As capital for resource companies dried up in recent years, TSX-Venture listed stocks ran out of cash and simply stopped creating value for shareholders. These illiquid companies became affectionately known as ‘zombies’. But they’re no longer the walking dead: These stocks are now on the upswing, and signs of life are returning to the zombies buoyed by a new legitimacy and—in some cases—the lithium boom.
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To bring legitimacy back to the TSXV, in October 2015, the TMX Group management changed listing rules, easing some regulatory reporting burdens while maintaining objectivity. The Group also focused on its NEX board, a forum to guide companies that have fallen below the exchange’s trading standards. The real culprit behind the prolonged venture decline, the commodity bear market, has recently experienced an uptick, and has revived many of these juniors.
At the forefront of the current metal bull run has been lithium. The ultra-light metal’s prices have gone asymptotical recently, with prices moving from $7,000 / tonne of lithium carbonate to $22,000 within the span of six months. This huge price surge, along with the lure of awakening their zombie stocks, has been the impetus for many juniors to move into the lithium game:
• Benton Capital changed its name to Alset Energy Corp, acquired the Wisa Lake lithium play and took grab samples up to 6.02 percent Li2O. Its stock moved up over 500 percent from first moving into Lithium in March;
• 92 Resources (TSXV:NTY), originally focused on fracking silica sands and Uranium, acquired a hard rock property near Yellowknife. On 7 June, it announced an average grade of grab samples from the property of 2.54 percent Li20. Its stock popped over 250 percent on the news;
• Ashburton Ventures acquired a Li property near Nemaska Lithium’s Whabouchi project, and its stock rose more than 100 percent;
• Cardiff Energy (TSXV:CRS), an oil and gas junior, acquired a hard-rock lithium project near a Galaxy Resources property. Its stock has not reacted.
First movers reaped the greatest reward; shortly afterward, the market became flooded with newly-minted lithium plays and late arrivals saw next to no movement for switching to lithium. Quickly after acquiring properties, the juniors announced flow-through financing, private placements, or exercising of existing warrants. This gave them money to start exploring again and creating shareholder value. However, as with any highly speculative listing, buyer beware.
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The new stage 1 Lithium Juniors have moved to identify and quantify which resources make sense to pursue. From a macro perspective, this is highly efficient to identify compelling resources and move forward to delineate and study them. From an individual stock perspective, speculation and low capitalization lead to easy short-selling and mean huge risks for the shareholder.
Stage 2 companies that have completed substantial de-risking and are looking to develop their resources more fully are more attractive:
• Nemaska Lithium has gone through the feasibility studies and permits, and is building its phase 1 plant, and looking for $50 million to fund its phase 2 plant;
• Bacanora Minerals has a lithium clay project with a pilot plant and prefeasibility study completed;
• Lithium Americas, with projects in South America and Nevada, updated its Nevada resource on June 22, has recently appointed an ex-Tesla CTO, and teamed up with SQM for its Argentina operations;
• Avalon Advanced Minerals plans on releasing a PEA this summer and is working on a chemical process for its future mine.
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Further de-risking can be done by investing in one of the big-4 established lithium players that control 90 percent of the current market: Albemarle Corporation (NYSE: ALB) in Chile; Sociedad Quimica y Minera (NYSE: SQM) in Chile; Tianqi Lithium Industries Inc. / Rockwood Holdings Inc. holding 51 percent / 49 percent of the largest hard rock lithium project in the world, Talison in Australia, respectively; or FMC in Argentina. There are very few early stage 3 producers in lithium; however, two significant ones should be noted:
• Galaxy Resources’ Mt. Cattlin mine, after posting difficulties starting up forfeited chemical processing in-house and selling concentrate directly to Chinese customers;
• Orocobre Limited is expecting 3000 tonnes of lithium carbonate for its next quarter.
For the past decade, the lithium market has been controlled by four big players. However, recent price spikes have given this all a new life—and a very promising long-term life. The playing field is becoming more abundant; which of the new juniors succeed will depend on execution and luck.
By Matt Slowikowski for Oilprice.com
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