Patrick Highsmith, CEO of Pure Energy Minerals, is a seasoned resource company professional with over 25 years of experience in exploration, operations, business development, and executive roles for various companies, including: Rio Tinto, BHP Billiton, Newmont, and Lithium One.
Mr. Highsmith has evaluated and worked on more than 250 projects around the world. His project management experience includes leading diverse teams through major engineering and development milestones, including delineating several mineral resources, and a successful PEA on the Sal de Vida lithium brine project.
Patrick has a BSc and MSc degrees from the Colorado School of Mines in Geological Engineering and Economic Geology (Geochemistry).
Pure Energy Minerals caught our eye with their conditional supply agreement with Tesla and their unique process to operate a brine project in the Clayton Valley region of Nevada. So we invited him to join us at The Lithium Spot to tell us more about Pure Energy Mineral’s story and give us his thoughts on the overall lithium industry.
The Lithium Spot:
There are a lot of new Lithium companies quickly entering the space and trying to compete with the “big five” as we call them (Albemarle, SQM, etc), can you explain to our readers what sets you apart from other Junior Miners?
This question raises an important point. The lithium industry has behaved as an oligopoly for some time now, but the incumbent producers do seem to be slipping. It took Albemarle almost two years to get final approvals on the La Negra Project. The much-vaunted expansions at Greenbushes never seem to come, but at least there are finally plans for Greenbushes spodumene conversion in Australia. FMC has recently shown the spark of growth with the announcement that they will expand production from the Fénix Mine, but that has been a long time in coming. The Chinese players have entered the scene in a serious way. Amongst the major companies, groups like Ganfeng and Tianqi Litihium are really the most exciting growth stories. The last three new lithium mines in the world were all commissioned by so-called “Junior Miners”: Orocobre, Galaxy Resources (and partners), and Neometals (and partners). We believe this is where the real growth in lithium production will come from.
While there are many listed junior mining companies, the one hundred or so that focus on the lithium sector pales in comparison to the number of companies exploring for gold. So, we haven’t found it that hard to differentiate Pure Energy Minerals. The company has actually been around since 2013 and we commenced work in Nevada on the Clayton Valley Project in 2014. When the company began making exploration news in 2014, it wasn’t the property that set it apart or even the first set of drill results, it was our commitment to new technology and dogged pursuit of more efficiency and better sustainability in lithium production. Most of the Clayton Valley Lithium Brine Project had been previously explored and reported upon by a predecessor optionee of the claims. However, our former CEO quickly differentiated the company by espousing lithium production from brine without the use of the unsightly and inefficient evaporation ponds. I would say that this approach got the attention of investors, lithium off-takers, and our peers in the mineral resource business.
As the company evolved, I believe we have cultivated habits and trademarks that set us apart from our peer group. This business is highly technical, and we have not shied away from technical topics in our communications with shareholders and potential investors. It isn’t always the popular thing to include technical slides in presentations or to recount details of geology, chemistry or engineering in a news release, but I think it’s fair to say that many people look to Pure Energy for an element of education when we discuss the business of lithium exploration and development.
So, the things that have made Pure Energy stand out are probably some agglomeration of: people, ideas, technical best-practice, and paradigm-busting.
The Lithium Spot:
Most recently, Pure Energy announced an acquisition of Clayton Valley Properties and concurrently, a $2 Million dollar investment from Lithium X, can you explain how you decided to partner up with Lithium X of all Miners that have entered the space?
Sometimes things aren’t as complicated as we might like to think. The fact is, there were three very large holders of mineral rights in Clayton Valley: Albemarle, Lithium X Energy, and Pure Energy Minerals. We understand that large mining projects require large holdings of mineral rights, so we began exploring the idea of consolidation. This business is pretty small. We had a great connection with Lithium X because Paul Matysek (chairman) and I had worked together building and selling Lithium One between 2009 and 2012. We agreed early on that assembling a bigger and better Clayton Valley Project would benefit all our shareholders. Other than Albemarle, there really was no other property acquisition with such potential for immediate accretive impact. The Lithium X team is so market savvy, that the discussion very quickly moved to a share based structure that had appeal for both companies. Further, our focus on development in Clayton Valley and their primary focus in Argentina made our interests complementary.
