Lithium – The Mining Stocks Are Getting Hammered (July 21, 2016)

by FI Fighter on July 21, 2016

in Lithium, Lithium Updates

TSLA - 1

What a turn of events — Just a few months ago, lithium was being touted as “white petroleum”, or “white gold”. Upon the Tesla Model 3 unveiling, shares of many lithium juniors were exploding vertically, and multiplying in market capitalization seemingly every week.

As is usual with investing and speculating, what goes up, usually comes crashing back down sooner or later. With lithium stocks, well, let’s just say that the sector has seen better days…

I currently own 6 lithium stocks, and they are all performing quite horribly…

Screen Shot 2016-07-21 at 3.33.18 PM

Ouch!

It’s safe to say, my lithium portfolio has seen better days…

With that said, readers might be wondering, “What’s up with that? I thought lithium was the next BIG thing? Why are the stocks selling off now?

Obviously, I don’t have all the answers, but from past experience, all that I can really say is, “Been there… Done that.

In the short-term, the market basically does whatever it wants to do… For myself, I’ve reconciled the fact that I will never, ever, ever, be able to time these things perfectly… As was the case for gold and silver mining stocks last year, all that I want to do is make sure I get a ticket to the dance sooner rather than later

If readers will recall, my gold and silver thesis was 1,000% WRONG until about February of this year… In fact, on January 19, I looked like just about the biggest freekin’ idiot in the entire world with the following type of portfolio returns… And yes, many people were quick to tell me that as well!

Market close on January 19, 2016.

Depths of Despair 1_19_16

Life lessons are worth repeating, I think, even if I’ve harped on the same redundant message a thousand times before already…

The reality is, in the short-term, the markets are extremely INEFFICIENT, and all it takes is a shift in sentiment for your investment thesis to work out in your favor…

In other words, to my knowledge, absolutely NOTHING has changed at all when it comes to the lithium thesis. Long-term, I still think that clean energy is going to be the next revolution, and interest in the sector will pick up big time in the upcoming future…

So, yes, it’s safe to say that I am still extremely bullish on lithium and the future prospect of these mining stocks.

Here is where my portfolio stands today.

Market close on July 21, 2016.

Screen Shot 2016-07-21 at 3.40.08 PM

As shown above, my Australian lithium stocks are all BEET RED! Some of my Canadian juniors, like Nemaska Lithium (NMKEF) are doing just as bad…

*Yawn*

Honestly, it’s all business as usual for me… The paper losses don’t bother me at all, and if anything, I simply see more buying opportunities…

 

The best time to buy assets are when others are disinterested and sentiment is excruciatingly negative! There is a ton more alpha to extract when an entire sector is in liquidation (see gold and silver mining stocks in 2015) as opposed to when momentum is gaining steam and everything (even the junk inventory) is being bid up to record highs!

 

In fact, I recently purchased 109,670 shares of Volt Resources (VRC.AX), the first graphite stock I’ve added to my portfolio… And I’m down about -17% already!

That’s how the story goes… a lot of times.

Mining stocks are certainly not for the timid… As I’ve stated repeatedly before, you’ve got to have an iron stomach if you want to go playing in this sector…

If possible, I’d say surround yourself and build a network comprised of other mining enthusiasts who know the ins and outs of these stocks. That way, when things go south (for no apparent reason), you don’t get all worked up and emotional about it… In fact, with most folks who I talk to on a regular basis, each time these stocks start tanking, they just tell me that they’re planning on adding more shares… I’m just a small retail investor, but knowing that I’m not in this alone does help… Of course, just being around like-minded individuals won’t eliminate your risks (your entire network could be dead wrong too!), but it helps shift the focus away from just tracking price action all the time…

To me, what’s most amusing about the current performance of my lithium portfolio is that a few stories, such as Pilbara Minerals (PLS.AX) and Birimian Limited (BGS.AX) only seem to be getting better and better…

PLS.AX recently announced a resource upgrade of 60%, validating its Pilgangoora project as the largest undeveloped spodumene (hard rock) lithium resource on the planet…

Screen Shot 2016-07-21 at 3.52.13 PM

Right now, the market frankly just doesn’t give a shit… Shares of PLS.AX have been trending downhill ever since…

As for BGS.AX, just today the company came out with a second round of positive drill results that is only continuing to confirm the economic viability of its high-grade Bougouni project in Mali.

