Red cloud research21 Jan 2022 13:41
Bradda Head Lithium announced it entered into a royalty agreement with Lithium Royalty Corp (LRC). The agreement consists of a 2% gross overriding royalty totaling US$8M over its sedimentary lithium claims in central Arizona. We see this deal as a large stamp of approval from the Lithium Royalty team as it manages to raise non-dilutive funds for exploration of what appears to be specifically for its sedimentary lithium including Bruno Creek East, Bruno Creek West and Wikieup. We estimate that this 2% royalty could be worth US$300/t or nearly US$7.5M in royalty payments annually to LRC, assuming hypothetical annual production of 25,000t LCE at prices of US$15,000/t and that the 2.5Mt LCE threshold is met. Bradda Head has several positive attributes: multiple projects across multiple deposit types, great jurisdictions with high Fraser Institute rankings (NV, AZ), good infrastructure, low political and geological risk, low CO2 footprint, geological upside and management that is heavily aligned with shareholders.
• Payments to come as significant milestones are reached. Payments are planned in three tranches, 1) US$2.5M on closing of the deal, 2) US$2.5M once Bradda Head has achieved 1Mt of LCE resource with a minimum grade of 800 ppm, and 3) US$3M once it has reached a resource of 2.5Mt LCE at a minimum of 800 ppm. Furthermore, LRC plans to invest an additional US$2M as a private placement on closing.
• Non-dilutive deal. At its current share price, this deal equates to raising ~1/3 of its market cap by non-dilutive means. We anticipate this news to help put Bradda Head on the map for investors as it foreshadows the scale of resource growth that management and others are anticipating. While lithium-bearing claystones need further proof of commercial viability, its better understood brines and hardrock assets remain unencumbered by the royalty.
• Significant upside potential at Burro Creek. This is an early-stage lithium project that needs plenty of drilling, testwork, and technical work to advance it towards production. It has a current resource total 43Mt grading 818 ppm Li for 0.185Mt LCE.
• Plenty of news to come to potentially re-rate the stock. We are anticipating considerable news flow as Bradda Head advances its lithium projects in Nevada and Arizona. A sonic drill program is expected to begin in Q4/21 with the objecting of providing a maiden resource estimate in Q1/22. Drilling is expected to focus on ~20% of the sedimentary claims, with potential to add to Bradda’s existing resource (185kt LCE) at its Burro Creek East asset.
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