The Lithium Spot:
Can you elaborate on your partnership with Tesla? How did this partnership come into being and what are the conditions of the partnership? We are sure that this gets a lot of interest from current and prospective investors!
We have a conditional supply agreement with Tesla to supply them lithium when we build a lithium mine at Clayton Valley. When the deal was announced, we had just announced our maiden lithium resource at Clayton Valley, a relatively early stage of development. This is why there are conditions on the agreement. Such agreements are relatively simple and not uncommon in a business like lithium because there is no central commodities exchange or publicly available pricing applicable to lithium. Lithium is a kind of specialty chemical or industrial mineral, therefore a new mine needs customers. On the other hand, demand has been rising rapidly, so battery makers realize that security of supply may be at a premium. Agreements between off-takers and producers are seen by both sides as potentially advantageous. So we agreed to sell a portion of our production to Tesla at an agreed upon price for an initial term of five years. The volume and pricing in the agreement remain confidential. The agreement also provides Tesla with a right to participate in project finance up to 20% of the capital expenditure.
The parties entered into terms for the exchange of confidential information, so there has been running dialogue since the agreement was signed. We set about on our goals and they’ve certainly been busy realizing some extraordinary achievements…we just hope to supply the lithium that feeds Elon’s “super future”!
The Lithium Spot:
In the original press release regarding an offtake partnership (agreement to supply Lithium to Tesla), it was written “The Agreement sets a predetermined price that is below current market rates and is aligned with Tesla’s goal to continuously reduce the cost of its lithium ion batteries.” Can you elaborate on if this agreement shifts over time since Lithium prices have dramatically increased over time?
The volume and prices under the conditional supply agreement remain confidential, but there are provisions for tranches of additional purchases at higher prices. Otherwise, there are no adjustments to the contracted price contemplated by the agreement.
We have only just announced our first preliminary economic assessment (PEA) of the Clayton Valley Project. Prior to this announcement, we had not disclosed an outline of the potential scale, costs, or anticipated cash flow from an operation. The new study projects extremely attractive direct costs for the production of lithium hydroxide, around $3,200 per tonne. And you are correct that prices have surged considerably since September 2015. This creates an environment for us that is rich with opportunity, so we look forward to our upcoming off-take discussions. We have a long way to go before the future Clayton Valley lithium production finds a home.
The Lithium Spot:
Can you talk more about the new type of technology that you intend to employ to recover Lithium from the ground with the company Tenova Advanced Technologies? How did this partnership come into being? Additionally, can you talk to how much cheaper this might be from an operational perspective compared to traditional brine or hard rock processing?
Tenova Advance Technologies (TAT) is part of a multi-billion dollar mining services company called Techint. The TAT division has decades of experience with solvent extraction (SX) in mining applications. SX technology is ubiquitous in copper, uranium, rare earth elements, and other commodities. Our connection with TAT came about through multiple channels. Not only did our former CEO form a relationship with TAT, but I also met with them years ago while running Lithium One at our Sal de Vida lithium brine project. From its founding, Pure Energy was conceived as an innovator. We sought better technology for Clayton Valley – better, greener, and faster. The TAT SX technology appeared to offer that kind of solution.
We realized that the Clayton Valley brines may be particularly well suited for the TAT technology because of the low concentrations of calcium (Ca) and magnesium (Mg). Of course, the Nevada brines have always been lower grade than many of the South American projects. However, the chemistry is also cleaner and simpler. We had known for years that SX could work for lithium recovery, but the technology requires a pretreatment step to remove possible interferents like Mg and Ca. TAT developed a three-step process with SX at the heart (LiSXTM). The pre-treatment step (LiPTM) makes use of membranes, similar to the approach used in desalination plants.
