SMALL CAP SHARE IDEAS: Newly-listed US lithium explorer Bradda Head makes progress
It was hardly surprising that the fundraising for Bradda Head Holdings ended up being oversubscribed.
When London's newest lithium company listed on 19th July its shares were much in demand, as those who were unable to get in on the initial raise scrambled for a piece of the action in early trading.
Three factors underpin this high interest level.
The first is the people. Chief executive Charlie FitzRoy was a significant figure inside China Molybdenum, and recently participated in deals worth around $1.1billion.
Chairman Ian Stalker is a well-known industry figure who has had several significant mining successes in the past, some of them in conjunction with fellow non-exec and Sunday Times Rich List alum Jim Mellon.
It's a formidable combination, capable in itself of bringing in significant funding if required, and capable in turn of attracting other investors.
Prior to listing, indeed, the company set out to raise £4million but after at least £9million was offered, ended up taking in £6.2million.
The second reason for the high level of interest is the market backdrop against which Bradda Head has listed.
Overall lithium demand is set to grow exponentially in the coming years, as the world's vehicle fleets increasingly transition towards electricity and batteries constructed to a large degree around lithium.
And the third, and perhaps most fundamental reason is the quality of the company's suite of assets.
These are spread across two US states, Nevada and Arizona, and come in three types: sedimentary, pegmatite and brines.
All are proximate to relevant infrastructure such as road, rail and electricity, and all look highly prospective.
What's more, work is already underway on the ground. Senior management from Bradda Head based out in the US have already initiated a drill programme at the company's Burro Creek East project in Arizona.
This programme will twin five reverse circulation holes that were sunk in 2018, as well as drilling five new holes to test for potential extensions to the existing 42.6million tonne resource.
That in turn means that newsflow is likely to be coming in thick and fast from the get-go, another factor that always plays well with potential investors.
Indeed, now at 6.6p, the company has barely been listed for two weeks and already it's updated on one project and announced an increase to its landholding in Arizona. For good measure, there was also a company newsletter released on 30 July.
Burro Creek East was the focus of the first update, since drilling is already underway here.
This project already has plenty going for it, and it's perhaps not surprising that this will be the company's initial focus.
As it stands, the rings in at 818 parts per million lithium to give a total of 185,000 tonnes of lithium carbonate equivalent, with an additional 1.4million tonnes of potassium.
But the key point is that there's also additional exploration potential for extensions that could add anything between a further 50,000 and 300,000 tonnes of lithium carbonate equivalent.
Across the wider sedimentary portfolio, the upside is even greater.
There's the Burro Creek East Extension project and Burro Creek West, which is currently the subject of permitting, as well as Wikieup, a project adjacent to discoveries on claims held by Hawkstone Mining.
'On the clays, we've only drilled about 4 per cent of the surface area,' says chief executive Charlie FitzRoy, and it's clear he's hoping for significant gains to the portfolio in the months and years ahead, particularly from Wikieup, where a 30 hole programme will get underway in due course.
Drilling is also lined up for the Wilsons Flats brine project, but it's the pegmatites at San Domingo in Arizona, which really look like whetting investors' appetites.
San Domingo looks to have certain similarities to well-known Australian deposits and is, says FitzRoy, 'very exciting.' It's here, he reckons, that the company offers its biggest upside.
'The area at San Domingo is nine kilometres long,' he says. 'If we find a pegmatite at depth it could be huge.'
All told, Bradda Head is covering an awful lot of bases here.
It's not often you see three types of lithium deposit inside the same company, but it's certainly one way of offsetting exploration and execution risk.
More to the point, taken together it amounts to a sizeable portfolio, and could end up making a serious contribution to domestic lithium production inside the USA.
As it stands, there's only one operating lithium mine in the whole of the USA, Albemarle's Silver Peak mine.
Silver Peak produces around 5,000 tonnes of lithium carbonate equivalent per year, which is all very well – until you consider that some estimates reckon that the requirement for domestically produced lithium in the US could rise to as high as 210,000 tonnes by as soon as 2025.
Certain hypotheticals are involved here, of course, but the overall economic environment is pretty clear.
Demand for lithium is almost certain to increase, while policy and prudence will dictate that the US increasingly look to within its own borders rather than to China for security of supply.
That's where Bradda Head comes in, with its upside apparent from many angles.
Hardly surprising, then, that so many investors have been keen to get in on the act.