Drilling Begins: here's what happens next

Good Monday MINING AIM, and welcome to your thought of the day.

Quite a number of companies have announced they have started drilling in recent days. 

Today alone:

Helix Exploration has started drilling the Clink #1 well, to test the stacked reservoir targets in the Amsden, Charles, Flathead Formations and fractured pre-Cambrian basement.

Drilling will take 3 to 4 weeks to complete, followed by the typical wireline logging and extended flow tests. Remember, this is only the first of two funded drills, with the second at Rudyard to also commence in Q3.

CEO Bo Sears enthuses that 'if successful, the Clink #1 well will be used as a future production well, reducing time and cost to move towards first gas production anticipated before the end of 2025.'

Sovereign Metals has started infill drilling on southern Kasiya (which intends to provide ore feed for first eight years of production). The aim is to  upgrade the Mineral Resource Estimate in this area from Indicated to Measured, allowing the conversion of Ore Reserves from Probable to Proven category in early 2025.

Infill drilling will include aircore, hand auger, push tube and diamond drilling; including more than 250 hand auger holes for over 750 metres, with an average depth of just 3 metres. 

I could probably dig three metres with a spade - an important lesson than drilling does not have to be deep to be determinative. There's probably a joke in there somewhere.

Metals One has started drilling its Råna Ni-Cu-Co Project in Norway. Arctic Drilling AS has been engaged to complete the drilling, which has been designed to test exploration targets comprising shallow, highly conductive electromagnetic anomalies immediately down dip from mineralised nickel-copper-cobalt massive sulphide at surface.

Then over the past few days:

Rome Resources has commenced diamond drilling on its Kalayi prospect in the Democratic Republic of Congo, using the first of 3/4 diamond drilling rigs. At least one more rig will be deployed at Kalayi and another at Mont Agoma - a fourth may be deployed if it becomes available in time to be worthwhile.

The initial resource drilling programme at Kalayi is comprised of up to 12 diamond core drill holes, expected to define tin mineralisation down to depths exceeding 100m below surface. For context, drilling at the four holes previously completed threw off very significant tin mineralisation.

The drilling programme will be complete in early Q4, with a potential mineral resource estimate reported before year end. 

Arc Minerals is detail light (such is the nature of a JV with a major), but following the completion of an extensive ground mapping exercise over its Zambian tenements, the joint venture has commenced drilling. A number of holes are planned at Cheyeza following which the Muswema target will be drilled.

Major news flow will be incoming.

Drilling to come imminently... 

Galileo Resources has started Phase 1 drilling on Licence 28001 - HQ - LEL in NW Zambia. The Licence is situated within the Western Foreland and drilling is targeting Kamoa - Kakula-type mineralisation. But perhaps more importantly to shareholders, Phase 3 of Shinganda - drilling to assess some 10km strike length of copper-gold bearing fault structures - will start in mid-August (i.e. any day now), with an initial programme of up to 30 RC holes covering 2,400m.

Xtract Resources has selected drill targets at Licences 29123-HQ-LEL, 30458-HQ-LEL, 30459-HQ-LEL, 21850-HQ-LEL and 21851-HQ-LEL located in NW Zambia within both the Western Foreland and Fold & Thrust Belt domains - drilling is expected to commence before the end of Q3. 

I will have more to say on these in the coming days.

Also in the news...

Sunda Energy (previously Baron Oil) has today announced it has entered into an exclusivity agreement with Pacific LNG Operations Pte Ltd to fund the Chuditch field appraisal well. This is evidently good news, but it's important to note that a contract has not yet been signed, which some on social media are already celebrating. The well should be drilled in early 2025. 

For fans of House of the Dragon, this particular stock feels much like Vhagar - slow, ponderous, but powerful when it gets going.

Guardian Metal - news feels overdue...and while I try my best to remain composed at all times, Pilot Mountain is starting to feel a lot more exciting. The drilling campaign, potential further staking, the porphyry specialist, the garnet, the political element, the potential grant funding - the only thing we know for sure is that the CEO is uncharacteristically quiet. I suspect he's holed up somewhere with a bunch of data and a box of Yorkshire tea.

