James Bay Minerals (ASX:JBY)

Company: James Bay Minerals Ltd
Ticker: JBY
Sector: Lithium
Market cap: ~$11.5 Million
Enterprise value: ~$8.4 Million
Cash – ~$3.1 Million

Share price:

Current – 0.19
52 week low – 0.19
52 week high – 0.61
Shares on Issue: 60,500,000

Note – No company options

Company Background, Macro Environment & Recent Performance

In 2023, the lithium sector has faced significant headwinds, with falling prices largely driven by concerns of potential lithium oversupply in the near term, which has seen falling share prices for most companies with a focus on lithium. Despite this narrative, many experts in the lithium space have suggested that oversupply of lithium is not technically possible and we will see a reversion to higher lithium prices in the short term. Moreover, it was only a few months ago the sector was rife with M & A activity coupled with multiple failed takeover bids from cash heavy international Lithium organisations. The sector has also seen large suppliers or potential suppliers of Lithium be shaken by political issues as seen with the push for Nationalisation of Lithium in Chile and African lithium assets tied up in dispute. Whichever short-term narrative prevails, it is important to recognise that the green energy revolution heavily relies on lithium and these fluctuations are to be expected in a long-term uptrend of a secular shift, predominately driven by the need for electric vehicles and energy storage systems.

JBY successfully commenced trading on the ASX 12^th September 2023 reaching highs of ~0.60 within days of listing, with well-known mining identities in key management positions, coupled with one of the largest exploration tenement packages prospective for lithium in the James Bay region of Quebec. JBY has a collective of 4 large tenements, totalling ~346km2 within greenstone belts and along major regional faults, which are along strike of successful ASX-listed explorers Patriot Metals & Winsome Resources.

However, JBY has not been immune to the bearish sentiment towards the lithium sector, which has seen the share price steadily decline towards its 0.20 IPO listing price. JBY now maintains a relatively modest market capitalisation of ~$11.5 Million and healthy cash balances of ~$3.1 Million. The low market capitalisation and strong financial position allows JBY to execute its exploration strategies without the requirement for short to medium term capital raises, whilst concurrently providing an attractive investment thesis with significant upside if any positive drill results are achieved.

Cash & Expenditure

Cash held – ~$3.07 Million

• Debt – $0
• Staff/admin cash burn (Average over two quarter) – $458,000
• Total average cash burn per quarter (average over twoquarter) – $1,265,000

Typically, it would be preferable to see a significantly lower staff & administration quarterly cash burn, however provided JBY have only recently listed, increased administration costs are to be expected. With regards to available cash, JBY boast a healthy ~3.1 million which should allow JBY to execute on its planned strategies and upcoming drill program. It is worth noting, in JBY’s Quarter Ended 31 December 2023 report, a modest $15,000 was spent on staff salaries whilst $1.04 million was spent on exploration activities.

Board of Directors

JBY have a well credentialed board who have worked on the largest and most successful hard rock lithium projects in the world, from discovery through to development, construction, and production of spodumene and Lithium Hydroxide.

• Non-executive Chairman – Gerard O’Donovan:Former senior project manager at Pilbara Minerals (ASX: PLS)overseeing the development of the Pilgangoora mine for production and currently managing director of recently listed lithium explorer Battery Age Minerals (ASX: BM8) which has successfully discovered lithium deposits at their Canadian assets;
• Executive Director – Andrew Dornan:18 years of senior commercial management experience including Former senior commercial manager with Pilbara Minerals (ASX: PLS), Tianqi Lithium (consultant), Fortescue Metals Group (ASX: FMG), Newmont and Rio Tinto (ASX: RIO);
• Non-executive Director – Judith Baker:Previously director of Nemaska Lithium for eight years which developed the largest spodumene deposit in North America, and the founder of Lithium Canada Corporation; and
• Non-executive Director – Dean Ercegovic: Previously a founding director and chief operating officer of Primero Group, which operates in multiple regions globally (including Quebec) and is an industry leader in the design, construction and operations of lithium processing facilities. Primero Group has since been acquired by NRW Holdings (ASX: NWH)for ~$100 million in 2021.
• Note – JBR recently appointed Senior Technical Advisor ‘Brodie Box’ who is ex Latin Resources (ASX:LRS) exploration geologist, of which he played a key role in the early identification of Salinas Lithium project which now hosts the Colina Lithium Deposit which has an inferred resource of 45Mt @ 1.34% Li20.

