Another day, another crazy hyped-up pitch from Dr. Kent Moors — this time, he’s advertising his “entry level” Energy Advantage newsletter with a promise that he has found a way to profit from a “breakthrough superfuel.”
So what’s the story? Well, let’s start you out with a look at the headline:
“This Breakthrough ‘Superfuel’ is 1,693X More Powerful Than Gasoline
“Unearthed in the Andes Mountains, these mysterious crystals contain what MIT researchers call energy’s ‘Holy Grail.’
“And they could ignite a $7.2 trillion economic revolution!”
And he refers throughout to this “OBL” fuel, which is a term he made up to make it sound like it’s a mysterious thing that you couldn’t possibly understand without his assistance… that’s somehow an acronym for “Oro Blanco”, a reference to the white crystal structure of this “fuel”.
Which means, if you’ve been paying attention to natural resources investing at all over the past few years, that you probably already know the basics of what he’s talking about — this is another pitch for a lithium stock, though he persists in using that “OBL” term throughout.
And if you haven’t been around these parts for a while, well, this is what we do: We check out the wild promise in the ads from these newsletter pitchmen, then we sift through the clues and figure out what stock they’re referring to so you can do a little thinking for yourself, without the pressure of the sales pitch.
Lithium Carbonate is indeed a hot commodity these days, mostly because, in addition to being traditionally used for lots of ceramic and glass applications, it is a major component in lithium-ion batteries… and, as we are all quite aware, the lithium battery market is booming. No longer are we just using lithium-ion batteries for our laptops and iPhones, now they’re also powering full size, high powered electric cars like the Tesla Model S.
That increased demand from electric cars is part of the reason for the dramatic investment over the past few years in expanding battery production capacity around the world, most visibly with Tesla’s heavily promoted Gigafactory in Nevada, but also in China and South Korea, where much of the pre-Tesla production capacity existed, and, probably a bit later, in Europe, where there are some gigafactory-size ambitions in Sweden and Eastern Europe.
So it’s not at all a surprise that battery production is going to ramp up considerably, or that this kind of demand increase will require a supply increase for the components that go into lithium-ion batteries. For the most part, that’s graphite, cobalt, and lithium — and while none are particularly rare, cobalt and lithium are relatively concentrated in a few parts of the world and are somewhat difficult and time consuming to produce, so that’s where much of the investment excitement comes in (though graphite projects get hyped up from time to time as well, including the fairly recent “Pure Carbon” teaser about Leading Edge Materials from Gerardo Del Real).
Things have actually slowed down in the lithium-hype space this year, partly because cobalt has been a more exciting story in recent months, and partly because there have been so very many investment themes for investors to get crazy about since the election that the lithium story has kind of gotten buried in the noise. But the basic facts of the increasing lithium demand are still roughly the same… so which “OBL” stock is Kent Moors turning our attention to today?
“… the price of OBL has doubled TWICE in the past 14 months.
“But almost nobody knows about it… yet.
“And it just so happens that one little miner, led by the most successful management team I’ve ever seen, could dominate this soaring market…
“Because they found a treasure trove of this rare substance – not high up in the Andes Mountains… but right here in America.
“This $92 million miner recently acquired what could soon be considered the most valuable piece of land in the world.”
That land is “in a windswept plane at the foot of the Sierra Nevada mountains,” apparently, and Moors says the prospects there are huge…
“This company’s own ‘blind’ estimates suggest the property’s reserves could approach 816,000 metric tons.
“The U.S. Geological Survey (USGS) has recently conducted no fewer than four studies in the region confirming this superfuel is there.
“And at $25,000 per metric ton…
“We could be looking at a $20.4 billion OBL treasure trove!
“It’s literally beginning to burst out of the ground.
“And it’s all controlled by this tiny $92 million company.
“Right now, this soon-to-be energy titan is building a facility to mine their OBL find….
“But if you wait until they put even one speck of OBL onto a train or 18-wheeler, you risk missing your chance at the kind of payday investors normally only dream about.
“Now, nothing in the market is guaranteed, and this is a small stock.
“In fact, shares are only trading for about $1.50 – literally pocket change!”
And, as is always required for a good teaser pitch, there’s some urgency:
“I’m expecting a major announcement that will send this stock to the moon, and enrich savvy investors.
“As we speak, this firm is rushing to complete an important study that will confirm exactly how much OBL can be mined in the seven deposits under its newly acquired property.
“I believe the results will be announced within the next three months.
“Possibly within the next few weeks.”
This is all starting to sound quite familiar. Ring a bell, anyone?
How about now:
“And for years now, members of the “dream team” behind this small firm have been repeatedly making early investors a fortune in similar ventures.
“They are quite possibly the most successful resource team in modern history.”
“The executive chairman is an entrepreneur, geochemist, and geologist with over 35 years in the mining industry….
“And with this OBL venture, he’s teamed up with one of the world’s most successful commodities billionaires.
“Another energy mogul with an incredible track record.”
So yes… this is a repeat of the teaser recommendation that Dr. Kent Moors was circulating last year. Remember that one? Back in November, Moors pitched this same lithium stock with an attention getting “Say No To Lithium Stocks” headline… this is, again, hinting at Lithium X (LIX.V, LIXXF).