During the solvent extraction step, the lithium is harvested from the brine and concentrated into a solvent. This concentration step takes hours instead of the months required during conventional evaporation process. This is a classic imperative in mineral processing, concentrate the target phase as quickly as possible so that your efforts are concentrated on the payable product and not just handling a lot of ore (or in this case…brine). The lithium is stripped from the solvent using dilute sulfuric acid, forming lithium sulfate. The final stage of the TAT process, referred to as LiELTM, uses electrolysis to convert the lithium sulfate directly to a lithium hydroxide solution. We have published a simplified flowsheet for the process. It’s easy to see from that flowsheet that this approach is simple…fewer steps to a battery grade lithium hydroxide. There is no need to make lithium carbonate as an intermediary…fewer steps and faster upgrading of the product usually mean lower costs.
Our first round of laboratory testing with TAT in 2015 returned good results. The pretreatment was effective at removing Ca and Mg, and the recovery of lithium by the solvent was extraordinarily high, virtually 100%. The bench scale work contained the encouragement we needed and highlighted the areas that needed more work.
The clincher, however, was the people. The team came together as we added independent engineering support and established a rapport. We found a mutual interest with TAT in problem solving and continuous improvement. This was not a blackbox as new technologies sometimes are. We shared and learned together. We launched a mini-pilot plant at TAT’s R&D facility in Israel. It was conceived to scale up from bench scale work to yield enough engineering data for a preliminary project scoping and mine design. Further, we saved millions of dollars by using their existing facility. This was at a time when access to capital was extremely restricted for junior mining companies.
We had our own engineering representative in the plant during its operation. Dr. Ron Molnar, a PhD metallurgical engineer, has been responsible for literally dozens of pilot plant studies. The process wasn’t political and the team got some great work done, including testing a number of different membranes in that all-important pre-treatment step. GE Water and Process Technologies joined the team and we made measureable improvements over the bench scale test work. The results are speaking for themselves as we’ve rolled out the PEA and a solid flowsheet that just makes sense.
As for economics, our preliminary cash flow analysis indicates that the proposed plant could yield very high margins and favorable returns. The PEA suggests a favorable internal rate of return (IRR) of 21%, even though the estimated capital expenditure (CapEx) is close to $300 million, including a 30% contingency. There are many assumptions that go into these studies and your readers should refer to our recent news release, the full technical report (filed on SEDAR), and the company’s website for a more fulsome discussion. However, the project certainly looks strong, due in part to the opportunity for low costs of production and also to the strong lithium pricing that is forecast to persist well into the next decade at least.
The Lithium Spot:
Could you comment on your estimated production costs per ton and how you see that evolving as you scale (maybe certain targeted levels you may have)?
The PEA projects the direct production costs of lithium hydroxide production at steady state mine production to be around $3,200 per tonne. If we are successful in delivering cash costs that low, it would place the Clayton Valley Project in the lowest quartile of production costs in the world. It is opportunities like this that can and should drive the innovation we need for the next generation of lithium mines.
I really can’t just talk about direct costs without referring to the other benefits of what we are trying to do at Clayton Valley. I have already mentioned that the TAT process could mean a much faster way to produce lithium than conventional evaporation processing. Not only does our approach have these benefits, but we also expect the future Clayton Valley Lithium Mine to be much more sustainable than the previous century’s technologies. After harvesting the lithium from the brine, we intend to return that brine to the basin where it belongs. After scrubbing any contaminants from the brine, the salty groundwater can be returned to a different part of the basin where it can help maintain the balance between fresh and saline groundwaters. By conventional evaporation, the brine is extracted from the ground and then evaporated away, resulting in a huge loss of precious groundwater. Even though the water is very salty, fresh water aquifers can be affected when a salt-water aquifer is depleted. No more huge evaporation ponds that kill birds and impact the landscape. No more giant salty dust clouds blowing up and down these desert valleys. And best of all, dramatically reduced consumption of groundwater resources in water-starved parts of the world.
It’s exciting to be part of a project with this sort of potential for changing how things are done…and it’s even better when the preliminary economics look favorable! We’ve got a lot of work to do, but the potential rewards are exciting as well.
