My Top Picks for 2017

by FI Fighter on February 18, 2017

in Copper, Copper Update, Lithium, Lithium Updates, Precious Metals, Precious Metals Updates

It might be a little on the late side to be issuing “My Top Picks for 2017”, but better late than never, right? So, here we go…

Before we got the party started on New Year’s Eve, I made the following selections and shared them on CEO.CA.

From CEO.CA.

Not quite two months into 2017, let’s see where things stand as of right now, year to date (YTD)…

Ivanhoe Mines (IVN.TO/IVPAF) is up 91.34%!

Critical Elements (CRE.V/CRECF) is up 76.47%!

And pulling up the rear

Birimian Limited (BGS.AX/EEYMF) is down -10.61%!

 

Damn…

 

Well, that’s just the way the cookie crumbles sometimes…

 

The markets don’t always make sense to me, and right now, I can’t help but chuckle and scratch my head… Of the three top picks, I actually believe that the laggard of the group, Birimian Limited, has been the company that has made the most progress so far this year (well, in terms of news releases that you would expect to move the share price higher in the immediate term)…

In the latest company press release, results showed, “Drilling extends High Grade Mineralisation at West Zone – Bougouni Lithium Project”.

From Birimian Limited.

 

With a Mineral Resource at Goulamina of 15.5 Mt @ 1.48% Li2O, for 229,000 tonnes of contained Li2O, the deposit is among the highest grade lithium deposits of significant size globally. The current drilling program has been designed to expand the existing resource and enable upgrades to resource classifications for detailed feasibility assessments.

 

From Pilbara Minerals.

Birimian’s already got world class grade, and now they are drilling for more size…

80m @ 1.48% Li2O from 43m (GMRC060, ended in mineralisation), being the primary highlight from the first batch of new assay results…

Oh baby, that will do a thing or two to help “expand existing resources and enable upgrades..”

And excite the hell out of the market!

Right!?!

As for the share price? How did it respond to the AWESOME news?

With a big fat YAWN… which has consistently been the case for this stock, unfortunately, for about the last 8-9 months or so…

BGS.AX is trading at essentially the same (actually, even lower) share price as BEFORE THE COMPANY EVEN PUNCHED THEIR FIRST DRILL HOLE INTO THE GROUND!

The share price of BGS.AX was A$0.33/share on May 10, 2016 (when the above announcement was first released to the market)… We are now at A$0.295/share

Sigh…

The following chart summarizes all the progress made by the company in the last year or so…

From Birimian Limited.

Yup, all that “progress” means jack shit to the markets right now…

How does the popular expression go?

The markets can stay irrational longer than you can stay solvent.

BGS.AX has been (by far) the most frustrating stock that I’ve ever owned in my entire life… and it’s for sure teaching me the oh so important Art of Patience

Patience…

Patience…

Patience…

Quite frankly, I strongly believe that the markets are frequently wrong in the short-term, but over the long haul, fundamentals ALWAYS ultimately win out!

Yes, certainly, the company has run into bumps in the road over the last year or so (right now there is a General Meeting scheduled for March 22 to vote on reshuffling the Board of Directors deck), and no doubt the market hates uncertainty…

But even before the above announcement was made, the share price of BGS.AX was still range bound and doing nothing of interest… to anyone but traders…

And perhaps even the following bid made earlier this year by Shandong Mingrui Group to purchase the company’s flagship Bougouni Lithium Project was nothing more than a “joke”…

From Birimian Limited.

However, when your market cap is ~A$60 million, and you’re getting offers (legitimate or not) for a buyout at A$107 million, and your shareholders are flipping out with rage because they think you’re INSANE for even attempting to pawn off the crown jewel for mere peanuts… you would expect at least some kind of market re-rating right?!?

Maybe?

Even just a little bit?

Well, I guess not…

 

Anyway, what do I see?

Opportunity, of course…

 

Sure, it’s a risky trade… but seriously, if “all systems were go”, you wouldn’t expect the stock to be languishing around at such pathetic levels now, would you?

I look at it like this — The numbers of a lottery drawing are starting to be revealed, yet you can still somehow find someone who is willing to sell you a winning ticket at face value…

When it comes to Birimian Limited, the more they drill this thing out and keep growing and expanding the resource with even more AWESOME drill hits, the Bougouni Lithium Project just becomes more and more de-risked, from my point of view…

If Mr. Market doesn’t give a hoot now… well, I’m placing my bets that he certainty will care later!

High grade lithium deposits of notable size don’t exactly grow on trees now…

And despite sales of electric vehicles (EVs) getting off to a rocky start earlier this year in China, there should be no doubt in anyone’s mind that the coming clean energy paradigm shift is going to take the world by storm…

From Visual Capitalist.

To no surprise to anyone, China will be the country leading the charge… From what I hear, they’ve also got an unquenchable thirst for high quality (6% grade) spodumene concentrate to feed their converter plants…

Spodumene concentrate, the very end product that Birimian Limited will be selling to the marketplace… Or perhaps even better, Birimian can eventually progress towards partnering up (joint venture) with a major battery/chemical company and improve the economics/logistics of the project even further by constructing a processing plant capable of producing battery grade lithium hydroxide/carbonate directly on/near site in Mali.

