A Tale of Two Lithium Stocks

by FI Fighter on June 15, 2017

in Lithium, Lithium Updates

In the world of mining stocks and speculation, you win some and you lose some… Without the benefit of hindsight, it’s incredibly tough to try and predict which companies will make it and which ones will fade to black…

Nobody bats 1.000, but we just try and do the best that we can with all the information that is available to us in the present day.

As was the case last year, I’m still incredibly bullish on clean energy and the lithium sector. Around this time last year, I started to deep dive into research and tried to come up with a list of junior explorers/developers who I thought had a great shot of outperforming the market and delivering robust returns to investors.

Critical Elements (CRE.V/CRECF), I discovered in May 2016 and first started aggressively buying shares at C$0.34/share.

Critical Elements has been a high conviction idea of mine for awhile now…

Currently, the company is firing on all cylinders and it really looks like this stock will be a standout in the sector over the next few years… Management is doing everything right to progress this most prospective story as the company transitions from developer to producer.

Shares of CRE.V eclipsed 52-week highs earlier today.

On the flipside, we have Birimian Limited (BGS.AX/EEYMF), another high conviction idea that I discovered last summer, shortly after stumbling upon the Critical Elements story.

In the case of Birimian, even though the lithium discovery has gotten better and better with time, the stock has stumbled to gain traction in the market as there was a lot of funny business going on behind the scenes with the company that most retail investors had no clue existed… Since news of the tomfoolery first hit the wire, the old management team and Board of Directors have all been booted out the door (thank the lord!) and the new team is working hard trying to clean up the huge mess that they left behind…

Meanwhile, shares of BGS.AX/EEYMF are currently in a trading halt and the share price is sitting at essentially 52-week lows!

People vs. Projects

An important (and most humbling) lesson I’m learning the hard way…

 

Shares of CRE.V are up 103% so far this year…

Shares of BGS.AX are down 32% so far this year…

 

Yeah, those are some pretty drastic differences… that matter a whole lot to your performance returns!

 

Like I’ve always said, this Game of Rocks is really tough… Had you asked me this time last year to try and forecast future results a year later, there’s no way I would have predicted anything remotely close to what has actually happened in reality… Both lithium projects looked good then and they still do today!

But ultimately the only result that matters is total returns, and these two companies couldn’t be diverging much more from each other!

My point in bringing all this up to you is simply to say this — When in doubt, diversify (and never forget to trim some stock to book profits during the run ups)! Oh, and importantly, yes, people over projects!

Speaking of people, too many folks out there like to presume they know everything, when in reality most don’t have a clue as to what can or will happen tomorrow… let alone 1, 2, 3, 5 years from now…

I’ll be the first to admit that I don’t know jack shit about anything…

So, I try and hedge my bets… and learn from my mistakes as best I can so I don’t continue to fuck things up even more in the future…

No, I’m not suggesting by any means that Birimian is a broken story and that it won’t (or can’t) recover and even surpass Critical Elements in the future…

But a lot of red flags and warning signs were in the air, and I kinda just chose to ignore them… Call it being naive or outright stupid… Luckily, I was diversified into another stock that really outperformed even my wildest expectations, so it helped offset a lot of the short-term unrealized losses that I experienced with the bet gone wrong…

I’m not giving up on Birimian (the new management team is off to a good start and seems to be moving in the right direction), but this whole ordeal was a huge wake-up call and slap in the face for me…

Management teams matter a shit ton, and there’s a very good reason why certain stocks trade at a huge premium to their peers.

Meanwhile, the Critical Elements team is building up quite the reputation for themselves and becoming the model that junior start-ups (particularly in the lithium space) ought to turn to as a blueprint for achieving success and really unlocking shareholder value.

I mean just look at the tight capital structure (“anti-dilution”) below, which will put most junior companies to shame, in comparison.

You don’t see a flood of cheap options/warrants on the Critical Elements registry (as was the case for Birimian), which is the easiest and most destructive way to obliterate shareholder value…

For clarity sake, here’s an example of another unnamed lithium junior (I got no ax to grind with them, just using a datapoint to better illustrate what I’m yapping about) that has a pretty piss poor share structure, which creates lots of overhang (“dilution”) in the form of unvested warrants/options, many of which are well in the money…

This is stating the obvious, but a real management team should be more busy building up a company as opposed to gifting themselves and their cronies a buncha freebie/cheap shares every chance they get!

Just something to keep in mind and never lose sight of when speculating in this space…

A terrible management team will no doubt inevitably destroy shareholder value, the opposite of their stated “mandate”.

Yes, I do take this stuff personally, especially when the leaders of a highly prospective project say one thing to your face and then behind your back you find out they are doing the complete opposite… Eventually, we unearth the truth — These selfish assholes are only looking out for their own best interest at the expense of everyone else…

The worst management teams out there don’t give a fuck about you… at all. Fortunately, there are those out there who actually do! Finding the right people to back, well, that’s the hard part, of course…

As for the lemons in the sector? Once I’ve been burned (even just once or slightly), those people (e.g. the old Birimian team) go on my shit list and I swear I’ll never invest in anything they start up again in the future… If they’re launching new companies and looking for funding, I’ll be running for the hills, moving in the opposite direction.

