Lithium Stocks – REAL Assets Matter!

Lottery Tickets

This is what I despise most about bull markets — when share prices are only going up, everyone gets full of themselves and thinks they are a freekin’ genius. Perhaps nowhere else is this more apparent right now than in the Land Down Under (Australia), particularly as it pertains to the lithium mining sector.

In an upmarket, a rising tide lifts all boats. Never forget that. As investors and speculators, we have to ALWAYS remain cognizant of what an upmarket can do to stock prices (and our sanity) and we must NEVER get carried away with totally unrealistic “pie in the sky” delusions, betting BIG on “prospective” mining stories that don’t have a hope or prayer of ever succeeding. In other words, you had better have a FIRM thesis in place (backed by solid fundamentals) for all the stocks that you’re going to be buying, otherwise, chances are great that you will end up getting massively screwed over by the many, many, many “pump and dump” stories that will no doubt proliferate the marketplace.

When it comes to mining stocks, and I don’t care if we are talking about gold, silver, copper, lithium, or whatever, the lifeblood of any company are the assets that it owns. The resources in the ground are all that matter.

Period.

If you don’t have that, you don’t have shit in this game.

And sooner or later, the markets will figure this all out…

Another Big Miss

Last time around, it was Dakota Minerals (DKO.AX) that swung and miss, and this time around, we have Pioneer Resources (PIO.AX).

Here is what happened last night in Australia (May 19).

Pioneer Resources

Just like Dakota Minerals, Pioneer Resources issued out a press release with results that were less than inspiring.

  • Rock Chips from 2 separate outcrops at PEG009 returned high grade lithia (Li2O) values. These included: from PEG009A, lepidolite samples assaying between 1.38% and 3.94% Li2O; and from PEG009B, silicate dominated rocks assaying between 1.17% and 3.84% Li2O;
  • The remaining 3,300 soil sample collections are expected be completed during May 2016 with drilling likely in the September 2016 quarter.

 

What Does It Mean?

No different than was the case with Dakota Minerals, again, I’m not trying to knock on nobody… Pioneer Resources is a very early stage exploration company, and drilling on the Pioneer Dome project hasn’t even commenced yet. Plus, they’ve got a bunch of other projects in the portfolio, so, the jury is still out… I’m not hatin’ here… There’s definitely no need to jump to any conclusions so early on in the game… With that in mind, this latest news release of a soil geochemistry program identified five lithium anomalies…

*Yawn*

The problem lies not in the reported results, but with the over-exuberance investors will display when they do nothing more than to read the headlines, “3.94% Li2O” and then proceed to go Lady Gaga over the results, dancing in the streets… and interpreting the data to mean far more than what it really is implying… In the case of Pioneer Resources, before the markets could properly digest the information contained in the press release, shares of PIO.AX got bid all the way up to A$0.076/share!

Can you say fueled by nothing more than pure hype and speculation? A$70 million market cap? Based off of what, exactly?

3.94% Li2O… WOW, those must be some seriously AWESOME results (or so the mom and pop retail investors might have thought)! Time to go gangbusters and buy up a ton of shares!”

Right?!?

Ummmmmm, no.

You see, when it comes to lithium, lepidolite (mica) is a dime-a-dozen and nothing special at all.

From Strategic Metallgury.

Mica

From Wikipedia.

“Lepidolite is a lilac-gray or rose-colored member of the mica group with formula K(Li,Al,Rb)3(Al,Si)4O10(F,OH)2.[1][2] It is a secondary source of lithium. It is a phyllosilicate mineral[3] and a member of the polylithionite-trilithionite series.[4]”

 

Currently, there is no economical way to process mica into Lithium Carbonate Equivalent (LCE) solutions, the final end product needed to produce the cathode material for lithium-ion batteries (the hype that is driving this current lithium boom).

Which is why shares of PIO.AX got smashed… The market simply doesn’t care for mica at this time, regardless if it’s high-grade, or not. But I’m not writing this to single Pioneer Resources out, instead, what I’m trying to say is that speculators have got to be extra careful out there because we are just entering the early stages of the lithium bull market; there will be PLENTY more stocks in the future who will someday MASSIVELY disappoint market expectations, and the consequences will be far more disastrous than even today’s events, I’m almost certain of that… PIO.AX is a spec stock that rose to as high as A$70 million market cap… Just imagine what could happen in the future to a “hot air” story, trading at A$200 million market cap…

Back to Reality

But for sure, there are companies aggressively working towards making the transformation process from mica into LCE an affordable reality sooner rather than later. Lithium Australia (LIT.AX) is one such company with these type of game-changing aspirations.

However, let me re-empahize that such a viable commercial solution does not currently exist today… If it did, there would be no such thing as a LCE shortage because mica is so plentifully found in the world. We have more of it than we know what to do with…

“Having got the operating costs down, you find there are deposits of these micas all around the world,” said Griffin. “They are quite abundant. They are simply mined and thrown away. So you can get it as a byproduct with no mining cost.”

 

As great as this idea may be for the future (and the world might certainly need it with demand for EVs expected to increase exponentially), as investors, we need to deal with reality and remember to focus on the big picture.

 

Today.

 

If LCE production from mica (or other lithium scraps like it, or even ummm perhaps seawater too?) won’t realistically be economical and ready for full-blown commercial production until say the year 2025, who really cares!?! Do you know how much money you would have made (or missed out on) from non-spec lithium stocks from now until then!?!

