Portofino Resources Inc. (POR:TSX.V; POT:FSE) suffered through 2018 like most other lithium juniors that have all, or most, of their assets in Argentina. Yet, after a share consolidation and capital raise, the company has 24 million (24M) shares outstanding and about CA$500,000 ($CA500K) in cash to spend on its highest priority project. Although long-standing shareholders like myself are way underwater, Portofino has at least one good thing going for it. It has the right to acquire 100% of a brine project, of reasonable size, in one of the best salars in Argentina—the Salar del Hombre Muerto.
Portofino put out a press release on Feb. 26 outlining exploration and other activities for coming months. The plan is to do a geophysical survey in March to help define the extent of brines in the sub-surface at the company's Hombre Muerto West project, which will be used to define targets for exploration drilling later this year. Note: With Argentina lithium projects, there have been a number of drill hole execution problems and delays in getting back assay results. So, patience is required if one invests in this company.
If drill results are strong at Hombre Muerto West, or other promising properties can be locked down via option at low upfront cash cost, there could be upside from the current market cap of CA$1.8M. However, readers new to the story beware; this is a highly speculative investment opportunity, and some investors are very unhappy with the management team.
But the same can be said of many lithium juniors. Others have seen their share prices fall as much or more than Portofino's, and others still might do share consolidations. The lithium junior sector has been an unmitigated disaster over the past 12 months. I, for one, think it could bounce back this year.
An Eye on the Prize, a Cheap Entry Price
Portofino Resources' flagship project is the key to this story. The company has the right to acquire a 100% interest in the Hombre Muerto West lithium brine project located on the west side of the Salar del Hombre Muerto in Catamarca province, Argentina. The project is comprised of two claim blocks, Del Condor and Pucara, totaling 1,804 hectares. Before Portofino got involved, there was no historical exploration on either claim. Hombre Muerto West is within the world-class Salar del Hombre Muerto, where FMC Lithium Corp. (FMC:NYSE) is producing lithium carbonate and Galaxy Resources Ltd. (GXY:ASX; GALXF:OTCMKTS) is developing the high-grade Sal de Vida project.
Portofino Resources negotiated a favorable deal (low upfront cash, four-year option term, no royalties) for a project in a sought-after salar. To maintain its option, Portofino has agreed to pay the vendor a total of US$400K and issue 1M shares over a four-year period as follows:
- An initial US$15K deposit (paid)
- US$7K within 30 days of execution of a definitive agreement
- Issue 100K shares upon TSX-V Exchange approval
- By the first anniversary of TSX-V Exchange approval issue 200K shares and pay US$14K
- By the second anniversary of approval issue 200K shares and pay US$44K
- By the third anniversary issue 500K shares and pay US$100K
- By the fourth anniversary pay US$220K
Salar del Hombre Muerto, One of the Best In Argentina
Galaxy Resources closed on the sale of 17,500 hectares (17,500 ha) in the Salar del Hombre Muerto to POSCO (PKX:NYSE) for US$280M;POSCO paid US$16,000/ha. The 17,500 ha reportedly contain 2.54 million tonnes of Measured, Indicated & Inferred lithium carbonate equiv. (LCE). So, POSCO paid nearly CA$150/tonne, but further drilling could increase the resource.
Another company in close proximity to Portofino's 1,804 hectares has defined a nearly 600k tonne LCE (Measured & Indicated only) resource, with a very high grade of 756 mg/L lithium, on a concession about 400 hectares in size. That company is now working on a preliminary economic assessment (PEA).
Think about what's been described so far. It shows three things:
1) Portofino's main project is right in the mix of exploration, development & production activities;
2) 1,804 hectares is not a huge property, but large enough to potentially host a sizable resource;
3) What POSCO paid per tonne and per hectare of LCE bodes well for Portofino and other juniors in and around the Salar del Hombre Muerto that can deliver favorable drill results and attractive maiden mineral resource estimates & PEAs.
Portofino recently raised about CA$600K and is in the process of coordinating exploration work that should commence in March. Management is cautiously optimistic about exploration drilling later this year due to strong results elsewhere in the salar, and their own 18 near-surface samples taken across both concessions at the Hombre Muerto West project.
Strong Near-Surface Samples at Hombre Muerto West Project
Last year, management sampled 18 sites within Del Condor and Pucara. The program included geological mapping and near-surface auger and pit sampling of saline brines to depths of 1.0 to 1.5 meters. The work delivered Portofino's highest-grade brine assay to date of 1,031 mg/L lithium (Li). The range of Li values, however, was quite wide, stretching from 10 mg/L Li to 1,031 mg/L Li. Two samples were over 1,000 mg/L Li, averaging 1,026 mg/L, four samples were over 800 mg/L Li, averaging 935 mg/L, and six samples were over 700 mg/L Li, averaging 871 mg/L.
Two of the 18 near-surface samples returned high magnesium (Mg)/Li ratios (9.3:1 & 10.1:1); the other 16 Mg/Li ratios ranged from 1.7:1 to 3.1:1, and averaged 2.0:1. Including the two high results, the average of all 18 samples was 2.8:1, which is still a good outcome. Magnesium is a deleterious element that needs to be removed in lithium brine processing.
Feb. 26 Press Release Provides Brief Company Update
In addition to upcoming surveys & drilling, other activities are planned or underway at Hombre Muerto West. From the Feb. 26 press release:
"The Company also reports that it has engaged an experienced Argentine group (comprised of geologists, biologists, archeologist & naturalists) to commence an Environmental Impact Study ("EIS") for the Hombre Muerto West project. The study is required by the provincial government and will include discussions of the geological & hydrogeological characteristics of the Project area, the flora & fauna of the region, sites of historical value, climate, proposed work plans and proposed impact mitigation measures. The results of the 2018 near-surface brine sampling program will also be submitted to provincial mining authorities as part of the EIS and to support other permit applications which are now underway."
Second Lithium Brine Project in Argentina
Portofino can acquire up to an 85% interest in a project called Project II, a brine project located ~10 kilometers (10km) from the Chile border, ~27km east of Wealth Minerals Ltd.'s (WML:TSX.V; WMLLF:OTCQX) Laguna Verde project and ~65km northeast of Neo Lithium Corp.'s (NLC:TSX.V) 3Q project. Project II encompasses a 3,950 ha claim block.
Historical exploration work commissioned in 2012 by the vendor included geological mapping, sampling of surface waters, auger sampling of brines, and compilation of the distribution of lithium and potassium grades within the basin. Surface water and auger brine samples were analyzed and results averaged 274 mg/L Li.
In June 2017 APEX Geoscience undertook a comparative surface sampling program that validated the results received in 2012. Although not the flagship asset, management kept this project and let a few others go. They like this opportunity, and it covers most of the salar it's in.
Conclusion
Readers should be reminded that Portofino Resourcesis a highly speculative investment opportunity. However, there are many highly speculative lithium juniors around the world that don't control a meaningful project in a top salar in Argentina. To reiterate, strong near-surface sample results performed by the company last year demonstrated the potential for high-grade lithium on Portofino's Hombre Muerto West claims.
Drilling on this high priority project is expected later this year. The project is in a great neighborhood, nearby much larger companies including FMC, Galaxy Resources and POSCO. Patience is a virtue, but Portofino could be in the right place at the right time if they can deliver exciting drill results.
Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.
[NLINSERT]Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Portofino Resources, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Portofino Resources are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.
At the time this article was posted, Peter Epstein owned shares of Portofino Resources and Portofino was an advertiser on [ER]. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
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