Lately, I’ve been getting a lot of e-mails from concerned investors who are discouraged by the recent price action of basically every lithium stock that they own… As I mentioned in the last post, just a few short months ago, lithium was being touted as the “next big thing”, or “white gold”, or “white petroleum”. Short-term sentiment reached a fever pitch back in May, when everyone and probably even their grandma started piling in on the lithium trade…
And guess what happened right after that?
They pulled the plug on us!
Who is they?
Well, if you think that the retail investors (Joe Six Pack and people like me) are able to dictate market prices, you’ve got another thing coming…
No, the people who move the markets are the sophisticated investors who are ALWAYS the first ones into a story and the first ones out. They will ALWAYS be ten steps ahead of the rest of us…
Just the other day, I received a wonderful e-mail and message from a reader of this blog, Jared, who shared an article that I think is a must read for everyone.
Thanks again Jared, I really appreciate it and I hope readers here will too!
And I am certain that what’s going on right now in the lithium space is entirely inline and coincides with the thoughts discussed in that piece above.
- Big money gets well situated early on in the game.
- Big money PUMPS the story up to create MASSIVE hype.
- Retail investors get GREEDY and chase up (buying HIGH as ALWAYS).
- Big money cashes out at the top.
- Big money then proceeds to go silent (if not entirely negative and bearish, wow a total 180!) on the sector, driving prices back down.
- The stock(s) get stuck trading sideways, if not in a negative downtrend for a few months (or longer).
- Retail investors get impatient and feel overwhelmed with FEAR so they get shaken out (selling LOW as ALWAYS).
- Big money silently operates behind the scenes, accumulating your discarded shares.
- Later, rinse, repeat.
As I always like to reiterate in my articles — Don’t get concerned and fixated on day-to-day price action. Focus on the fundamentals and macro picture. Short-term noise is extremely dangerous b/c it will cause you to do stupid things and make irrational decisions that are driven by fear and nothing else.
We must realize that as investors, we need to be focused on the medium/long game… That’s the only way we can hope to compete and make money, especially when it comes to playing the natural resources game (which is a sector controlled and operated by sharks).
There’s just no way in hell that we stand a chance of winning this game in the short-term…
So, like I keep saying over and over, again and again — Don’t sweat the technique!
If you are going to be an investor, find the best stories (assets, management teams, partnerships, etc.) and stick to your thesis with conviction! If you don’t have conviction, you shouldn’t even be playing in the first place!
What am I doing?
Over the last few months, in the lithium space, I’ve continued building up my positions… In particular, I’ve accumulated sizable holdings in my two best lithium ideas.
- Birimian Limited (BGS.AX)
- Critical Elements (CRE.V)
I really don’t give a shit if the markets don’t agree with my thesis right now… I’m just out looking for the best ideas at the most attractive prices, irregardless of price action. I think both BGS.AX and CRE.V are grossly undervalued, given that their market caps are well under $100 million and the potential Net Present Value (NPV) for their assets could be significantly higher.
For instance, here’s what the economics for Critical Elements’ Rose Lithium-Tantalum Project could look like based off the Preliminary Economic Assessment (PEA) published back in 2011.
From Critical Elements.
Of course, whenever we are talking about early-stage exploration stories (BGS.AX), or development ones (CRE.V), nothing is ever fully guaranteed, and things can obviously go wrong from now until the project is put into production… But of course, if there were no risks involved, the stocks would already be priced for perfection, don’t you think?
So, yes the above PEA numbers from Critical Elements are very preliminary, but with lithium carbonate currently selling for over $10,000/t in 2016, you can see that a pre-tax NPV (8% discount rate) of C$1.444 billion is pretty appealing, no?
As of market close on August 17, 2016.
The current market cap of CRE.V is C$65.11 million.
Risk vs. reward.
Do the math…
With Critical Elements, they are working hard on getting their Feasibility Study (FS) out later this year (a positive report is absolutely essential in de-risking the project further and needed for a drastic re-rating of the stock), and they’ve got a take-or-pay offtake agreement in place with Helm AG, a leading (private) chemical producer. And with development stage projects, when you’ve got a reputable, cash strong partner backing you, it absolutely does wonders in creating peace of mind for the retail guy like me… Critical Elements isn’t risk-free, but at this stage of the game, it’s reassuring to know that they’ve got technical experts in their corner who are working closely with them to help insure that the Rose project doesn’t go bust!
In the case of Birimian Limited, the company keeps on delivering impressive drill results, and they’ve now got what is arguably the best currently discovered high-grade undeveloped spodumene deposit on the planet.
All that progress being made has absolutely NOT been reflected in the share price at all over these last few months!
Oh yes, and before we lose sight of things, Birimian Limited used to be called Birimian Gold… because they also own gold assets that the market has completely forgotten about!
But Randgold hasn’t forgotten about Birimian’s gold, as evident by the comment made on their most recent investor presentation from July…
I found the above most useful “nugget of information” from a HotCopper thread. The guys on there really do great work and for the most part, these mining enthusiasts know to focus on the fundamentals, not short-term price action! Thanks guys, your efforts are much appreciated by retail investors like me!!!