Either way, with demand for lithium looking extremely robust for at least the next few years/decade, the sky’s the limit…

Maybe…

So, yes, with all that being said, I continue to hold this stock despite the lackluster performance… And I’ll probably end up buying even more shares soon, because I can’t resist a deep value opportunity…

As for my other top two picks? Well, when it comes to Ivanhoe Mines, not much more needs to be said about what has been by far the greatest investment that I’ve ever made in my life

And Critical Elements has long been a strong conviction idea of mine

Actually, come to think of it, CRE.V was another stock that lagged for an eternity, before suddenly going hyperbolic in the last two weeks or so… on no freekin’ news at all!

Investing sure is a humbling game, let me tell you…

Now can my other lithium conviction idea finally wake up and start making up some ground later this year so that I can stop looking (feeling) like a dumbass? After the General Meeting on March 22, I sure hope so!

Birimian Limited, you are frustrating to no end… but you are so insanely undervalued relative to your peers that I just can’t stay mad at you or turn away…

So, if you keep on scratching off winning numbers and the market continues to refuse giving you any credit for all your hard work and effort, don’t worry, I’ll be ready and willing to snatch up some more lottery tickets…

 

Fight On!

{ 6 comments… read them below or add one }

1 JoshuaNo Gravatar February 19, 2017 at 9:56 am

I’ve been trying to add to my Birimian position over the last couple of weeks. Can’t wait for it to wake up!

Are you going to be voting on the new directors? I may be wrong but I don’t see how much change the new directors can actually do. My main complaint with the current board is the stock price not moving, which may be a good thing so I can add to my position. I think sooner or later someone is going to see this opportunity and make a fair offer for this asset.

Reply

2 FI FighterNo Gravatar February 20, 2017 at 6:42 pm

Joshua,

Regardless the direction of the vote, I’m convinced that the asset at hand is worth at least 2x the current market valuation. Thus, I continue to hold and add to my position.

The Scoping Study showed this project is economical, with cash costs around $320/t… And the recent contracts being signed in the market are settling for $700/t, to as high as $905/t (Galaxy Resources)… So, there is healthy margin there, even if spodumene prices contract in the future.

Yup, agreed, someone at some point (probably the Chinese) will see the value of this deposit and make a move to acquire it… If the offer isn’t fair, put together a mining team and just develop it yourself… Those are my thoughts, anyway…

Cheers!

Reply

3 Eric dexterNo Gravatar February 19, 2017 at 4:07 pm

I think a lot of it is because it is lithium and it isn’t seen as being in short supply. You have a lot of it clogging up geothermal wells as rick rule is saying.

Reply

4 alNo Gravatar February 20, 2017 at 7:50 am

indeed. current and near future Lithium ore demand is pathetic compared to what is easily retrievable in the Andes area alone, by using a simple Caterpillar shovel to scrape it from the surface ground, if Bolivia/Chile/Argentina only can agree on a sharing plan… Add to this picture that rare earths metals are much much more important and far more scare for high tech stuff like pure electric cars, and you know that China is the one to watch in this matter, since they have the monopoly on rare earths. Instead of looking for lithium ore, maybe try to focus on the ones processing it into commercial grade material, since it is a very energy intensive and dirty occupation, therefore it is where the real money probably will be made. I won’t invest in miners of this stuff, it is very high risk probably high reward, and I don’t want to take this bet right now. Cobalt is another matter, as is zinc and silver, though.

Reply

5 FI FighterNo Gravatar February 20, 2017 at 6:49 pm

Al,

There’s a lot of talk about Bolivian brines, but here’s the reality of that situation:

http://www.coha.org/bolivia-the-myth-of-the-saudi-arabia-of-lithium/

“Uyuni’s higher rainfall and cooler climate means that its evaporation rate is not even half that of Atacama’s. Achieving the necessary concentrations is further complicated because the lithium in the Uyuni brine is not very concentrated, and the deposits are spread across a vast area. Uyuni also has a high ratio of magnesium to lithium within the brine, which means the magnesium must be removed through an expensive chemical process. This is something Chile has handled with relative ease, but Uyuni’s deposits have three times the magnesium concentrations of Atacama’s, making investment in Bolivia’s deposits much less economical.”

No question, the demand for lithium ion batteries is going to experience an exponential growth curve… There is too much money and too many gigafactories under constructing to dispute that…

Will there be enough lithium supply to meet that demand?

That’s debatable, but in any case, I think the trend is the friend here, so as an investor, I’m just trying to get into the best companies at the most attractive valuations (don’t chase up, though)… No different than with any other commodity out there…

Like with gold/silver miners, even in a bear market, you want to be positioned in the companies that can still churn out profits at say $1,000/oz gold or $13/oz silver… while many of the less marginal companies/deposits go bust.

There are no guarantees with mining, but “buying low” is usually a good way to offset some (not all) of the inherent risks in this space.

All the best!

Reply

6 FI FighterNo Gravatar February 20, 2017 at 6:45 pm

Eric,

Well, perhaps the supply/demand dynamic isn’t as out of line as some bulls think, but I would argue that the supply crunch as of 2016/2017 is still very real… otherwise, lithium carbonate wouldn’t be selling for over $10k/t, hydroxide over $15k/t and spodumene concentrate over $700/t…

In the end, business is business… and if you can come to market near the lowest quartile cost of producers, you’ve got a great shot of bringing in strong cash flows and generating significant returns for shareholders…. Any supply/demand imbalance would only help the cause, but in any environment, I think Birimian has an economical deposit, which is why I think the upside outweighs the downside risks (which are still substantial, no doubt).

Cheers!

Reply

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