From Unicorn Enchantment to Phoenix Ascendance - Emerita Resources

DISCLAIMER: None of this content constitutes financial advice. This newsletter is strictly educational and does not offer investment advice or solicitations to buy or sell any assets or make financial decisions. Please exercise caution and conduct your own research. Management has not reviewed or confirmed the accuracy of the information provided here. I was not compensated by management for this work, and while I have strived for accuracy, there may be inaccuracies.

If I am ever compensated for an article, it will be disclosed here.

I'm concerned about posting this review given the polarizing nature of this story, and the abundance of existing information. Thus, I encourage those more familiar with this narrative to point out any errors or provide additional insights, and I'll be sure to incorporate them. Please forgive any ignorance on my part.

Like many, I initially overlooked Emerita Resources during its initial surge, failing to delve deeper into the company. The rapid rise and subsequent crash led me to instinctively label it as a 'pump & dump' scheme.

However, upon closer examination, I was pleasantly surprised by what I uncovered. I now comprehend the rationale behind its volatile fluctuations. Thus, I've chosen to review the company at what appears to be an opportune moment. With the stock clearly bottoming out, shareholders may be in for an exhilarating ten months ahead.

Emerita Resources' journey began over a decade ago, but it wasn't until around 2021 that the allure of outsized gains started captivating imaginations. Coined a unicorn, symbolizing the company's potential, the excitement was palpable. However, as the stock underwent corrections over the years, that magic seemed to wane, though not for all. Yet, within this correction lies the foundation for a remarkable transformation. As we approach the end of this waiting period, we witness an evolution: Emerita transitions from a metaphorical unicorn to a phoenix rising from the ashes, promising a remarkable revival.

Several factors contributed to the prolonged, gradual decline over the past couple of years:

1. A court date was set for March 3rd, 2025, announced on November 5th, 2022. Many expected a court date just a few months away, so the realization of over a two-year wait surprised many. However, that date is now drawing nearer.

2. New information surfaced regarding a lithium project, raising questions about management's ethics.

3. The company boasts a large retail following, leading to increased volatility.

4. After the company released a Mineral Resource Estimate (MRE), that appeared to not meet the market's expectations.

This review is for people who may not be familiar with the story but will give them a surface-level idea of what this company is about and to entice people to conduct their own due diligence. I aim to provide a balanced approach by presenting the facts of what is and if now is a time to consider Emerita Resources.

Emerita is one of the few companies on the website ceo.ca that actually has a very in-depth wiki page, and I encourage you to review everything there if you read this and it piques your interest. Given that there are resource estimates on these projects, there is research showing the in-situ value of the rock and how the company is trading below industry averages.

I assign companies a ‘Wingman Assessment Value’, and for Emerita, I am assigning them a 5.6 out of 10. For an early stage story that is actually an exceptional number. Let’s get into why.

David Gower – CEO & Director: Shares: 2,764,405 | 1.12%

David Gower boasts over 30 years of experience in the mineral industry, having held positions with Falconbridge Limited and Noranda Inc. (now Glencore Canada Corporation). During his tenure at Falconbridge, he served as General Manager of Global Nickel and PGM Exploration and was a key member of the senior operating team responsible for approving capital budgets for new mining projects. Mr. Gower has played integral roles in numerous discoveries and mine development projects, including those at Raglan, Matagami, and Sudbury in Canada, as well as greenfield discoveries in Brazil and Tanzania.

Additionally, he has served as a Director for several junior mineral exploration companies with focuses in South America and Europe. Since 2009, Mr. Gower has held a Director position at Alamos Gold. He holds a Bachelor of Science degree in Geology from Saint Francis Xavier University and a Master of Science degree in Earth Sciences from Memorial University.

Joaquin Merino-Marquez – President & Director: Shares: 2,089, 550 | 0.84%

Joaquin is a seasoned geologist with 20 years of experience in the mining industry. He has held prominent positions such as Vice President, Exploration for Primero Mining Corp. and Vice President Exploration for Apogee Minerals Ltd. Prior to these roles, he served as the exploration manager for Placer Dome at the Porgera Mine and worked as a mine geologist at Hecla Mining's La Camorra mine. With extensive international experience spanning South America, Europe, and the Asia-Pacific regions, Joaquin brings a wealth of knowledge to his work.

