Alien Metals Share Bounce Fades Off After Iron Ore Announcement

Buy Alien Metals Shares Your Capital Is At Risk
Tim Worstall
Updated: 2 Mar 2022

Key points:

Alien Metals (LON: UFO) shares jumped this morning at open on the back of a further announcement about drilling results at their iron ore prospect. This then faded back as the morning progressed. The likely reason being that the results are good, they’re interesting, but they don’t really indicate a major change in a useful valuation of Alien Metals shares.

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The announcement itself is about finding more high-grade iron ore at the prospect at the Hancock Iron Ore Project. It is, after all, better to find more high-grade ore than to find less, or lower.

Yet it is also true that the sort of drilling results presented here aren’t going to trigger a significant change in the Alien Metals corporate valuation. We’ve simply too many stages yet to go for the one set of such results to move the dial all that much.

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Another way of saying much the same thing is that this is just one piece – another piece but just one – in that brick wall of evidence that has to be built. Every exploration company does have to find something that is worth mining before it can become a producing company. This is the stage that Alien is at. There are interesting results. The minerals are definitely there – minerals that people will pay for. But now the work has to be done on, well, how much of that desirable mineral is there?

For there are fixed costs to pay on mining anything. In fact, with iron ore, it is largely all fixed costs. Building the transport links is traditionally the largest one so any iron ore find has to be large enough to merit the building of a new railway. It’s not finding iron ore, it’s finding enough iron ore that is.

Which is, again, the stage that Alien Metals is at. Checking how much there is to see whether exploitation makes sense. Each and every piece of evidence adds to the value, sure, but it’s the entire pile of evidence that makes the decision in the end.

There are other working parts to the valuation model as well. For example, what’s a likely estimate of the iron ore price in a decade’s time? Will China still be sucking in all the world can produce? Will India – or even Africa – have taken that country’s place as the development hub of the global economy?

There’s even the thought of well, if the deposit is proven – proven to be economic to extract – then what are the possible capital dilution issues likely to finance actually doing the building work necessary to extract?

Alien Metals is reporting good drill results but these are still the very early days of the entire process to a producing mine.

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