But of course, this is the type of detective work that you’ll have to unearth on your own time… Nobody is ever going to fill you in on the best stories when sentiment across the board is extremely bearish.
If anything, don’t be surprised if Big Money is purposely keeping a lid on prices across the entire sector on all these stocks so that they can silently accumulate more shares in the background.
As cited in the Market Manipulation article.
“RULE NUMBER SIX: IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE LAST PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER PRICES.”
Like Jesse Livermore wrote, “If there’s some easy money lying around, no one is going to force it into your pocket.” The same concept can be more clearly understood by watching the tape. When a market manipulator wants you into his stock, you will hear LOUD noises of stock promotion and hype. If you are “in the loop,” you will be bombarded from many directions. Similarly, if he wants you out of the stock, then there will be orchestrated rumors being circulated, rapid-fired at you again from many directions. Just as good news may come to you in waves, so will bad news.
You will see evidence of a VERY sharp drop in the share price with HUGE volume. That is you and your buddies running for the exits. If the deal is really for real, the market manipulator wants to get ALL OF YOUR SHARES or as many as he can… and at the lowest price he can. Whereas before, he wanted you IN his market, so he could dump his shares to you at a higher price, NOW when he sees that this deal IS for real, he wants to pay as little as possible for those same shares… YOUR shares which he wants to you part with, as quickly as possible.
The market manipulator will shake you out by DRIVING the price as low as he can. Just as in the “accumulation” stage, he wants to keep everything as quiet as possible so he can snap up as many of the shares for himself, he will NOW turn down, or even turn off, the volume so he can repeat the accumulation phase.
In the mining business, there seems to always be another “area play” around the corner. Just as Voisey’s Bay drifted into oblivion, during the fourth quarter of 1995 and early into 1996, the same Voisey Bay “wannabees” began striking deals in Indonesia. Some even used new corporate entities. Same crooks, different shingles. The accumulation phase was TOP SECRET. The noise level was deadingly silent. As soon as the insiders accumulated all their shares, they let YOU in on the secret.
There are large market forces at play, ones that the retail investor usually loses sight of…
In regards to clean energy and lithium, the boom has NOT topped out already! As far as I’m concerned, this game hasn’t even officially started yet! Back in March, Tesla Motors got the lithium hype train rolling by unveiling the Model 3 to the public… Well, we are now in the middle of August, and to my knowledge, the Model 3 hasn’t been cancelled, Elon Musk hasn’t quit as CEO, Tesla hasn’t gone bankrupt, and things are still proceeding as planned… And let’s not delude ourselves, although the entire world is fixated on Tesla’s every move, the real growth with clean energy is going to emanate out of Asia.
Yes, the blue sky potential is still there!
Nothing has changed…
The lithium stocks are down 30% or more since May… Do you want to buy low or sell low?
Because you better believe that Big Money is going to be accumulating again at the Depths of Despair…
Nobody can know when we bottom from here, but if you’re a buyer, you’ve got to be feeling pretty ecstatic with the buying opportunities that are presenting themselves… For instance, stocks like Pilbara Minerals (PLS.AX) and Altura Mining (AJM.AX) have been absolutely massacred these last few months…
The two Pilgangoora stocks are essentially joined at the hip… Here’s how shares of PLS.AX have been performing recently.
PLS.AX is down -26.71% over the last 3 months.
On essentially no news…
Right now, short sellers are doing a number on Galaxy Resources (GXY.AX), a top-quality lithium stock that is currently being taken out back to the woodshed…
The OTC-listed shares of GALXF are currently down -28.3% over the last month alone!
Hey, this stuff happens!
Ignore the noise and focus on the Big Picture… Because once Big Money is done buying, you best believe that we are going to get a countless number of articles, newsletters, interviews, press coverage, etc., and all that jazz to pump these stocks back outta the stratosphere yet again…
Don’t be duped… Don’t invest like sheep… If you want to make big money in the natural resources space, figure out what your investment thesis is and if you’re going to buy, do so when nobody else gives a shit.
Because when these stocks rip higher in Round 2 (does anyone really believe there won’t be a Round 2???), you won’t be surprised the least bit. If anything, you’ll already be well situated in the best names to ride the next wave up…
I’m throwing my neck out there, like I ALWAYS do in real-time… I could definitely be proven wrong, and who knows, maybe the entire lithium sector and all these individual stocks wind up going bust and blowing up in my face… But as you guys know, I just try and do my best to tune out all the bullshit so that I can separate the wheat from the chaff.
When it comes to lithium, quite frankly, I just see tremendous growth over the next decade, so I’m betting big on my best ideas, BGS.AX and CRE.V, particularly at a time when nobody else cares…
Please Note — I will NEVER offer any kind of investment advice… I can ONLY share with readers what I am doing with my own money.
I currently own 200,000 shares of Birimian Limited and 220,000 shares of Critical Elements.
I put my money where my mouth is… and I’m holding strong… You can tell the market manipulators to fuck off.