The lithium salars in the productive triangle between Argentina, Chile and Bolivia or the lithium spodumene projects in Australia are well known. A lot of money is now flowing here, and takeovers such as the recent one of NeoLithium. So far, however, the newly discovered lithium salars in Mongolia are only on the radar of a few investors. They have the added advantage of being on the doorstep of the world's largest lithium consumer: China. Canadian explorer ION Energy (TSXV: ION; OTCQB: IONGF; FRA: 5YB) wants to prove that the lithium salars in Mongolia can be as productive as those in South America.
Figure 1: The multi-year slump in the lithium price since the 2018 peak has meant that investment in the industry has slowed, while the pandemic has exacerbated supply constraints. On the demand side, the green energy transition has accelerated the adoption of electric vehicles, and global lithium consumption is expected to increase fivefold by the end of this decade, according to BloombergNEF. (Source Benchmark Mineral Intelligence & Bloomberg.)
ION Energy only went public in 2020 and is one of the first movers in Mongolia. The underlying investment thesis is that the country offers untapped but almost unlimited potential for lithium. Management has been successfully operating in Mongolia for over a decade, including through its close association with Steppe Gold (TSX: STGO), and has more than 100 years of combined mining and exploration experience. Currently, the company owns two promising concessions with a combined 110,000ha. In addition to the main Baavhai Uul project (81,000ha) near the Chinese border, the company acquired a further 29,000ha in the Urgakh Naaran license some 150km further northwest inland in February this year. 21 drill holes were made, 70% of which were successful on the first attempt. Average grades in shallow aquifers were 426 ppm lithium and peaked at 811 ppm lithium. Preliminary analyses indicate minor contamination by potassium and magnesium. More accurate values will need to be determined in the next step. ION Energy's primary objective in the initial drill holes was to confirm decades-old Russian data that had documented high-grade Li brines in the Gobi Desert. The company plans to start hydrogeological drill holes shortly, which could lead to an initial resource by then.
Despite its comparatively early stage, the company is already being followed by a number of brokers and analysts. Among them PI Financial, Fundamental Research (price target 0.91 CAD) and Couloir Capital (price target 0.88 CAD). Particularly revealing is a comparison that PI Financial recently made. It compares ION Energy's properties with those of Wealth Minerals (TSXV: WML) in the South American lithium triangle. In favor of ION Energy in the comparison is not only the size of its concessions, but especially the proximity to China. Wealth Minerals is 15,000 km from China. ION Energy's concession closest to the border is only 30 km from China. China consumes 53% of the world's lithium, produces 75% of all the world's batteries, and refines over 80% of the world's lithium used in batteries. Accordingly, PI Financial sees a significant valuation gap between the two companies: Wealth Minerals now has a market cap of >$130 million. ION Energy is currently trading at CAD 27 million.
Figure 2: PI Financial compares ION Energy's properties with those of Wealth Minerals in South America.
Ion Energy raised CAD5.75 million in March of this year at a price of CAD0.50. Five million CAD is currently still in its coffers. That's easily enough for the upcoming exploration. If all warrants at CAD 0.40 and 0.70 were exercised, the company could receive another CAD 11 million. CEO Ali Haji therefore expects that the company will not need any more financing in the foreseeable future. Rather, his personal ideal scenario is that once an initial resource has been identified, one of the major players could express interest. The logic of this consideration is easy to understand: Who among the big players can or will afford to sleep through Mongolia's development in China's front yard?
There are four points in ION Energy's favor: 1. The company has a proven in-country team with a strong "social license" to operate and a strong shareholder base. 2. with one of the largest exploration licenses in Mongolia, ION Energy is positioned to become a major player in the booming lithium market in Asia. Exploration work is already underway. 3. Mongolia offers a low-cost operating environment and allows for work throughout the year. Initial work indicates shallow aquifers. The Gobi Desert is an arid environment with high evaporation rates. 4. ION Energy is fully funded to launch an aggressive growth strategy for the remainder of the year.
ION Energy's board is filled with top people. Most notably, you can see the signature of CEO Ali Haji, who wants to establish ION Energy as a player in the Champions League. Two members of the team come from Lithium Americas (TSE: LAC), including notably their former Chief Technical Officer (CTO) Dr. David Deaks. The Mongolian side is represented by Bataa Tumur-Ochir, who as CEO of Steppe Gold has the best relationships with Mongolian government officials. Bataa is, of course, a significant shareholder in ION Energy.
Figure 3: The shareholder base says a lot about ION Energy. Management & insiders own about 25 percent of the shares. Mongolian investors already follow in second place. They already hold around 7.5 percent.
Conclusion: The mining industry in Mongolia is responsible for 20 percent of the gross domestic product and accounts for 80 to 90 percent of exports. In view of the foreseeable decline of coal, nothing better can actually happen to the country than to also supply lithium, the fuel of the post-fossil era, for its large neighbor. Lacking its own expertise, Mongolia leaves the development of new deposits to exploration specialists. ION Energy was in the right place at the right time to secure the relevant concessions. In South America, similarly promising areas would hardly have been affordable. The lithium potential for ION Energy is huge and the geostrategic advantage resulting from the proximity to the major customer China can hardly be priced. The coming months should provide plenty of exciting news flow. We are already looking forward to it.
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