And he buried the lead a bit here in this ad — Lithium X does indeed have some exploration properties surrounding Albemarle’s producing lithium brine facility in Nevada — it’s not technically in “Death Valley”, as far as I know, but it’s not all that different a place, and Death Valley National Park in California is only about 150 miles away.
But Lithium X’s much more valuable property, I would argue, is their project in the Andes in South America, the neighborhood where you’ll find most of the world’s current lithium production (and nearly all of its lithium brine production). Here’s how Moors touts that asset, further down in the ad:
“Up to this point, I’ve only told you about this miner’s discovery in the United States.
“But they have just secured another massive property that is bursting with OBL.
“And it’s located far away, where the “White Gold” story first began…the Andes Mountains.
“Nestled between two areas menacingly known as Dead Man’s Lake and Little Devil’s Flats lies 20,000 acres of OBL-rich land.
“So this miner’s new discovery is bigger than the one they are also developing near Death Valley.
“It also contains more OBL.
“According to a recent survey, this chunk of land holds over 2.8 million metric tons of this superfuel.”
The challenge, as with all of the emerging lithium producers, is that it’s hard to predict just what will happen to lithium pricing… and actually building brine ponds and developing production and hiring workers and shipping stuff is a lot more problem-prone than just dreaming of the potential of lithium-rich brines underground and watching your stock spike on the lithium “story.”
So perhaps it’s good that most of the lithium exploration names have come back to earth a bit and gotten a bit more rational, and the actual producers like SQM (SQM) and Albemarle (ALB) have taken their turn to rise in price on the back of their existing and expanding production and higher lithium prices (and, of course, more visibility for lithium stocks).
What, then, is the story now? Well, part of the reason that Lithium X is down a bit is that it has become a bit more obvious that they’re a long way from production — they still don’t have a feasibility study, and they formally reiterated back in February that their 2011 preliminary economic assessment should not be relied on, at the same time that they were raising another $15 million to continue their exploration and initial “test production” work (they are starting not with a feasibility study, it appears, but with a test facility that will produce at a small scale — this is mostly being funded by their JV partner in Argentina, but Lithium X will participate as well).
There will probably be news coming fairly soon, since Lithium X is focusing on upgrading its resources this year with an exploration program, and the test facility will presumably demonstrate that the project can be roughly as profitable as other similarly-situated projects in the Andes, though these things always take longer and cost more than expected.
So my opinion about Lithium X still stands — if we assume, in the absence of more information, that the older resource information about their Sal De Los Angeles project is at all accurate, then the valuation is relatively in line with some other past emerging producers like Orocobre, so it’s probably not as crazy as one might expect for a heavily promoted junior lithium explorer following a huge move in the price of lithium carbonate. This is what I wrote back in November when I was investigating Moors’ tease:
“Lithium X is not as crazily valued as I might have guessed, given the actual potential of their Argentinean project, but it’s years away from real production and I’m not very impressed by anyone’s Nevada lithium projects, including those of Lithium X. This would be one of the first lithium juniors I’d consider, but there is plenty of lithium that can be produced if prices stay up in this area so there’s no real guarantee that lithium prices will be permanently much higher in five or ten years… and risks are quite a bit lower (and valuations higher) with established producers like Albemarle or even emerging producers like Orocobre. I don’t own any lithium names right now.”
And, well, that’s still how I feel. Lithium X is more appealing than most of the really tiny juniors I’ve seen, partly because they have some experienced management, and the backing of Frank Giustra (which always draws investor attention), and have at least a test project underway on their most promising property.
But you can also keep it simple… if you want exposure to lithium doubling in price again a few more times, as is possible but certainly not guaranteed, I’d still feel much better about buying the high-quality companies who are producing it profitably now and are able to expand production, which is generally much easier and faster than building a brand new production facility.
And this is perhaps a cynical view, but I still don’t see much reason to waste time with juniors who are trying to develop US production in Nevada — if Albemarle wanted to expand their production dramatically in Nevada, where they’ve had a facility for a very long time, they could have invested in expansion there many times over the years, and could also have easily bought out some of these little players that surround their Silver Peak operation… and they haven’t done either, to my knowledge.
Why? My guess would be that’s because they know that expanding production in South America (where most of their lithium comes from) is far more profitable. The primary reason to think about Nevada lithium production is if you believe Elon Musk was issuing an incontrovertible promise when he said he was going to only buy “local” raw materials a few years ago while he was being a showman for his Gigafactory… he probably will buy some of his lithium from US producers, I imagine, but only if they are similar in cost to the lithium he can buy from the world’s major producers in South America and Australia. If the prices are similar, then the production capacity and the mature operations mean the South Americans, from what I can tell, are going to make a lot more money than the Nevadans. That might include Lithium X if they can get their Argentina project built and up to capacity over the next five or ten years, but it’s going to take some time and patience.
That’s just my opinion and assessment, though, and I’m certainly not an expert on lithium production — so I may be missing some gem of information or suffering under some sort of bias that blinds me to the value of some of these assets. I’d be delighted to hear from those who disagree with me, just shout out your thoughts with a comment below.