After seeing the performance of most lithium mining stocks lately one can understand why a lot of long term investors have been throwing in the towel and taking their money elsewhere. I wrote in the past article here that a lot of old gold bug money held in family trusts was being taken out and going into the digital space of crypto currencies like bitcoin. One only has to look at data and charts like the one posted below that money for metal mining has been falling steadily. Some would argue that news mines are not needed like before because of new technologies in recycling of these metals. Those people who argue the recycling gig are only partially true because as the world continues to grow and expand, so do the materials needed for the infastructure.
Now if there is one place in mining that money will go, I believe that will be in the exploration and extraction of lithium. Whether it be clays, brines or hard rock, I believe that for those who position themselves now with good quality lithium miners and explorers will see their investments outperform any of the other types of resources whether it be exploration or extraction. Like it or not the green revolution that the greenies always wanted is coming and there are opportunities for juniors and investors to profit from it.(Note: This is by NO means investment advise. I’ve been known to be wrong many times before and I will be the first to admit to )
But my reasoning for this belief is in the numbers. Under the new Biden administration as well as governments around the world, the push towards electric cars is now in high gear. All auto companies are racing ahead to compete with each other in the EV space. While everyone in the western world though seems to focus on Tesla and it’s giga factories in Nevada, China is building more cars than most of the entire world combined. According to the International Energy Agency in 2019 there were already 2.58 million battery electric vehicles in China, compared to just 0.97 million in Europe, and 0.88 million in the USA. Each of these cars needs a battery of some kind and the most popular batteries need a particular element and the element is lithium.
Now I am not saying to not invest in any of the lithium juniors that are working in places like Nevada. I myself have bought and sold some of those juniors and they have performed extremely well. Juniors like Neo Lithium TSX-V:NCL have seen their stock price up almost 800% this year. America Lithium TSX-V:LI has seen it’s stock rise over 1000%. All of this is due to the fact that Tesla is looking to buy into a lithium deposit close to home and being that Nevada is home for Tesla it would only make sense to buy into a lithium mine a few miles away verses thousands of miles away. These Nevada based juniors still have a lot of upside in their value as far as I’m concerned but it’s a big world out there.
As I mentioned earlier, Tesla is only a fraction of the EV auto market. Where is China, Korea or some other Asian based EV manufacturer going to get it’s supply of lithium? Well the one place that stands out as first in line is Australia as it is at present the largest producer of lithium on the planet at this time. In 2019 the country produced 42,000 tonnes from hard-rock mining of spodumene – an ore that contains high levels of lithium, as well as aluminium.
The second largest producer is Chile. Chile accounted for for 18,000 tonnes of lithium production in 2019. Out of the three countries comprising the lithium triangle Chile, Bolivia and Argentina, Chile has has some of the world’s third-largest reserves of the metal, totalling around nine million tonnes and has made the most successful progress in developing its vast natural resource to commercial scale.
Now believe it or not but China is the worlds third largest producer of lithium and produces about 7,500 tonnes a year as far as data available from 2019. Coming in fourth place is Argentina which produces 6,400 tonnes of the metal in 2019, taking fourth place on the list of the world’s top producing countries. Argentina is home to the world’s second-largest known reserves’ with 17 million tonnes concentrated in vast salt flats in the north west of the country. It’s within this lithium triangle that a few junior companies are exploring and looking to develope in the near future. This area where Argentina, Chile and Bolivia all border is the area known as the Lithium Triangle which is host to some of the richest lithium brines in the world. Once developed and producing this lithium can easily be exported to Asian and other global markets as location to sea ports is just a short distance away.
One company working in Chile at present is Lithium Chile TSX-V:LITH This company has 71,900 hectares covering sections of 10 salars and two laguna complexes in Chile. It also has a gold, silver & copper property In Chile. At present the company is raising $3.5-million for drilling and sampling.
The second company is Alpha Lithium TSX-V:ALLI and is active in Argentina. Alpha holds a 100% ownership of +27,500 hectares (67,954 acres) of the Tolillar Salar. Early stage investigations have shown Lithium concentrations up to 504 mg/L in borehole samples. Alpha is an agressive company with active drilling. In a news release in October 2020 the company applied for drilling permitts. By the end of October the company had started drilling. Mid November they announced a significant brine discovery. Mid January the company announced a 10 million bought deal and later the same day increased it to 20 million. Following day the company decides to add a second drill rig to the program. This current drill program is an additional step towards the completion of a 43-101 resource estimate.
t present worldwide demand for lithium is over 350,000 tonnes. Conservative estimates for 2025 and based only on increased EV units worldwide would be over 1,000,000 tonnes. This is the equivailent shortfall of 650,000 tonnes which translates to 26 lithium mines worth of production. These figures are based on just a 14% increase in EV sales. So you can see now that lithium could very well become the new gold that miners will want to go out and explore for. Problem is there is a very limited amount at present.
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Added note: The author of this article holds postions in all the above at the time of this writing. The author may buy or sell any time going forward.
