Gold talk at Diggers drowns-out lithium discovery news

4th August 2022

Gold sector consolidation dominated speculation on the sidelines of the Diggers & Dealers conference in Kalgoorlie this week, but it was an unusual lithium discovery by Kairos Minerals (ASX: KAI), which could turn out to be the more significant industry event (reports Tim Treadgold on Small Caps).

Best known for its promising Mt York gold project in Western Australia’s Pilbara region, one of the areas rumoured to be ripe for consolidation, Kairos detected sniffs of lithium on its tenements earlier this year.

Those initial indications took on much greater significance last month when a bulldozer preparing ground for a drill rig meant to target gold turned up samples of lithium-bearing rocks.

Kairos reported the presence of spodumene (lithium ore) on 12 July, with no reaction on the stock market, perhaps because investors see it as a gold stock with anything else a distraction and because the samples were in waste rock scraped off a drill pad.

But on Monday, the same day a wet and windy Diggers & Dealers conference opened, Kairos put some assays alongside its spodumene found under the drill pad with pegmatites (a rock type known to host lithium), featuring an eye-catching 1.91% lithium oxide plus useful grades of equally valuable tantalum.

In the world of lithium exploration anything approaching a grade of 2% is normally good enough to start tongues wagging, but the best Kairos could do was see its share price rise from $0.026 to $0.028, before dropping back to $0.026 – valuing the stock at an untaxing $48.5 million.

Multiple factors kept the Kairos news buried this week, including the gold consolidation story, which has seen stocks exposed to the Leonora region of WA dominate the attention of investors with a mining appetite.

Talk of a merger between Genesis Minerals (ASX: GMD) and St Barbara (ASX: SBM) has been fanned by Genesis chief executive officer Ray Finlayson, who sees corporate logic in amalgamating the two companies and their adjoining interests, as well as fitting his family tree, which has deep Leonora roots.

A useful US$50 an ounce rise in the gold price this week to US$1,764/oz helped stimulate interest in the gold consolidation theme which, in Kairos’s case involves better known players in its Pilbara region such as the regional leader, De Grey Mining (ASX: DEG).

But what the market missed, as it did when Kidman Resources discovered the Earl Grey lithium deposit in the south of WA in 2017, and when Liontown Resources (ASX: LTR) acquired the lithium exploration rights to a gold tenement in 2016, is that there can be a lot of hidden value just waiting to be unearthed by drilling.

In Kidman’s case, like Kairos, gold was the primary target with lithium in drill core regarded as a nuisance, until the electric vehicle revolution sparked a battery boom which led, in turn to the creation of the Covalent joint venture of industrial conglomerate Wesfarmers (ASX: WES) and Chile’s lithium champion SQM which is building a major lithium business.

Liontown likewise was a discovery waiting for the right geologist to recognise that there was more value in the lithium of the Kathleen Valley region than there was in the gold leading to a mining venture which has attracted lithium buyers such as Tesla, Ford, and Korea’s LG.

Kairos has a long way to go before it can claim to be in the same league as Kidman or Liontown, but the early signs are interesting, especially the location which is immediately adjacent to the Pilgangoora lithium project of Pilbara Minerals (ASX: PLS) and about 25km from the Wodgina lithium project of Albemarle and Mineral Resources (ASX: MIN).

At the Mt York project of Kairos there is no surface expression of the spodumene-rich pegmatites which were only revealed during drill pad preparation and spotted in a soil heap created as part of the earthmoving work.

It wasn’t until early last month that five pegmatite samples from the Lucky Sump discovery area were subjected to detailed analysis and the lithium identified with assays only available this week.

Recently appointed Kairos managing director, Peter Turner, said the discovery of spodumene pegmatites on the company’s tenements was highly significant given the recognition of the region as a world-class pegmatite district.

Turner took up his role at Kairos in May, along with a new chairman in Klaus Eckhof with their stated aims being to accelerate gold and lithium exploration.

The next step in proving whether Lucky Sump is more than a lucky strike will require more drilling to test the size of the discovery which, as well as the sample assaying 1.91% lithium has revealed other samples grading 1.56% lithium and 0.58% lithium.

“In the light of these exceptional results, we plan to expedite planning to drill all of Lucky Sump,” Turner said.

“We intend to test the entire interpreted pegmatite swarm, which is under cover, with reverse circulation drilling expected to start next month.”

Turner avoided the word “nearology”, but it is the location of the Lucky Sump discovery which is undoubtedly significant in that it appears to be a southern extension of the Pilgangoora project and is close enough to Wodgina to call it a near neighbour.

From a commercial perspective, and assuming the drilling program builds on what’s already known about Lucky Sump, Kairos could become a lithium project developer in its own right, sell material to its neighbours with their processing facilities, or become a tasty takeover target for Pilbara, or the Wodgina partners.

Whatever happens the outlook for Kairos is one of value creation, it’s just that not many people have noticed, nor has anybody remembered how Kidman and Liontown started slowly with gold before migrating to the metal of the day, lithium.

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