He holds a Master of Science degree from Queens University and a Bachelor of Science degree in Geology from the University of Seville (Spain). Additionally, Mr. Merino is a member of the Association of Professional Geoscientists of Ontario.

Other notable shareholders

Lawrence Guy – Chairman: 4,323,838 | 1.75%

David Patterson – Director: 4,367,500 | 1.77%

Eric Sprott – Investor: 20,454,544 | 8.27%

It's worth acknowledging the commendable actions of Emerita's CEO and President, who forfeited significant compensation in the form of salaries during difficult years.

But as I conducted my due diligence, I came across a petition on X that sparked my interest regarding David Gower, the CEO of Emerita. The petition aimed to have him removed from his position due to concerns surrounding Emerita's acquisition and, more importantly, the dissolution of the Litio lithium project in Brazil. This acquisition seems to align with three option payments made to Falcon Metais Ltda, as indicated in their financials. Upon further confirmation, it does appear that Lithium Ionic, the company now holding the Litio Project, lists David Gower and Lawrence Guy on their board of directors.

However, what caught my attention even more is that the CEO of Lithium Ionic is reportedly Mr. Gower’s son-in-law, Blake Hylands. There is even a Reddit thread containing wedding photos that seem to confirm this familial connection. While I am not seeking to incite controversy, this information may be new to some (as it was for me) and is worth noting. I must emphasize that while I strive for accuracy, there may be inaccuracies in my due diligence.

Focusing on Emerita, it's important to highlight that shareholders missed out on exposure to a company now trading at approximately C$120 million, compared to Emerita’s current market cap of around C$130 million. While I am not implying any illegality, the fact that key individuals associated with Emerita gained exposure through Lithium Ionic while Emerita shareholders did not is questionable. Their positions on the board of directors at Lithium Ionic imply awareness of the asset's potential unrealized value.

On May 16, 2019, the Company completed a 5:1 share consolidation.

There seems to be an ongoing 'joke,' if you could call it that, regarding the 'Magnificent 7' shareholders. To clarify, I missed the initial surge, and there are individuals much more informed about this story. However, it appears that some rather affluent retail shareholders do hold substantial positions in the company.

That being said, I find more reassurance in seeing large positions from insiders who have their holdings registered with SEDI. Ultimately, shareholders invest with the expectation of their shares increasing in value. To realize that value, one must sell. If a shareholder does not file with SEDI, it significantly diminishes the significance of their large holdings, in my personal opinion.

Additionally, it is worth noting that the recent private placement of $5 million apparently only involved four individuals! When discussing positions of that magnitude, one would assume they are committed for the long term.

Given the length of this article and the existing due diligence on the projects, particularly regarding the in-situ value, I'll keep this section brief.

Iberian Belt West Project

Emerita hosts some significant projects in the renowned Iberian Pyrite Belt, one of the most productive volcanogenic massive sulfide (VMS) terranes globally.

One of these projects is the 'Iberian Belt West' (IBW) Project, which comprises three polymetallic deposits: Infanta, El Cura, and Romanera, arranged from east to west. This area boasts a rich history of mining activity dating back to Roman times. Previous exploration of the deposits was carried out by major companies such as Asturiana, RTZ, and Phelps Dodge in the 1970s and 1980s. The IBW Project is situated in the western part of the belt, adjacent to the border with Portugal, approximately 144km west of Seville and 50km from the port city of Huelva.

The company released a NI 43-101 Resource Estimate back in May of 2023: 14.07 MT Indicated Resource grading 7.63% ZnEq (3.29% Zn, 1.66% Pb, 0.46% Cu, 75.2 g/t Ag and 1.39 g/t Au) and 4.71 MT Inferred Resource grading 9.29% ZnEq (4.70% Zn, 2.14% Pb, 0.54% Cu, 72.4% Ag, 0.90 g/t Au)

Nuevo Tintillo Project

In addition to the IBW project, Emerita was awarded the Nuevo Tintillo concessions in June 2021.

The Nuevo Tintillo project is situated within the Iberian Pyrite Belt, located in the eastern part of the belt within Seville Province. It lies between the world-class deposits of Aznalcóllar in the southeast and Rio Tinto in the northwest. The project is easily accessible by road from Seville, approximately 40km away.

Covering an area of 6,875 hectares (with an additional 7,625 hectares pending), Nuevo Tintillo has a rectangular shape along the east-west axis, stretching for about 25 km. These concessions were previously held by several major companies during the 1980s and 1990s, with the most recent being Boliden Apirsa. It is now consolidated under one company (Emerita).

