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Wildcat Resources (ASX:WC8) is one of the best performing resources stocks of the year, having rocketed from 3c to 86c, making it a near 30-bagger and giving it a market cap of nearly $900m – four times as much as Baby Bunting (ASX:BBN).
Early investors have witnessed substantial gains – an investment of $1,000 at the end of 2022 would have grown to $37,000 by October 2023. While the confirmation of an economically viable lithium deposit remains pending, the evidence is encouraging for shareholders.
Why has Wildcat Resources had a good run?
The success of Wildcat Resources primarily attributed to the acquisition of the Tabba Tabba lithium-tantalum project in May. This project’s location near major lithium mines positions it favorably in the lithium sector. The Tabba Tabba project located in Western Australia has proven to be significant for Wildcat Resources. Initial explorations have unearthed high-grade lithium mineralization at depths of less than 100 meters, indicating the potential for a large-scale lithium system. Notable results include an 85-meter thick intersection with 1.1% lithium and a second 218-meter thick intersection with 0.8% lithium. The central pegmatite target zone now spans over 1.2 kilometers in length.
A standout feature of the Tabba Tabba project is the Leia Pegmatite, which has displayed exceptional promise. Results indicate a broad intersection of high-grade lithium, with indications of a potential Tier-1 lithium deposit. Ironically enough, the company only picked up the deposit in May and only just completed the acquisition 3 weeks ago. Obviously this didn’t prevent the company exploring the project and achieving the results it has.
So what’s next?
Investors evidently hope that Wildcat Resources has stumbled across the next major lithium mine. As good as the signs are, there is a long way to go. The company has not even declared a JORC Resource yet! Not that we expected it to 6 months into drilling, but there are likely some shareholders that think a few drilling results constitute a major lithium mine.
Wildcat Resources has to formally declare a resource and then complete necessary feasibility studies to determine if and how the resource can be extracted economically. After that, the company needs funding to bring it into production, something that could cost hundreds of millions of dollars. Alternatively, it may chose to sell itself to a major miner, a prospect that is reasonable eventually, but not any time soon.
Some runway left
Wildcat Rеsourcеs had a cash balance of AU$8.8 million as of June 2023. This is a significant positivе for the company, еspеcially considering that it had no outstanding dеbt. With a cash burn rate of AU$2.8 million ovеr thе trailing twеlvе months, the company has a cash runway of approximately 3.2 years from Junе 2023. This mеans that, thеorеtically, Wildcat Rеsourcеs could sustain its currеnt opеrations and investments for 3.2 years without generating any additional cash inflow. But it can only go so far just drilling for lithium, even assuming their luck holds up (something that is no certainty).
Although the price of lithium rose by 366% in the last three years, its price has dropped by 67% in the last year. This raises an important issue with lithium. We have seen economists estimating that there is not enough lithium to sustain the green energy revolution, which led to prices shooting up.
But is there a lithium shortage or is there not enough digging carried out to truly estimate the actual deposits of lithium? This will decide how the future of lithium prices unfolds and whether there is a long-term shortage which will directly impact the company’s share performance.
Should I buy Wildcat Resources?
We think investors should only look at buying into Wildcat Resources when it completes its next capital raise. This is because it would likely be at a discount and therefore present a good entry opportunity. Because if the company uses the capital raised well, ends up declaring a resource and completing feasibility studies – there could be more shareholder value to be created.
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