Today’s press release from Birimian Limited.

Screen Shot 2016-07-21 at 3.49.54 PM

Drill results up to date at the Goulamina Main Zone.

Screen Shot 2016-07-21 at 3.50.02 PM

BGS.AX is still an extremely early-stage lithium story (the risks are still high), but so far, so good, anyway…

As an investor with an attention span greater than 5 minutes, what’s not to like? Honestly, if I had more funds readily available, I would be dollar cost averaging (DCA) down into both PLS.AX and BGS.AX…

Point blank, as long as the fundamentals of each lithium stock I own aren’t deteriorating (e.g. the latest drill program revealed no significant lithium values), why sweat the technique?

Since I know that my own investment thesis for lithium is about 3-5 years (we are probably just entering pre-game warmups right now and I ain’t selling until at least the 5th inning, hopefully), the absolute best thing that I can probably do for myself right now is to just tune out the noise and focus on other things…

 

Actually, now that I am in Hong Kong (and loving life!), that’s pretty much what I have elected to do.

 

Fight On!

{ 18 comments… read them below or add one }

1 KTNo Gravatar July 21, 2016 at 7:04 am

I was looking for a lithium play and was sniffing around and thinking of LIT when I found your blog. Did some research and took a flyer on OROCF an LACDF in late May and sold in early July for quick 25% gain. Thanks so much for the research you do. It’s really difficult to find any info on the lithium miners to make educated decisions.

Reply

2 FI FighterNo Gravatar July 26, 2016 at 4:54 pm

KT,

Congrats on the gains you made! That’s a lot of profits in a short period of time.

All the best!

Reply

3 Investment HuntingNo Gravatar July 21, 2016 at 12:35 pm

My Lithium stocks have been going down daily as well. I agree with you though, this is a longer term play. My investment is minimal so I’m going to ride out the three Lithium stocks I own.

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4 FI FighterNo Gravatar July 26, 2016 at 4:55 pm

IH,

Definitely, lithium is a longer-term investment; I’m not worried at all. Best of luck on your positions, I think you’ll do extremely well.

Take care!

Reply

5 Rudy SMTNo Gravatar July 24, 2016 at 2:53 am

Hi FF,

thanks for sharing your valuable research.

I share your vision with Lithium, make so much sense to invest on it for the next five years. Anyway, all mining companies just got off a low base so the trend should be up for the next 3-5 years.

This is a correction after the Brexit craze. Good to accumulate some more stocks and gold.

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6 FI FighterNo Gravatar July 26, 2016 at 4:56 pm

Rudy,

Thanks for the support! Agree with your thesis, and I like the 3-5 year window to best maximize gains with the miners.

Yup, good time to be adding more shares now!

Cheers!

Reply

7 AdrianNo Gravatar July 24, 2016 at 2:29 pm

Hey man – what are your thoughts on the effect of a broad market crash on Lithium stocks – down 30-50% maybe?

Looking forward to any updates you may have on your mining companies. I’m getting ready to deploy some $$ into Bear Creek Mining (and others) this week. The COT charts are ridiculous 😮

It looks like it either drops or takes off like a rocket.

Uranium looks like a nice play over the coming year too.

Reply

8 FI FighterNo Gravatar July 26, 2016 at 4:59 pm

Adrian,

Yes, in a severe market crash, lithium stocks will go down with everything else, these stocks will not be immune to market shocks, as Brexit clearly demonstrated.

In a liquidity crisis, or when margin calls run rampant, I even expect the gold/silver miners to sell off, initially, but ultimately precious metals will provide a crisis hedge.

With lithium, I think that’s a risk to take — In a selloff event, I would expect the shares to crater… However, it’s anyone’s guess when the next crash will be, and by that point, who knows where these lithium miners will be trading at? In other words, if the base is high enough, even a 30-50% correction might leave prices even higher than where they are today… Who knows? I like the future potential, so I’m getting situated now.

At some point, uranium should turn too, but I’m far more bullish on lithium which is why I’m out of uranium stocks.

All the best!

Reply

9 JosephNo Gravatar July 26, 2016 at 7:25 am

Someone decided to pump the media value of lithium to get more value for their stocks before they dumped them because they knew it was coming. Just this week, the real reason was revealed: graphene battery breakthrough. Lithium is useless now.