Director Shareholdings, Salaries & Alignment With Shareholders

• Total director shareholdings – 9,174,499 ordinary shares (15% of register)
• Total shares acquired by directors on-market and/or in placements only – 574,508 ordinary shares (1% of register) for a total of $118,015 at an average of $0.21 per share
  • Note – Chairman & Executive Director recently purchased almost $50,000 on-market at ~$0.38 per share
• Remaining director shares –7,600,000 ordinary shares (13% of register) were acquired primarily by Andrew Dornan via seed raising for $75,000 at $0.01 per share
• Board salaries
  • Executive Director – $165,000 pa
  • Non-executive Chairman – $68,000 pa
  • Non-executive Directors – $48,000 pa
• Performance rights – Nill

Summary: Overall, JBY directors hold a significant interest in the company and are aligned and incentivised to add value for themselves and subsequently the shareholders. Whilst a significant portion of the director holdings have been acquired at a significant discount to the current share price, these seed shares were purchased by Executive Director Andrew Cornan, who is assumed to have played a significant role in the development of JBY and listing on the ASX. This, coupled with recent significant on-market purchases at almost double the IPO listing price, in addition to modest annual salaries provides sufficient incentive for directors that is positively aligned with shareholders.

Top 20 Register

JBY boasts a very tight capital structure which will maximise the upside in the event of any positive news and minimise the downturns to low volume movements. The Top 20 hold ~71% of shares on issue, of which JBY management and project vendors own just under 50% of the shares on issue and their holdings are escrowed for 24 months. JBY has no highly dilutive options or un-escrowed seed or pre-IPO shares that will weight on the share pricein the near term. The project vendors are entitled, on the exercise of the Project Options, to receive:

• 9,000,000 Shares;
• 5,000,000 performance rights vesting upon the Company announcing a drill intercept of at least 20 meters with a grade of not less than 1% Li2O at any of the Acquisition Claims; and

Should JBY exercise these Performance Rights, it should see the share price at higher levels then current and indicate positive prospects towards the projects.

Company Assets & Strategy

Spodumene deposits are hosted in Massive LCT Pegmatites which are found in Archean rocks that are typically between 2.6-2.8 billion years old. ‘Big pegmatites’ characteristically form on regional faults, in greenstone belts and within close proximity to granites. All of JBY’s projects meet the requirements and collectively theyamount to the largest collection of land held by an individual company on the James Bay Minerals Lithium trend. Further, JBY’s deposits are in the same geological formation as Patriot Battery Metals (ASX: PMT) and Winsome Resources (ASX: WR1), who have both made significant spodumene discoveries in the region and are along strike of JBY’s LaGrande projects. JBY’s projects detailed below:

LaGrande Project (flagship project) –

• Aqua (88km2): FIN Resources (ASX:FIN) Cancet Lithium project which shares a border with JBY, has confirmed spodumene rock chips and channel sampling (0.84% Li20 – 6.85%Li20). These outcropping dykes appear to be part of the broad pegmatite field trend which continues into JBY’s tenements, and five large outcropping pegmatite dykes up to 500m in length have been identified along the mid-west boundary. JBY have discovered Spodumene crystals in the pegmatite dykes. Assessment of data from LiDAR and high-resolution photography has generated a total of 123 LCT pegmatite targets across the Aqua Property.
• Aero (49.8km2):Maiden fieldwork has commenced, with 31fractioned pegmatites mapped including some up to ~590m long and ~30m wide. Moreover, several pegmatite fields consisting of up to 20 additional pegmatite dykes have been discovered including a corridor ~3km from East to West & ~350m North to South. Spodumene crystals have been observed within outcrops (Warhawk). Additionally, LIBS results have now confirmed lithium mineralisation across three separate pegmatites spanning a strike length of 2.5km
• Joule (163.8km2):Exploration activity undertaken at the Joule Project to date includes desktop studies, initial planning and engagement of Contractors to undertake aerial surveys.