The Lithium Spot:
Pure Energy Minerals has a project called the Terra Cotta Project which is located in the famed lithium triangle, can you give our readers an update with where this project is currently at and what your projections are as well as a timeline for production to start there?
We just acquired the Terra Cotta Project in March. It is another lithium brine project, but it’s at an earlier stage than Clayton Valley. The target is lithium brine contained in sand, silt, and salt. As you said, the project really is in elephant country…right in the middle of the Lithium Triangle where lithium grades tend to be high and on the Argentinean side where the Mg and Ca tend to be lower than in Chile. The project is 100% located in Salta Province, which was also named one of the top jurisdictions in South America for foreign investment in mining by the Fraser Institute last year.
Terra Cotta has scale. We control over 32,000 acres. Terra Cotta has the right geology. We see very similar rocks, geochemistry, and geophysics from historic work as we see at both nearby commercially productive salares, Salar del Hombre Muerto to the south (FMC and Galaxy) and Olaroz to the north (Orocobre). Terra Cotta also has some of the most attractive infrastructure in northern Argentina. The provincial highway delivers us to site in less than 3.5 hours from Salta, a city of more than 600,000 people. In fact, a gas pipeline runs the entire length of the salar. There is even an operating rail line at the northern end of the salar.
We are just launching our surface exploration program there right now. We will use geophysics and surface sampling to identify drill targets. We expect the most attractive targets to lie at depths between 300 and 600 feet, much shallower than the sweet spot in Clayton Valley. If the targets look good, we should see drilling before the end of 2017. So our investors can expect to see the projects advanced in parallel.
We will be devoting most of our engineering horsepower to Clayton Valley, while our exploration horsepower will be trying to work their magic with another discovery at Terra Cotta. It is much too early to speak about production from an exploration project, but the project should move quickly due to the favorable logistics and our previous experience in Argentina. At Lithium One, we made the Sal de Vida discovery in 2009, delivered our first resource in early 2011, and released the PEA in late 2011 before selling the company to Galaxy in 2012. Things tend to move quickly on good projects once the team figures out the critical factors to success. There is a synergy in having the early stage discovery excitement of a large green fields project like Terra Cotta coming up behind a more advanced development stage project like Clayton Valley.
The Lithium Spot:
You recently returned from a number of conferences, traveling worldwide to talk about Lithium, can you tell us generally where you think the market is headed for the next 12-18 months from a supply and demand perspective?
I have recently attended the Lithium Supply and Markets Conference in Montreal and I also traveled to New York, London, Stuttgart, and Zurich on the Benchmark Mineral Intelligence World Tour. The hot topic during most of those events was the lithium supply and demand situation. We heard from Industrial Minerals, Roskill, Benchmark, Joe Lowry, UBS, and many others that the fundamentals remain strong. New supply is finally coming online, but more slowly than needed. This is typical of the resource industries; it’s pretty hard to get new mines permitted and into production. And that is complicated in this case, because lithium mines are really chemical plants, not just holes in the ground with big trucks and big shovels.
On the demand side, there has literally been an explosion of new battery capacity announced. Companies such as CATL are speaking in terms of new lithium battery plants with 100 gigawatt hours (GWh) of capacity. If realized, a facility like that would nearly triple the planned output of the Gigafactory. Shocking is really the best word to use. Benchmark estimates that global lithium battery capacity will be over 400 GWh by 2025. Goldman Sachs is out there with a similar number. Sam Jaffe at Cairn ERA believes the number could be over 500 GWh. All of this from somewhere around 70 GWh of capacity last year.
Lithium batteries appear to be here to stay, and that’s well supported by the rapid adoption rate of EV’s. Given the exciting news from Volvo and VW recently, we could talk about EV’s all day. Suffice to say that these numbers on the demand side suggest that actual lithium demand could easily exceed 500,000 tonnes of lithium carbonate equivalent (LCE) by 2025, from around 180,000 tonnes of LCE demand last year.