2019 started off not to bad for the junior mining sector. A lot of the smaller players were looking poised to rally on optimism of higher gold prices. Sure enough gold prices did rally this year hitting the $1,500 USD range. In other currencies like here in Canada the price of gold hit historic highs. The juniors on the other hand have hit historic lows. Volumes of most have all but dried up and pretty near any shareholder who bought into any plays during the mid year with antisipation of a reward is out of luck and out of money.
So investors are wondering what’s the real cause of this stagnant money loosing market. To begin with I think there is just a lack of interest in the sector as a whole. Investors over the last couple years were chasing pot stocks to record levels like they did tech stocks 20 years ago. Now the pot stocks sector has fallen to lows never thought possible, a lot of those folks who bought and didn’t cash out have been all but been wiped out. I remember getting a news newsletter talking about Invictus MD GENE which was suppose to be a well managed pot company with top growth potential, etc. The stock at that time was $1.50 and some cents and went to around $2.50 at the time. Today I see that stock is 12 cents. This is just one example of the many pot companies that will probably end up going bust and taking millions of shareholders money with them. To put it plainly in english, there is not a lot of speculation money left out there.
Another factor I think that plays an important part in the junior sector is the lack of new discoveries. There hasn’t been anything new or exciting to get the crowds rallied up like years ago. Another factor along this line is investors aren’t satisfied with drill results like before. They don’t seem to be content with grams per ton any more. They all want ounces per ton it seems.
Commodity prices too in general are in the dumps. Most base metals are dismal at best. The hype and excitement around lithium and cobalt has seemed to dissappear. Talk of a global recession doesn’t help juniors either who are on the hunt for copper or zinc.
Another issue I see that is hurting the juniors is the lack of transperancy and lack of news with some of the companies. These issue a bunch of stock, take the money, drill a few holes, don’t bother promoting the stock in any way and after the stock sinks in price they roll back the stock, issue more new paper and its the old wash, rinse and repeat and investors are just plain sick and tired of being put through the wringer and are really looking hard for other places to park their money.
Now I’m not saying ALL juniors are that way but there are some out there that have little to offer and management likes to treat their stock and company like a personal ATM machine. This sad reality is that it just takes a couple of these companies to make a bad name for the entire sector. There are good quality plays still out there that are run by top notch people that have great potential once this market turns around.
Another problem with the juniors in my opinion is that there is just too many junior companies out there. There is just too many players fighting over too few dollars and so many of these juniors go into the field under capitalized and thus need to issue more stock to raise more money and then dilute the shareholder value some more repeating this same old cycle over and over again and the ordinary investors have had enough of it.
Market shorting of stock. No sooner does news come out and a stock rallies a bit and in move the short postions ready to hammer the life out of it. Is it any wonder that the average investor is starting to just throw in the towel on these stocks. It seems that market regulators turn a blind eye to this kind of behavior but in a lot of cases the management of these companies seem to do little to intervene and seem to allow brokerage firms and others to get away with it. I have yet to read of any CEO taking the regulators to task on this issue. Most just like to blame the market for their stocks poor performance.
Another problem the juniors face is the government and the multi levels of government. Things like getting permits and approvals in a timely fashion. Having to spend dollars and time with local governments and other stake holders like first nations and special interest groups. Small juniors dump thousands of dollars and tons of time just to get approvals to go out and explore. Because of this alone, a lot of potential investors will take their money else where. It’s the old “why bother” attitude that comes into play. There is a risk factor that comes into play even before a project starts.
So how is the best way to play the metals sectors? The large cap miners have done well this year and many are down from their highs. These larger miners especially the gold miners should do well especially if there is a global slowdown or recession as a lot are talking. Another way is to just buy the physical metal itself. You won’t see the multi bagger gains like you might with some juniors but in the end you’ll still have something tanglible to hold on to. As you see by the chart below in 2019 everyone who held gold has seen double digit returns in the past year. Not bad concidering you’ll get zero at the bank if your looking for security and don’t like risk. For the sake of curiousity, investing in the S&P 500 the average annualized total return for the over the past 90 years is 9.8 percent so you can see physical gold is a good hold.
So in the end, what’s going to fix this situation with junior mining companies? Firstly, and these are just my opions but someone needs to come up with a discovery that grabs the attention of the investing public. I’m talking another Voisy’s Bay, another Lac da Gras diamond find, another Galore Creek. Second, maybe a few mid cap players come in and buy out a few of these juniors who have proven goods. Third, more accountablity from management teams with more work project updates. Fourth, more timely lab returns on assay results so investors aren’t waiting months for these results.
These are just a few of the issues plaguing the junior sector these days. A person could go and on for days trying to figure out the best way to turn things around. I for one am hoping that the sector turns around. The world still needs resources and the only way it’s going to get these resources and keep an inventory of these resources is from junior miners who are active in exploration.
If you enjoyed this article, please feel free to share. When seeking out mining stocks always use Due Diligence and see our Disclaimer and be sure to sign up for our free news letter located on the right hand side of this page.