Alien Metals - okay, this one's tenuous as drilling at Pinderi may or may not be coming soon...but a JV for Hancock could at long last be coming down the line this quarter. Like all companies hoping to announce a gamechanger after a long wait though, it makes sense to keep the champagne corked until the official RNS is released.

Thought of the day

I tend to spend a lot of time talking about the difference between investing and trading on this site. But what both groups have in common is that they want a decent entry point (more shares for the same money is generally a good idea). 

Consider this a mini Lassonde Curve:

The general consensus is that share prices spike pre-drilling due to speculative buying driven by hype - when drilling starts you sometimes get a 'sell the news' event as pre-drill traders get out for good, though I tend to find this is price neutral as it's already 'baked in.' Companies tend to let investors know well in advance when they plan to drill. 

And don't worry, you get a new class of traders in the drilling phase!

During drilling, it's often chaos. Investors tend to focus on grade more than anything else - but complicating factors for various commodities like mineralisation, contaminants, flow rate, by-credits, true width and depth (the list is practically endless) means that the share price can yo-yo around with each update. 

Imagine a graph where potential upside is along one axis, and risk on another. As an asset is explored, the risk falls and the potential upside should rise, creating a diagonal - the share price should rise along the diagonal - and if it's below it, the stock might be a buying opportunity.

But the basic idea is that with each de-risking update, the company becomes more attractive. If assays are positive then you get the share price increase you want - and if not, then it's time to find the next big thing. 

If results are inconclusive, be prepared for the inevitable placing.

But this general expectation does not account for individual stocks, or the occasional curveball.

Let's consider Helix: to start with, there are two sites being drilled, so if one fails this does not mean that all is lost. And the tenure is high quality, the management capable. More importantly, helium plays require drilling, then wireline logging and then extended flow tests. There are going to be multiple updates on the route to success, so while the share price should rise, it will not be a straight line. 

With Sovereign, much less is at stake. This infill drilling is simply improving their understanding of what is already the largest rutile and second-largest graphite deposit in the world. If the results fall a little short then the show goes on, and if they exceed expectations, the end result will be that any ridiculously large special dividend will simply be slightly increased.

Metals One, although a microcap to SVML, is perhaps in a similar position. The Black Schist Project, for which a PEA is currently being drawn up, is the flagship - Råna is the secondary portfolio asset. Success would be wonderful but is not all-important.

Rome Resources is different still. Multiple diamond drill rigs are being deployed to discover what may well be the highest grade tin deposit in the world -  expectations have been set extremely high (and with good reason), so success should see a very significant share price increase (see neighbouring Alphamin for what could be about to happen).

Arc Minerals is drilling with Anglo American, and D'ont Worry, the show is expecting a special guest star soon. But while this is the flagship, assays will also be flowing from Botswana - with Zambia the multi-year investment case, and Botswana, the near-term catalyst with assays on the way. 

Perhaps a key consideration is funding post-drilling. 

To an extent, Helix and Rome 'need' decent results from their drills; while I think both are likely to get what they want, they have raised a certain amount of capital to explore exceptional tenure, with a firmly defined plan.

If Sovereign or Arc Minerals don't get exactly what they want this year, there is millions and millions of dollars of funding for future activities (for SVML, courtesy of Rio Tinto's position, and for ARCM, courtesy of the Anglo American JV). The same is true of Xtract; cash from the Manica sale means exploration of the Zambian tenements is funded for some years to come.

This means that all being equal, the former pair have more riding on this half of CY24 than the latter.

But the bottom line?

The market is waking up. 

Drilling is expensive, and companies are confident enough to spend their reserves rather than conserve and desiccate.

Whether helium or tin, copper or titanium - game changing results will be coming thick and fast.

- Charles Archer, 12/8/24