The world of lithium is dynamic…certainly not boring. So rather than just assume a flat lithium price for the life of our project in the PEA, we commissioned an independent lithium hydroxide market study from Benchmark Mineral Intelligence. We have adopted their base case pricing scenario, so our cash flow model utilizes a dynamic price deck. From current lithium hydroxide prices of around $16,000 per tonne, Benchmark projects a slight softening in prices around 2020 as new production comes online and new battery plants are slower to ramp up. After that they project a strong build up in price as supply tightens with all the new battery capacity projected to come online. They forecast, and we agree, that pricing will stabilize a bit as the market matures after 2027 or so.
Given this underlying fundamental, the near term looks exciting. We lithium developers and producers are bullish and also optimistic, but it’s unlikely that new production will come online as fast as advertised by many in the space. Meanwhile, the Tesla Model 3 launched last month and demand will stay strong. Hence, we see an extremely low probability of any sort of “supply glut” or dramatic price collapse in the lithium markets in the near to medium term.
The Lithium Spot:
There’s a lot of talk when it comes to the actual grade of Lithium and that some projects have better Lithium grade than others, can you briefly talk about your grade of Lithium and why that matters?
We always say in mining…grade is king. While we all prefer higher-grade deposits, there are many other factors that determine success or failure in any extractive business. After all, lithium brine mines are really chemical plants more than they are mines. As a result of that you will notice that many news releases in our business mention other chemical elements (magnesium and calcium for instance) nearly as often as they mention lithium. Those that don’t mention these other elements very often have some special chemical challenges. That’s because the chemistry matters.
The Clayton Valley brines have always been relatively low grade in lithium compared to the other brines in production in South America. However, Clayton Valley was also the site of the very first lithium brine mine in the world, entering production around 1966. The favorable chemistry, low concentrations of magnesium and calcium, was instrumental in the early development of the old process and it has been instrumental in the development of our new process as well.
Our inferred brine resource averages approximately 123 mg/L lithium, but there is a fair bit of variability. Lithium is dissolved in the brine as lithium chloride, a very similar salt to common table salt, which is sodium chloride. The salty groundwater that hosts the lithium also contains potassium chloride, or potash. Now that we have drilled the basin from top to bottom, we can see that the salt content tends to increase slowly with depth. As the salt content increases, so too does the lithium content. Since saltier water is denser, it makes sense that it would sink to the bottom of the basin. Hence, the higher grades at depth. Portions of the resource on the northeastern part of the project and deeper in the basin average well over 200 mg/L lithium. Approximately 64% of the brine resource falls into that higher grade category.
The magnesium to lithium ratio (Mg:Li) has become standard industry speak when describing these brines. In the case of Clayton Valley, that ratio has traditionally been in the low to mid 2:1, or about twice as much magnesium as lithium. Traditionally, operators viewed ratios of 3:1 or lower as very attractive for conventional processing. That is about the average that we continue to find today. However, we recently encountered deeper brines at Clayton Valley that were very low in magnesium, on the order of 1:1. We believe this to be very good news for its processing characteristics.
It’s not uncommon to see much higher ratios in some areas, 8:1 in Chile or even more than 10:1 in Boliva or elsewhere. These higher levels of magnesium and/or calcium can render a project uneconomic unless the lithium grades are correspondingly high. So, the grades in Argentina, commonly 500 to 800 mg/L lithium, can support higher content of these deleterious elements. Several of the projects in Argentina have very attractive chemistry. The biggest deposits in the world at Salar de Atacama are more complex in their chemistry. The potash content is higher, as are the deleterious elements. That is offset nicely, however, when the grades exceed 1,000 mg/L lithium. These technical issues must factor heavily into the design of a processing plant. The lower grades and favorable content of deleterious elements at Clayton Valley are well suited for our newer technology.
For your readers who are familiar with the gold industry, this is akin to the view we take on refractory gold deposits. If there is enough gold, then a miner can afford to invest in a more elaborate and expensive processing plant to get the gold out. However, if the ore grades are low, we really need favorable chemistry…such as an oxide gold deposit.