 

For your own investment thesis, point blank, that’s all that should matter… How can you capitalize on the EV boom over the medium-term, the next 3-5 years? Worry about the future stuff later… like in the future, when it’s appropriate. Why do you think I don’t give two hoots about hydrogen fuel cells, magnesium batteries, aluminum batteries, or even vanadium flow batteries for grid storage TODAY? Maybe when TOMORROW finally arrives, I will start to care… a little bit.

 

So, if we are strictly talking about the here and now, unless you are a mining company that owns a fabulous brine (salt flat) resource or you have a lot of spodueme (the only hard rock lithium of value that the market even remotely cares about right now), you don’t own jack shit.

 

Getting excited over “high-grade” mica? Who are you trying to convince? Can you say delusions of grandeur?

If you don’t know what you’re buying, you will end up a bagholder… In the year 2016, for reals, you might be better off loading up on lottery tickets than getting amped up over a new mica discovery…

When it comes to hard rock, it’s spodumene or bust… Don’t fall in love with these stocks, and always remember what you are out there looking for as an investor. For the hard rock enthusiasts (like me), that means lots and lots and lots and lots of spodumene… Look, I’m all for speculation and trying to hit homeruns, but when a story doesn’t improve over time (like Pure Energy Minerals), I have no qualms with saying goodbye and moving onto bigger and better ideas.

Because sooner or later, eventually, many of these junior explorers are going to have to pack it up and call it a day; the world will soon find out that even though lithium itself is abundant, spodumene is exceptionally rare and only a few select companies have any of the stuff in large enough quantities (and grade) to actually be able to generate REAL CASH FLOW from it for shareholders. Look, if battery manufacturers (particularly in China) were able to find boatloads of this stuff, do you really think they’d be scrambling so hard right now, willing to overpay north of $15,000/t for Lithium Carbonate, or over $20,000/t for Lithium Hydroxide?

Again, I’m not trying to pick on any individual company here, but if investors really want to protect themselves, they’ve got to chase after substance (REAL ASSETS) and not fluff stories.

Ignore “Noise”

Last night, it wasn’t just PIO.AX that got hit. In all fairness, the entire Australian lithium space (more or less) felt the pain…

Stock Prices

As investors, we need to be able to interpret what’s noise and where the actual signals are coming from… For instance, DKO.AX has also been in a severe negative downtrend, and as mentioned in a previous post, that’s due to the market not liking the latest drill results. For Dakota Minerals, the prospects of the company being able to discover a large enough resource to justify building an actual mine declined with their latest press release.

On the other hand, you have companies like Galaxy Resources (GXY.AX), General Mining (GMM.AX), and Pilbara Minerals (PLS.AX) who despite owning REAL ASSETS have also seen their shares getting crushed pretty good… But again, if you know how to filter the noise out, you’ll do just fine.

In the case of GXY.AX and GMM.AX, the two companies recently announced the following good news.

Galaxy News

For Galaxy Resources and General Mining, they have re-commenced production at Mt. Cattlin, signed an offtake agreement, and received pre-payment for goods and services. Now, here’s a real legitimate lithium story that’s getting better and better…

And in the case of Pilbara Minerals, we also have some positive news.

Pilbara News

Significant upgrade in the Ore Reserves that will underpin the Pilgangoora Definitive Feasibility Study, due for release in Q3 2016.

That’s not noise…

I can’t reiterate enough, as investors, we need to focus on substance and not hype.

Significant upgrade in Ore Reserves. That’s proven and probable material that is well-known and defined, not some inferred guesswork (that may or may not actually be there).

Definitive Feasibility Study. One step closer to REAL mine production. You can’t fake a Feasibility Study… If you don’t got the goods, you don’t got the goods… Pilbara Minerals has got the goods…

 

So, readers should be able to see the picture clearly… Not all smackdowns are created equally… In the case of GXY.AX, GMM.AX, and PLS.AX, why worry about a sharp decline in prices at all? If the fundamental stories haven’t gotten worse, but only better… maybe this selloff is nothing more than a fabulous buying opportunity?

 

Really, it’s only the “pump and dump” spec stocks that you need to be concerned about… Some specs will make it, most will fail…

 

In the short-term, the market is a hype-fueled voting machine, but in the long run, well, you all know that quote by heart I’m sure… It’s a weighing machine.

 

REAL ASSETS matter!

REAL ASSETS will ALWAYS have intrinsic value.

And bottom line, that’s the only thing that’s going to help us win this game.

 

Rock On!

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4 Comment authors
Brian - Rental MindsetFI FighterMichael BrookIncome Surfer Recent comment authors
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Brian - Rental Mindset
Guest

That’s a great point that so many mutual fund investors miss – ultimately you want a real asset! This drives a large part of my rental property strategy in low-cost areas. If the price dips in a recession, I still have an asset people want to use at a lower price than they can build it themselves!

Income Surfer
Guest

Well said Fighter. I want to thank you for the email you sent out to your subscribers last night. Good insight, great reasoning, and a different point of view on that company. I really appreciate it, and am glad I’m an email subscriber.

Now to dig through the 200 page DB report. Maybe I should have just stayed at the beach today, lol
-Bryan

Michael Brook
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Michael Brook

So many errors, good grief.
Very early days for pioneer at the dome, lepidolite is an indicator mineral to point us in the direction of spod bearing pegmatites. The head geo knows that.

Secondly Pio are currently out in Canada proving up more spodumene around Mavis lake. Yes the holy grail, spodumene.

Thirdly, pioneer are an experienced exploration company and have a major gold field in the making at Acra., Western Australia.

Over and out.

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