Shares of Cypress Development Corp. (TSX-V:CYP) have been drifting sideways to lower for the last couple of months as tax loss selling season has been in full swing. Meanwhile, the company has been busy closing an important private placement financing and beginning critical metallurgical work necessary to complete their maiden pre-feasibility study (PFS).
CYP.V (Daily – One Year)
The recent weakness in CYP shares has resulted in an unusual situation in which investors can pick up Cypress at multi-month lows just as the company enters the most critical 3-4 month period in its history. Over the next few months Cypress will achieve the following key objectives:
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1500 meter infill drilling program: Drilling is expected to begin in early 2019, and will provide information to upgrade resource categories, further define a production schedule for the PFS, and provide additional material for further metallurgical tests.
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Metallurgical testing: The metallurgical program is focused on optimizing leaching conditions with respect to acid concentration, residence time, and other parameters, and subsequent steps in concentrating lithium in the leach solutions leading to the production of lithium carbonate. As the infill drilling gets underway Cypress will use material from the drilling to test composite samples of individual clay units within the pit area.
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Prefeasibility Study (PFS): Cypress is in the final stages of selecting a highly respected global engineering firm to conduct its PFS. Using the results of the infill drilling and metallurgical testing Cypress expects to deliver a positive PFS towards the end of March or early April.
The updated metallurgical testwork is the #1 key to unlocking shareholder value over the next couple of months due to the fact that the met work helps Cypress understand the concentration of acid required in leach solutions in order to produce lithium carbonate. Considering that ~60% of operating costs outlined in the PEA are related to acid used in the leaching process; the met work that Cypress is conducting now will help to add confidence to the operating cost model in the PFS. Investors can expect metallurgical test updates from Cypress in January and these updates represent the nearest term catalyst for CYP shares. I also believe the next metallurgical testing updates are what more sophisticated investors are waiting for before pulling the trigger and buying Cypress shares.
With Cypress four months out from completing its maiden PFS for its Clayton Valley Lithium Project CYP shares are poised to potentially benefit from a substantial rerating:
At its current C$13 million market cap CYP shares are substantially cheaper than comparable sedimentary hosted lithium projects. Even companies whose projects are not as advanced as CYP’s, such as American Lithium (TSX-V:LI), enjoy double the market valuation.
CYP’s prefeasibility study could go a long way towards alleviating any market concerns regarding the economics of the Clayton Valley Lithium Project. Investors can also expect metallurgy and infill drilling updates between now and the end of March (when the PFS is expected to be delivered). In the meantime the market is offering up a project with compelling economics at a small percentage of its potential long term value:
From a technical chart standpoint CYP shares are at long term support (C$.16-$.20 area) and the company has been relatively quiet over the last couple of months following the release of CYP’s maiden PEA. This creates a unique situation in which investors can take advantage of a quiet market backdrop and tax loss selling pressure to get into CYP shares at an extremely attractive risk/reward proposition:
CYP.V (Daily – 2 Year)
Disclosure: Author owns Cypress Development shares at the time of publishing.
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The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. Cypress Development Corp is a high-risk venture stock and not suitable for most investors. Consult Cypress Development Corp’s SEDAR profile for important risk disclosures.
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