The key ingredient of a high-returning lithium stock is a mismatch between intrinsic value and the market’s perception of that value.
In the case of Imagine Lithium (TSXV:ILI), a Canadian microcap lithium explorer, this mismatch has priced its stock at a C$13 million market cap, around 35 per cent below the C$19.87 million in total assets on its balance sheet as of July 2023, offering prospective investors a steep discount to the company’s long history of high-grade results and an increasing mineralized footprint.
An impeccable exploration track record
The lithium stock’s flagship Jackpot lithium project, located 140 kilometres from Thunder Bay, Ontario, houses historical resources of 2 million tons grading 1.09 per cent Li2O, which it is drilling to considerably expand. The 18,800-ha property’s mineralization is expressed through swarms of lithium-bearing granitic pegmatite dikes.
With lithium prices hovering around C$31,000 per ton, Imagine Lithium has been diligently substantiating Jackpot’s historical resources since 2018 with standout results.
2018 work program
The 2018 work program successfully extended the historically known central Jackpot dikes to the east (+500 m) and to the west (+400 m), with drilling results targeting spodumene-bearing pegmatites and spodumene-rich LCT pegmatites yielding highlights of 19.80 m grading 1.27 per cent Li2O and 17.20 m grading 1.24 per cent Li2O.
2021 work program
The 2021 work program encountered spodumene-bearing pegmatites over 300 m northeast of the 2018 drilling area, guided by a high-resolution geophysical survey identifying anomalies similar to the Jackpot lithium deposit.
2022 work program
The 2022 work program bolstered the lithium stock’s reputation for value-accretive results by expanding the mineralized lithium zone over 400 m to the east, nearly doubling it to 900 m, as highlighted by assays of 25.46 m grading 1.21 per cent Li2O and 10 m grading 0.90 per cent Li2O.
Prospecting in 2022 also unveiled a 3 km trend of sub-parallel spodumene-bearing pegmatite dikes extending to the east and west of the Jackpot main drilling area, with multiple high-grade assays from granitic pegmatite samples collected from the southwestern portion of the property.
2023 work program
The ongoing 2023 drilling program is business as usual, with numerous promising avenues to better define Jackpot’s mineralization, including:
- A newly identified lithium-bearing pegmatite traced at surface for more than 500 m of strike
- The eastern expansion of the Jackpot Main Zone, which has the potential to expand mineralization along strike
- The northern portion of the Jackpot Main Zone, which includes multiple stacked dikes and intercepting pegmatites up to 20 m thick, as well as the Point Lithium pegmatite, which appears to run parallel to the Jackpot pegmatite dikes and will be drilled this winter
- Numerous new lithium-bearing pegmatite targets to the west and north across the aforementioned 3 km trend
The minimum 10,000 m drill program, funded by a C$9.1 m private placement closed in April, recently produced highly encouraging results from the Jackpot Main Zone, including 14.35 m grading 1.22 per cent Li2O and 12.05 m grading 1.06 per cent Li2O.
Exploratory drilling of the 500 m pegmatite 1.8 km NW of the Jackpot Main Zone also revealed a continuous pegmatite that yielded 1.31 per cent Li2O over 4.15 m and appears open to the east and west. The discovery is potentially associated with the Point Lithium granitic pegmatite and merits follow-up work.
Additionally, a till sampling campaign in less-explored areas revealed significant potential for the discovery of new spodumene-bearing pegmatites to the north and southeast of the Jackpot Main Zone, while also covering the 500 m and Point Lithium pegmatites. Numerous samples show lithium concentrations between 40 and 163 ppm over a 4.2 square km area. Systematic drilling of the area is slated for Winter 2023.
Jackpot’s prospectivity may be further enhanced by 2023 systematic rock sampling of granitic pegmatite dikes and granitic plutons in underexplored areas to the southeast and southwest, which were chosen based on proximity of granitic rocks with chemical signatures and mineralogy indicative of spodumene-bearing pegmatite dikes. Pending assays will aid in follow-up exploration.
When we add the short 12 km drive from Jackpot to the TransCanada Highway, the project’s ready access to power generation, a railroad, and skilled labor only 50 km from the town of Nipigon, Ontario, and its proximity to the Great Lakes and St-Lawrence Seaway, granting it a direct line to global processing plants and southern Ontario giga factories, a shrewd investor would reasonably suspect that Imagine Lithium’s years of results substantiating the value of its flagship asset would be reflected in the company’s stock price.
The value in improving results amid a falling share price
Despite a tailor-made management team that has consistently delivered high grades with expanding strike lengths, Imagine Lithium has found itself caught in the prevailing macro market trend, with its shares losing 54.55 per cent since 2018.
The lithium stock was trading around C$0.09 per share upon the release of final 2018 drilling results, and managed to climb by 100 per cent to C$0.18 by February 2022, right around its pivot to lithium, but shares have since lost ground, falling to C$0.05 amid generationally high inflation and counteracting interest rate hikes by the Bank of Canada (BoC), which raised its target overnight rate from 0.5 per cent in March 2022 to 5 per cent in October 2023.
Even though Imagine’s news releases have supported an increasingly stronger case for a major discovery through 2022 to date, the ongoing restrictive economic environment has unfairly punished small and micro-cap stocks like it, regardless of their exponential upside, as the average investor parks their money for safety in bonds and savings accounts.
This is why the market’s failure to recognize Imagine as a worthwhile holding is a gift to the seasoned active investor, whose experience should be signaling that the lithium stock has only gained in attractiveness as the share price was cut in half, offering a generous margin of safety for an allocation.
J.C. St-Amour, Imagine’s President, echoed this sentiment in a recent interview with Stockhouse, where the 20-year mining veteran said he thinks the company “will be able to demonstrate as much and potentially more [lithium] than our neighbor to the north, Rock Tech Lithium,” whose Georgia Lake lithium project in Thunder Bay houses a mineral reserve of 7.33 million tonnes grading 0.82 per cent Li2O.
After Imagine brings its already impressive 2023 drilling program to a close, it intends to begin work on Jackpot’s maiden NI 43-101 mineral resource estimate, a milestone poised to offer long-term shareholders the jump in valuation we’ve demonstrated the company deserves.
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