There is an announcement spending for Vital Metals (VML.ASX). The bad news is that it might be a rights issue. This actually surprised me because they apparently have $2mil in cash. The development might be considered a positive in two respects:
1. It means the company is fast-tracking resource development. They expect the cost of proving up indicated gold resources to be around $10/oz, and those resources have a market value of $100/oz, so that is a 10x value-add proposition. That is why gold exploration is attractive, and 'Africa is golden', with the same type of greenstone belts which made WA a strong gold province. So the fact that the company is undertaking 6000m of Phase 2 drilling is good news.
2. It might mean the company is developing the Watershed Creek tungsten project in Qld. This project has no great appeal to me. There is however a strategic value to this project now, which did not occur to me previously, and which the market has overlooked. China is starting to curtail development of its raw materials. It is recognising the strategic importance of retaining domestic inventories, just as the USA and Japan has done in the past. In the last few months, we have seen China restrict rare earth supplies, of which China produces 90% of the world's supply. This has prompted the Japanese consumers to enter into agreements with Lynas and support exploration. China also controls 85% of tungsten supply, so we might expect similar moves there. This is of course apparent to the Japanese and other consumer nations. We might therefore expect Vital to be talking to end-users about the development of this project. The Watershed project might turn out to be a very valuable resource. Already we can see the tungsten prices are on the increase. Consumers will be desperate to find non-Chinese sources of ore, feeling that the Chinese govt has too much market power.
For this reason, we can conclude that Vital Metals has two appealing projects. The tungsten project is advanced, whilst the gold project has the capacity to add to resource inventories, which in a strong gold market, will see this stock perform very well.
The implication is that this rights issue - if it is a rights issue - presents a very good opportunity to buy VML stock. If the announcement is solely a question of a strategic tie-up with a Japanese or Chinese partner for the tungsten project, then that is also good news because it means the strategic value of this resource is being recognised. It would likely entail JV financial support, and that would mean less dilution for shareholders, so this would be fantastic news. So if no tie-up, and dilution, better to buy stock after issue announced (i.e. wait for weakness/support), if a tie-up, then you will probably want to jump on-board as soon as possible, or miss out. It depends on the news.
If you want to know more about this company, you can download the latest presentation from the ASX website.
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