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The market responded positively to recent news around a joint venture between Andromeda Metals (ASX: ADN) and Evolution Mining (ASX: EVN), which will lead to their project proceeding to its second stage. Since Andromeda is an exploration phase mining company, anything which brings production phase closer will be treated positively by investors. A further reason why investors reacted positively to the announcement is that Evolution has committed an additional $4m to acquire 80% of the project. While this is a large percentage, it does signal that the project is valuable enough to continue development activity, which is what the market is excited about.
Andromeda Metals is up 25% over the past week (Credit: Small Caps)
Andromeda aims to become a leading global supplier of high grade halloysite-kaolin, a rare blend of two chemicals. The reason why they have concentrated on this unusual compound is because it has a wide variety of industrial uses, which continue to expand as the body of scientific research grows. The compound can be used for the production of porcelain, but there is larger demand for fluid catalytic cracking, a complex but essential process in oil production. There are also opportunities to use the technology in nanotechnology, which a number of researchers outside the company are looking into. Some of the potential applications include water purification, batteries, and capturing CO2. A further opportunity for the business is developing high purity alumina, which is sold to industrial producers at high prices.
This makes the share price dependent on two main things, these being mine development and the development of technology around their main commodity. Both factors offer the prospect of significant share price appreciation if realised and cause a several fold rally in the share price. Nevertheless, it also complicates the downside risk, which investors will need to be mindful of when investing in the business.
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