Traces of artisanal operations dating back to the 19th century are still evident on the property, particularly at Pilancrones, La Jarosa, and Nazaret, all aligned in an east-west direction. Historical mineral productions of up to 5% copper have been reported from the Nazaret deposit.

Aznalcóllar Project

Although the company does not currently own the Aznalcóllar (AZN) Project, there is a strong and logical path to conclude they will shortly.

The Aznalcóllar Project, situated within the Iberian Pyrite Belt, encompasses the Aznalcóllar and Los Frailes open pit zinc-lead-silver mines, both of which have a history of production. The primary focus of the project is the redevelopment of the Los Frailes deposit, originally developed in the mid-1990s. According to historical data from the previous operator, the open pit mineral resource was estimated to be 71 million tonnes grading 3.86% zinc, 2.18% lead, 0.34% copper, and 60 ppm silver. Additionally, reports indicate the existence of a higher-grade portion of the resource, estimated to contain 20 million tonnes grading 6.66% zinc, 3.87% lead, 0.20% copper, and 84 ppm silver.

Upon successful acquisition, Emerita intends to commence work immediately upon receiving appropriate permits to conduct drilling on the property. This would enable the completion of an NI 43-101 compliant mineral resource estimate necessary for the feasibility study supporting the development of a mining operation at the site.

It's worth noting that there was a tailings breach at the AZN project in the past. Despite the operation being an open pit, Emerita intends for the project to transition into an underground operation.

It's crucial to emphasize that the market has not fully considered the highly probable scenario where Emerita will acquire the AZN project. This oversight is quite remarkable. Further discussion on this topic will be conducted in the Communities section, where we will delve into why this outcome is the most likely.

Since the first-quarter financials, the company has closed another private placement, securing an additional five million dollars in funding. While there are warrants available for exercise, none are close to expiring imminently but some are now in the money.

As an exploration company with significant projects, Emerita intends to continue adding value to its portfolio. Although they currently possess funds, the company is actively spending them on exploration activities. However, it's worth noting that I do not anticipate any further financings this year.

It's noteworthy that there is an individual within the retail sector who wields considerable influence and holds a strong conviction on Emerita. This person is arguably the primary contributor of information about the company outside of its official channels. However, it's important to acknowledge the conflict of interest inherent in this situation, given that this individual also holds a large position in the company.

Despite this conflict, it's evident that the individual's due diligence is robust. His insights are so valued that brokers and analysts have directly reached out to him to glean more information about Emerita.

It's worth mentioning that this individual operates under a pen name for anonymity, a choice that is understandable and respectable. However, it's also essential to recognize that such enthusiasm may have influenced some retail investors to take larger positions than might be considered prudent.

“

They are on board no sale below $4 billion the data is the data, the math is the data and we are riding a unicorn - from #emo, 24 Jun 2021, 06:34

”

At the time of this post, Emerita started to experience a significant and aggressive surge in its stock price, skyrocketing from around C$1 to over C$4. The move was justified and presented many individuals with the opportunity to realize profits. For speculators who believed in the company's potential, this run-up likely yielded substantial returns.

However, being heavily invested can lead some speculators to become overly emotional, especially when faced with delays such as the confirmation that the AZN decision would be postponed for a couple of years. This delay could have resulted in some investors being in the red for an extended period. While their initial thesis may still hold true, the prolonged wait might have led to impulsive decisions.

The volume of posts on the $EMO page on ceo.ca is notably high, which might make it overwhelming to sift through for due diligence purposes. For comprehensive information on the company, the wiki page is a valuable resource.

In terms of the company's communication, David Gower serves as the main spokesperson. He tends to adopt a conservative approach and discusses numbers without employing theatrical emphasis. While some may perceive this as a drawback, it can also be viewed as a prudent approach.

It's worth mentioning that Emerita receives analyst coverage, providing investors with additional insights into the company's performance and prospects.

In Spain, the mining tender process is structured to ensure fairness and accountability in the allocation of mining rights. Initiated by government entities or private companies, this process begins with the announcement of opportunities to mine in specific areas, providing comprehensive project details. Interested parties then submit proposals outlining their capabilities, environmental management plans, social engagement strategies, and financial offers.