The Lithium Spot:
You’ve made a slew of board changes and we at The Lithium Spot are big believers in having a strong management, can you elaborate on what sets your team apart from other Junior Miners?
These companies are all about people. We can conquer any challenges with the right team. Frankly, building teams is one of my passions and always has been. It is also normal for a junior company to evolve in its personnel as it advances from a start-up through an early exploration stage closer to development. That’s really what has happened at Pure Energy. The changes have been organic. Our former CEO recruited me onto the team and eventually moved on as he saw the company in good hands.
In our choices on the management team, we have found great fits between our needs and the recent additions. It isn’t easy to find this balance because junior companies must always pay careful attention to overhead costs. We don’t have the luxury of hiring dozens of people to get a job done. The leadership of any mining and exploration enterprise should have plenty of technical horsepower. In the case of lithium brine, it is critical to see strong knowledge of geology and hydrogeology somewhere on the team. It’s also important to have extensive finance and transactional experience on the team because the business is quite dynamic…deals, financings, and mergers are commonplace. Lastly, the company needs to be able to formulate and explain its strategy. Good communication is essential.
I am technically trained as a geological engineer and geochemist, and I’ve got a lot of experience with lithium brine exploration, going back to 2009 when we founded Lithium One. However, I am not a hydrogeologist. That’s where Walter Weinig, our new VP of Projects and Permitting, comes in. Walter is not only a seasoned hydrogeologist, but he is also a professional project manager. This means he is a planner and an expert at budgeting. He gives us the tools to look into the future more accurately than we otherwise would be able to. Managing, scheduling, and prioritizing our team of geoscientists AND our independent engineers is essential and those tasks are in great hands.
Paul Zink recently joined as CFO. Paul is quite simply one of the best finance-trained CFO’s in the junior mining sector. Beginning his career with 15 years at J.P. Morgan, he harvested real banking and analytical expertise before later applying it at senior roles in mid-tier and junior mining companies. He’s also been party to new company launches and major transactions at International Royalty Corporation, Eurasian Minerals, and Rare Element Resources. Paul is an extremely capable manager and completely unflappable in this dynamic environment.
Adding to these additions in management, we accomplished another objective by adding expert mining legal expertise and lithium operating experience to the board…all in the same person. Scott Shellhaas joined the board in April. Scott is a long-experienced mining and corporate lawyer, but he spent most of his career in executive positions with major companies and mid-tier producers. In addition to presiding over major mining projects during his tenure as president and COO of Thompson Creek Metals, Scott was also president of Cyprus Foote Mineral Company when they operated the Silver Peak Lithium Mine in Clayton Valley. Scott has already been impactful and his legal wisdom adds to our ability to navigate the complex waters of the lithium world.
Most recently Bassam Moubarak, the CFO of Lithium X Energy, joined the board as their nominee after our acquisition of Lithium X’s Nevada properties. Bassam is a former Deloitte accountant and has been instrumental in a number of significant transactions in recent years. Those of us who place a lot of importance on boards of directors typically look to see a board with expertise in several key areas: technical, finance, legal, and strategy. It’s a great accomplishment for a company of our size to fulfill that objective with such quality people.
Lithium Industry related questions
The Lithium Spot:
How do you see these supply/demand outlooks affecting pricing? Specifically, where do you estimate prices to be currently, and how do you expect it to progress given your expectations of supply and demand?
Mostly answered above, but since we are publishing a PEA, we have commissioned an independent market study. A pricing chart from that report has been included in a new PowerPoint, which has been posted on our website. We see a dynamic environment that will be affected by new supply coming online AND new battery factories on the drawing board and coming on stream. It is apparent that supply and demand are tight. We expect this to continue with certain swings back and forth for another decade or so before the market stabilizes and looks more balanced.
The Lithium Spot:
We have seen a number of partnerships, investments among firms into one another, and JVs by firms in the space- could you comment on the causes of this trend and how you see it progressing?