This game is difficult enough as it is…

I don’t need to struggle fighting even more uphill battles in the process.

Anyway, that’s all for now…

Unfortunately for me, some recent (terrible) news for the retail shareholder (like me!) came out with another stock I own and I might now have to add yet another management team to my shit list…

 

Sigh…

 

Fight On!

{ 10 comments… read them below or add one }

1 AlexanderNo Gravatar June 15, 2017 at 9:29 am

I had critical elements bit ago wish i never sold would you say its till a buy at these levels with the clean energy boom not even touching the surface yet ?

Reply

2 FI FighterNo Gravatar June 15, 2017 at 9:33 am

Alexander,

There are upcoming catalysts that might move the share price higher — DFS, Helm signing offtake agreement, project financing etc…

Just speaking for myself, my own approach is to not chase any asset up at 52 week highs… which is why I’ve avoided Bitcoin and Ethereum up to now for the most part.

CRE is prone to pulling back and it’s done it many times before in the past… A good entry point is when the market is bored and it consolidates after a period of downtrending… This was about $0.40 late last year and around $0.70 earlier this year.

Cheers!

Reply

3 NunoNo Gravatar June 16, 2017 at 11:56 am

This is from a portuguese newspaper

http://expresso.sapo.pt/sociedade/2017-04-16-Portuguesa-cria-bateria-revolucionaria

maybe you interested in this reading

Reply

4 Nuno ConceiçãoNo Gravatar June 16, 2017 at 12:08 pm
5 FI FighterNo Gravatar June 16, 2017 at 5:52 pm

Nuno,

Thanks for sharing the link, I’ll be sure to check it out.

Battery tech is always improving. For the next decade at least, I doubt we will see anything gain enough market penetration to supplant the good ol’ lithium ion battery though.

Cheers!

Reply

6 IsaacNo Gravatar June 16, 2017 at 12:42 pm

I bought equal amounts of CRE and BGS last year, around October. After researching both, I was convinced that BGS was the better buy. So, I sold my CRE at a small loss and doubled down on BGS. Yeah…..

It has been an expensive lesson, but I have learned that I don’t actually know enough about a stock to “to put all your eggs in one basket, and watch that basket”. If I was regularly speaking with management and making site visits, maybe. For now, I have decided to diversify within a sector.

I am still convinced BGS has room to recover, however. The demand for lithium is continuing to skyrocket.

Reply

7 FI FighterNo Gravatar June 16, 2017 at 5:56 pm

Issac,

Sorry to hear about that. Without the benefit of hindsight, it’s an extremely tough game… Even for those who are regularly communicating and talking to management and doing site visits, etc, things still can and do often go wrong for these individuals….

It’s a very humbling game, which is why as retail investors we need to not only do a lot of research and homework, but also diversify our holdings b/c you just never know for certain…

As it pertains to BGS vs. CRE, I do recall our conversations and I was in total agreement with many of your reasons… I mean, in addition to lithium, BGS also owned gold assets and we all knew a deal with Randgold was in the works…

Hindsight is 20/20… but this tale of two lithium stocks really should hammer home the profound impact a “wrong decision” can have on a portfolio, even when your underlying investment thesis is sound and just…

It’s definitely not an easy game… When the going is good, we should always be cynics and look for flaws… Not to mention ALWAYS sell some stock on the rips when we are in good profits! For myself, I did get way too caught up with drill results and was blindsided by a lot of other stuff I should have been focusing more on.

Lots of important lessons learned with BGS… Nevertheless, it’s still early days and I’m confident the new management team will right the ship and as shareholders we will experience much much better days ahead.

Cheers!

Reply

8 GinoNo Gravatar June 17, 2017 at 4:38 am

Hi Jay,

Thank you for mentioning my article I appriciate that! I have been a long time reader of your blog (since the passive income days) and it has always been a great read. The conviction article you wrote about Critical made me do my own due dilligence about the stock and finally invest a good portion in the stock.

Thank you for all your hard work. I will definitely keep reading your blog!

Gino

Reply

9 Tracy HartfordNo Gravatar July 7, 2017 at 10:07 am

What a great example of why it’s so important not to put all your eggs in one basket. Thank you for the heads up on Critical. I’m going to look into adding them to my portfolio following my own DD. Here is an another article I found pretty informative as well. I will put the link here if you’d like to read it. http://bit.ly/2sp7hjV

Reply

10 Brent @ AAINo Gravatar August 16, 2017 at 9:42 am

It’s nice to see your portfolio doing well. Anything thought on a company called southern lithium? Ticker SLLTF

Reply

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