 90 cents. Falcon raised $30m in its IPO and Chalice Mining issued 1 share of Falcon for every 3.034 Chalice shares held.

 

Falcon Metals

Falcon Metals Limited, Daily Chart in Semi-log Scale (Source: Metastock)

 

❶ Falcon Metals opens below the IPO price of 50 cents and closes at a low of 31.5 cents. The reason for the sell-off was the small shareholders selling their in-specie distribution holdings.

❷ Institutional shareholders’ on-market buying pushes up the share price.

❸ Profit-taking activity and no exciting announcements drive down the share price.

❹ Speculation on the Karri drilling results and positive sentiment on the resources sector pushes up the share price.

 

Falcon’s share price had a challenging start right after the IPO as Chalice Mining shareholders immediately started to sell their in-specie holdings in Falcon to cash out the free shares given to them by Chalice. The institutional holders soon stepped in to control the sinking share price and their buying pressure drove the share price up to 90 cents per share.

 

Karri Prospect drilling results are due shortly

In mid-January 2022, Falcon Metals commenced its first drilling program post its IPO at the Karri prospect at the Pyramid Hill Gold Project. Karri is one of the advanced prospects at Pyramid Hill and is located in the prosperous Bendigo Zone where 60Moz of gold has been produced since the 1850s. Prior diamond drilling at Karri has intersected several zones of mineralisation known to host high-grade gold mineralisation in the Bendigo Zone.

According to the company’s December quarterly report, the first assays from the diamond drilling program at the Karri prospect are expected by the end of 1Q22, i.e. right about now.

Taking into account possible delays, the drilling results can be expected anytime from now. Given the high prospects for Karri, we think this creates a good speculation opportunity to bet on the results of the drilling.

 

The risks

It is worth emphasising the risks of possible dismal outcomes of the drilling campaign. In the case of poor drilling results, we expect the share price to drop to around 30 cents in the initial market reaction. Therefore, speculators need to be aware of the risks they are taking and carefully consider their risk tolerance and risk management strategies.

 

Our price target is 90 cents to be reached within three months

Based on the company’s announcements, the market is now expecting the results of the drilling at the Karri prospect. This has created speculative demand and has brought extra attention to the stock (Point 4 on the chart).

Based on this extra attention, we believe that the latest low at 35.5 cents (the green line on the chart) should hold until Falcon announces the results to the market, so that’s our stop-loss.

We see prices between 42 cents to 35 cents as a good buying in anticipation of good results. Impressive drilling results can potentially drive the share price to the all-time high of 90 cents (the orange line on the chart).

 

 

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Frequently Asked Questions about Falcon Metals

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