Troilus Project (4.35km2) – Exploration activity undertaken at the Troilus Project to date includes desktop studies, initial planning and engagement of Contractors to undertake aerial surveys. Sayona Mining’s (ASX:SYA)Moblan Lithium Project (12.03Mt @ 1.4% Li2O) is approximately5km to the south, Vision Lithium Ltd’s (TSX.V: VLI) Sirmac Project with confirmed Spodumene intersections of up to 22m @ 1.70% Li20, andWinsome Resources Ltd’s (ASX: WR1) Sirmac-Clappier Projects are situated approximately 25km west.

Peer Comparison

Equal & Comparable Peer Analysis Comments – JBY offers a fair and reasonable valuation when evaluating its fundamentals to the likes of its peers who are in similar location and stage of exploration. As compared to ASX:MRZ & ASX:PIM, JBY retain 100% ownership of their tenements, which offers signifcant more upside on any successful exploration results. Furthermore, JBY’s attractive enterprise value and high cash levels when likened to its peers reduce its risk profile comparatively. Despite only having visual confirmation of spodumene crystals and no confirmed assay results, given ASX:FIN have pegmatites with confirmed assays and presence of spodumene, of which this trend continues into JBY’s tenement’s, it is highly likely that JBY’s assay results will yield similar results.

Risk Peers Analysis Comments – Despite varying amounts of cash, junior lithium exploration companies within the James Bay region which have announced exploration results which were poorly received by the market have retained a market capitalisation between ~$5.2 million to ~6.2 million. Assuming market sentiment towards the lithium sector remains bearish, anecdotally this peer analysis suggests an approximate downside profile of 40-50% should JBY exploration results not be well received by the market.

Reward Peer Analysis Comments – With market sentiment towards the lithium sector remaining bearish, it is apparent from current peer market capitalisations that drill results would need to regularly exceed 20m intersections at minimum to see an approximate 200-300% share price increase. Intersections greater than this may yield a higher market capitalisation as demonstrated by ASX:WR1.

Short Term Catalysts:

• Desktop studies analysing data generated from 2023 field program and aerial surveys to inform targeted works moving forward
• Submission of drill permit for Aero Property
• Accelerated drill program at Aero Property, forecast to commence H1 2024 (The most significant catalyst)
  • It is worth noting that FIN Resources plan to commence 1,500m of initial drilling at their ‘White Bear’ project during Q1 2024, which borders JBY’s Aqua tenement. Any positive drill results could result in a catalyst for JBY’s share price.
• Commence field prospecting programs across Joule and Aqua properties H1 2024

Highlights:

1. Tier 1 Jurisdiction which has attractive government grants, exploration tax rebates (Up to 40%) andflow through funding
2. Significant land holding which is along strike from globally significant lithium discoveries
3. Experienced board which has worked on successful hard rock lithium projects from discovery through development, construction, and production of spodumene and Lithium Hydroxide.
4. Board of directors have been purchasing on-market at significant premiums and are highly aligned and incentivised to add value for themselves and shareholders.
5. Tight capital structure to maximise upside in the event of a mineral discovery.
6. A fair ~$8.5m Enterprise Value with sufficient cash to execute exploration strategy
7. Drill program to commence in the near term

Risks:

1. JBY projects are all greenfield exploration projects which are inherently risky and there are no assurances drill results will yield positive results, with little to no historical exploration data
2. Market sentiment towards lithium remains bearish and it is difficult to forecast when this may change in the near term
3. Due to market sentiment, downside has increased and upside has decreased in relation to share price movements