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10 FI FighterNo Gravatar July 26, 2016 at 5:05 pm

Joseph,

I’m going to have to disagree with you there — This lithium run has barely even started… Model 3 hasn’t even been released yet, and there are far too many gigafactories coming online in the next few years for this train to be derailed anytime soon…

Graphene is exciting, but it’s at least a decade away from full-scale commercial production… Graphene isn’t economical right now, and there’s nobody out there who is able to produce it in any type of meaningful scale… Right now, you need to go to Sri Lanka to mine high purity vein graphite, but those mines are extremely small in scale… Do you really believe graphene supercapacitors will fly in under the radar and make lithium obsolete in the next 3-5 years?

Why on earth would so many companies like Tesla, BYD, Foxconn, LG Chem, Panasonic, Samsung, etc. invest billions of dollars into lithium-ion technology only to scrap it and switch over to something new (and unproven) before those gigafactories even come online? That’s not realistic at all… Lithium-ion was first made commercially available by Sony in 1991… It takes a loooooong time to prove a battery technology, and when you’re talking about safety, good luck trying to characterize new technology in a short period of time!

Again, I like graphene, but in my opinion, there’s not a snowball’s chance in hell it will replace lithium-ion anytime soon.

Take care!

Reply

11 FI FighterNo Gravatar July 26, 2016 at 5:09 pm

Worth a read:

http://investorintel.com/technology-metals-intel/lithium-ion-battery-testing-a-technical-nightmare/

“Most of today’s lithium-ion research news is irrelevant to investors for one simple reason: it takes a decade or more to complete development and testing, and transition from research to product.”

“The point is that battery development, testing, validation and commercialization is an excruciatingly long, complex and expensive process. In most cases, the time lag between a laboratory researcher’s “Eureka!” moment and a commercial product launch is 10 to 15 years while the time lag between a commercial product launch and a cost-optimized battery is another 10 to 20 years. To make things worse, batteries aren’t consumer products and, until the manufacturer of a device like a smartphone, portable computer or EV decides to pull the trigger on his own product launch, there’s nothing a battery manufacturer can do to accelerate the process.”

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12 jamesNo Gravatar July 29, 2016 at 6:21 am

I am amazed that all of you think Lithium juniors will ever evolve into a producer. All these stocks are classic pump and dump with 4 major players who actually care about producing Lithium. Rest will all vanish in the next couple of years. Anyone investing in pilbara is a moron. Did you read their rescent announcement where they stated that they did not own the Lithium and were working on a deal with the actual owner

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13 FI FighterNo Gravatar August 1, 2016 at 2:46 am

James,

I will have to disagree with you there. If you follow juniors like Altura Mining, Galaxy Resources/General Mining, Neometals, etc. these companies all have binding offtake agreements (BOA) to sell lithium already in place. Some of the ones I listed are already in production, so they already are producers. The Big 3/4 aren’t the only ones supplying the markets…

You’re entitled to your own opinion… I see huge growth in clean energy and lithium, and I think there will be room for a few juniors to really emerge. One of my favorite plays is Critical Elements, and they have a take-or-pay agreement in place with Helm AG, a major chemical company… If you believe that it’s all smoke and mirrors, and Helm AG isn’t really serious and just wasting their time, so be it…

Reply

14 FabNo Gravatar July 30, 2016 at 5:47 am

Hi FI Fighter,

Which broker do you use to purchase Australian / AX stocks? Using sharebuilder, cannot find these.
Thanks

Reply

15 FI FighterNo Gravatar August 1, 2016 at 2:41 am

Fab,

I use Schwab Global to trade on ASX, TSX, TSX-V.

http://www.schwab.com/public/schwab/investing/accounts_products/accounts/global_trading

Cheers!

Reply

16 ChenNo Gravatar July 31, 2016 at 9:34 am

Curious what broker you are using to trade on the ASX?

Reply

17 FI FighterNo Gravatar August 1, 2016 at 2:42 am

Chen,

I use Schwab Global, which you can find using the link above.

Take care!

Reply

18 Tracy HartfordNo Gravatar May 16, 2017 at 11:52 am

Nice article, thank you. I have personally found that when focusing on a market where macroeconomics of supply and demand suggest that there may be a pending deficit in the commodity in the near future; (Lithium in this case), many questions arise such as: What is lithium? What do I look at, for lithium mining? Is lithium a good investment? Attached is an article I found that’s short, but answers these questions http://bit.ly/2rmBETg

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