It is common in the resource businesses to see a lot of partnerships, JV’s, and other forms of cross-pollination. In my opinion, this is because there are relatively low probabilities of success for any given mining project to go into production. Since we start with a large number of companies fighting for the opportunities (more than 100 publicly listed companies that claim to be in the lithium business), there will be consolidation of land positions, acquisitions, partnerships, etc. Capital often gets allocated based more on marketing strategy and networks among investors and issuers than it does by the quality of projects. Hence, business development activity is a way of smoothing out a rather lumpy world. It’s a very small business. Most of us know each other, and deals get done among people that know each other.
In our case, we did a fairly high profile deal with Lithium X Energy in Clayton Valley. We consolidated most of the key land in the valley surrounding the Silver Peak Mine, and we did it with shares. Lithium X balanced out the value in the deal by making a strategic investment in Pure Energy at the same time. It was creative and it fit the interests of both companies quite well.
We also have an earn-in option and JV with Cypress Development on a small property in Clayton Valley. In this case, we view it as more of a technical synergy, as we have some ideas about innovative ways to process lithium from the host claystones on that property.
The Lithium Spot:
How is the current external funding market for new junior miners seeking access to capital for new projects (not including investments from fellow miners)?
As publicly traded resource development companies, we live in two markets. First is the macro world of lithium as a commodity. As we’ve discussed, that market remains pretty hot…tight supply, high prices, and lots of media attention. The second market of interest to us is the capital market, and for most of us, it is a particular subset of the capital market that is relevant for us – the growth or speculative sector of the stock market. The investment climate for higher risk growth companies like junior miners is extremely cyclical and momentum based. Last year was a huge year for the birth and funding of lithium juniors. Many companies entered the fray and raised money, dominated of course by the Canadian and Australian stock exchanges. It was a popular place to be and many investors jumped on the bandwagon – not exactly contrarian investing. Most of us saw strong share price appreciation during multi-month cycles – often on very thin news of substance. Since many companies were launched and capital was deployed quickly, it took some of the momentum out of the sector for a while.
I believe we are in a period now where the capital markets are stabilizing and investors are waiting for news. For instance, we know our investors waited quite patiently for our PEA. As projects advance and news flows, investors have the opportunity to learn a lot more and reapportion their holdings. Fewer shares being issued and a bit of calm in the market is a good thing for those who are advancing serious projects. But I don’t believe it’s a great time to launch a new company. The investment community, the major companies, and the lithium off-takers are getting to know the serious players on the field. Great projects are getting capital, and it’s usually a combination of sources – the stock market and strategic investors.
Given how strong the macro environment is and how critical lithium is to our mobile energy needs, we believe the heat will come back into the growth stocks. Those gains will come as results are delivered and milestones are met. One thing we can always rely on in a business like this, the cycle comes around again.
The Lithium Spot:
How do you see this affecting the solvency of the numerous projects currently racing to commence and then scale production? Is the eventual outlook gearing towards consolidation of the industry’s larger players buying the junior miners?
Access to capital is always a harsh reality for junior companies, but there is no real mystery here. We already know that most projects will fail long before there is any real talk of production. It’s just the nature of the beast…mineral resources are finite and increasingly complex to find and extract as a market matures. I have never seen all this activity and competition as a race, however. I say that because speed is often not the winning ingredient. Good projects have a way of surviving – growing, contracting, and changing hands as different strategies and technologies are applied.
When I was in business development at Newmont Mining, we looked at the history of gold projects that went into production and we saw that most often it was the fifth to seventh owner who finally commissioned the successful projects. Consolidation is a reality and large companies will buy small companies, but again, things work best when the deals are structured based on the mutual interests of the companies. For instance, one group may be a builder rich with technical talent and the other group is more of a prospect generator or aggregator of properties. Look at how often the deals in our business are friendly. They often start as JV’s or passive investments. Watch for these sorts of get-acquainted deals, and I think you will see the future leaders of our business making the smart deals with mutual upside, rather than grinding down the other side. That leadership may come from somewhere we didn’t expect. We shall see. It promises to be an interesting ride!