These proposals undergo thorough evaluation, considering factors such as environmental sustainability, social impact, financial stability, and technological innovation. The bidder demonstrating the highest standards of responsible mining practices and offering the most compelling proposal is selected to enter into an agreement with the relevant authority to commence mining operations.

Emerita has participated in this tender process multiple times and has been successful.

In 2014, the company submitted bids for the Aznalcóllar project. They completed approximately $1 million in engineering studies, that amounted to almost 10,000 pages including detailed plans and maps for the project development. However, despite their efforts, the bid was recommended to be awarded to a competitor.

Emerita contested this decision, leading to investigations that revealed irregularities in the tender process. These irregularities included the removal of the Director of Mines and accusations of corruption against several government officials. It was found that the winning company did not provide sufficient evidence during the initial phase of the tender process and should not have even proceeded to a decision, let alone win the bid.

Legal proceedings ensued, with lower courts initially finding insufficient evidence of criminal acts but acknowledging various irregularities. However, appellate courts later ruled in favour of Emerita, highlighting gross negligence and possible corruption. Subsequent investigations confirmed the occurrence of crimes in the tender process, leading to a ruling that crimes were indeed committed and the winning bid should have been disqualified due to incompleteness.

If a crime is confirmed to have occurred in the tender process, the winning bid must be disqualified. Emerita is the only other company in the bidding process. Currently, 16 individuals stand to be convicted and Emerita only needs one of them to be awarded the Aznalcóllar Project.

It is worth noting that at this stage in the legal process, it is essentially a sentencing stage where no further evidence can be submitted. In laymen’s terms, Emerita has nearly a 100% chance of being awarded the project unless they too conducted some kind of criminal act in the process.

Additionally, Emerita's projects are located in the world-class Iberian Pyrite Belt, and the European Union has passed a Critical Raw Materials Act to secure their future supply of commodities. This includes expediting permitting and providing financial support. The local Andalusian government also supports underground mining operations, aligning with the company's intentions.

While the permitting process in Spain is comprehensive, once achieved, it generally leads to smooth sailing for operations, providing Emerita with a favourable regulatory environment for its projects.

In terms of catalysts, my due diligence hasn't revealed such an obvious one before. The catalyst of AZN is truly huge, and what's more exciting is the high probability that it's just a matter of time.

As time passes, anticipation is likely to grow. Emerita has already established a solid base, and the value at IBW suggests that this base is firmly in place.

With 16 individuals involved and only one needing to be convicted, I confidently anticipate Emerita acquiring AZN.

Some people have speculated about the possibility of a plea deal. In such a scenario, there would be no need to wait 10 months, and overnight, we could see an aggressive rerating as Emerita stands to gain ownership of a massive project.

Furthermore, leading up to the AZN decision, we can expect metallurgical results from IBW. Additionally, drilling in a copper zone at the Romanera deposit could substantially increase the insitu value.

Moreover, the company is in the process of obtaining an Exploitation Permit at the IBW project. If deemed a development of strategic importance, this could serve as another significant catalyst.

A significant percentage of retail ownership can indeed lead to volatile swings in stock price, as emotions like greed and fear tend to be more pronounced among the crowd. While there may be strong shareholders in the company, it's important to recognize that everyone's ultimate goal is to make money. Selling shares is necessary to realize profits. Since these large shareholders are not part of management, they are not required to file SEDI filings.

I understand the concerns of individuals who may be apprehensive about this situation. However, those who are pro-Emerita have a compelling case for material shareholder value.

It's crucial to acknowledge that there are potential risks involved. Emerita may not ultimately acquire the AZN project. There was a sense of hesitancy once I read about the lithium project, and the fact that they have successfully acquired tenders in the past made me second guess, 'could they also have been a bidder that 'greased the wheels'?'. However, after some thought, I concluded that was nonsense. I am certainly not slandering or implying any wrongdoing by management or suggesting such an event occurred. But when considering risks, it's essential to contemplate all possible outcomes that could occur.

Drill results could fall short of expectations and fail to meet market projections. Similarly, metallurgical results could show little to no improvement from previous findings.

Despite these challenges, they are relatively manageable in the grand scheme of things. It's essential to approach investment decisions with a balanced perspective, considering both potential rewards and risks.

The company boasts a well-diversified portfolio with a broad range of commodities. Given the length of the article, I have little additional commentary to offer on this topic.