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Krakatoa’s potential lithium find

Krakatoa (ASX:KTA), a former gold producer, Thursday announced a significant potential lithium discovery at King Tamba. The drilling program targeted three key sites, MGM, Loader and Wilsons, with 13 of the 16 holes intersecting pegmatites. The highlight of yesterday’s announcement was a 39m thick pegmatite at the Wilsons prospect, widening the scope of the drilling program from the proposed 1200m target area.

A total of 1806m was drilled over the 7-day program indicating a discovery that far exceeded initial expectations. Investors responded strongly to the news, sharply sending the share price toward a 52week high with a daily high of $0.073, a considerable price climb from the previous day’s close of $.028. The drilling program only represents a small area of the 3km LCT corridor at King Tamba and the company states there is potential for further discoveries “additional pegmatites at depth and along strike.” In the meantime, the current samples will be assayed to determine the mineralisation and potential presence of lithium in the discovered pegmatites. Krakatoa will also update the 3D pegmatite model and conduct further surveying within the LCT corridor. Overall shareholders that funded the $3.78 million capital raise in July for the drilling program, will be pleased with the 4.3% lithium rock chip discovery at the Wilsons prospect.

Interestingly, the Dalgaranga belt region that Krakatoa’s King Tamba project resides, is also home to another ASX lithium player, Wildcat Resources (ASX:WC8). Wildcat has performed strongly over the past 6 months up over 1500%, with the share price now trading at $.80. Importantly it has completed a successful cap raise funding a highly successful tier 1 lithium discovery at Tabba Tabba. Two tier 1 lithium discoveries in October and November have furthered investor interest, rallying the share price and pushing WC8 towards a $1bn market cap. MinRes (ASX:MIN), Australia’s largest lithium producer, has also increased their position in Wildcat by $19m highlighting the strategic importance of the Tabba Tabba project and potential of the region.

The wider lithium market has had a bearish 2023, with significant trace back from the late 2022 market highs. MinRes and Pilbara Minerals (ASX:PLS) two of Australia’s biggest players in the lithium space with over $11bn market caps are down 28% and 32% respectively. The correction in lithium prices due to cyclical headwinds and a tighter rate environment has created an attractive entry price for more savvy investors. As the demand for lithium will continue to grow in an already tight supply market, we would expect the lithium price to recover over the next 18 months as recession fears ease. This could play well for Krakatoa as it continues the reconnaissance of the LCT corridor, potentially widening the scope of its project at King Tamba.

Krakatoa’s recent discovery positions it to potentially benefit from a transformational long run theme. Its market cap of less than $20m may give the share price a lot of upside dependent upon the assay results, when compared to the company’s peers.

Shares are currently trading at $0.038. 

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