Before gold and silver started taking off a few months ago, lithium had been the only non-disappointing commodity investment around for quite a while… and we covered a bunch of teasers for lithium producers and explorers over the past year, most of which were built on the “Tesla’s gigafactory is going to need more lithium than is currently produced, so prices will inevitably soar” argument.
The gigafactory is fairly new, of course, but the argument that electric cars will drive lithium prices higher is just about a decade old now — and it’s perfectly logical, since the amount of lithium used per battery for automobiles is obviously far larger than the amount used for each laptop or phone battery… we just need that large volume of electric cars with lithium-ion batteries to finally scale up. And it probably will, though the growth trend hit a hiccup last year when fewer electric cars were sold in the US than in 2014 (that largely because cheap oil removes one of the incentives for buying an electric car).
In the words of today’s ad:
“Elon Musk plans to build 500,000 Tesla 3s every year. That amount is already on pre-order.
“And to meet that goal, he says he will need the world’s entire lithium supply. And he’ll need it year after year.
So what have we seen so far on the lithium-teasing front? In recent months we’ve seen the push for “Metal Oil” that was teasing Orocobre, Dajin Resources and Enersys, the “Salt Fuel” pitch that was teasing the large cap players Albemarle and FMC, and the delightfully hyped-up “Extraterrestrial Gold” ad that was teasing Pure Energy Minerals…. so that’s quite a cross-section of the established lithium names sprinkled in with a few hopefuls and “up and comers.” But this time, it’s a different stock getting the teaser treatment.
The ad comes from Nick Hodge, it’s a pitch for his Early Advantage service (currently $799 a year) and he says he’s going to get you in early on “Lithium Rush Profits” … so what’s the stock?
Well, for that we have to dig into the ad (if you want to play along at home, you can see the original ad here). Here’s a bit of the intro:
“The Lithium Boom Story You’re NOT Being Told
“The one and ONLY move to turn $10,000 into $1 million on the lithium energy boom.
“While most investors ‘in the know’ will miss out on this virtually unknown 100-bagger play…
“I’ve already shown a small group of my readers 1,667% gains on lithium in four months — and we’re just getting started…”
And apparently that gain he showed his readers was actually on the same stock he’s teasing today, so that narrows it down a little bit…
“… there’s one — and ONLY one — play to get rich on the lithium boom in 2016.
“And why this $2 firm could deliver 100-fold gains THIS year, even as its competitors flop.
“In fact, my readers and I have already taken home 1,667% gains on this lithium play in the last few months.”
OK, so there’s some stock that’s now around $2, and which Hodge pitched when it was priced in pennies. What do we get in the way of specifics?
Quite a bit, actually — perhaps because Hodge is happy to publicize this stock after it made such a big run. Here are some more clues:
“… its founder has made himself and investors rich on a lithium buyout before….
“Another one of its founders is a billionaire with close ties to Bill and Hillary Clinton.
“A political insider who gives this company a direct line to the White House.
“He’s also an energy market ‘superstar’ responsible for generating mind-blowing returns like 200,000%.”
OK, so that’s probably enough — that “political insider” is almost certainly Frank Giustra, who is involved with the Clinton Foundation and also gets teased as a mining and energy insider from time to time (he had a big win in uranium a while back, I don’t remember the rest of his investing history — and he was also one of the founders of Lionsgate, the film studio that hit new highs on the back of the Hunger Games and Twilight movies).
Which means many of you have already connected the dots on which lithium stock this is … but don’t spoil the surprise for everyone else, let’s check out some more of the ad:
“Right now, a few big players monopolize the lithium supply. They’re not pure plays with a lot of upside. And the others are just small timers with no real proven reserves.
“Sure, they may hand you a few points as the lithium tide lifts all ships. But I don’t expect much else out of them, certainly no actual lithium production. And neither should you.
“That’s why I stayed on the sidelines of this industry throughout most of 2015. But with the new developments from Musk and Buffett, I knew there were riches to be made. I just needed to find the most profitable way everyday investors could get a share.”
And a few more clues about the specific stock:
“… back when I identified this tiny play, went out to its mines, and met its company execs…
“It was only trading at 15 cents.
“What’s more, you couldn’t buy it on a single stock exchange.
“But after I saw its plan and savvy management, I sent a buy alert to my readers.
“I even gave them the ‘in’ to buy it. The kind you can only get from having a contact — like me — with the company.
“Since then we’ve watched it surge for storybook gains.
“From 15 cents… to half-a-buck… to $1.50 and now — as of writing this — it’s reached $2.53.”
And then some pretty wild promises to go with that 15 cent to $2.50 move…
“I don’t think we’re even close to finished.
“In fact, it may sound unbelievable, but I expect this tiny $2 company to reach no less than $34 in 2016.”
Wowsers. OK, so where’s this lithium coming from? More clues:
“… this Clay County land is only footsteps away from America’s only operating lithium mine.
“In fact, it couldn’t have a better position if we bought the mine itself!
“… this tiny $2 firm is sitting on prime lithium land like no other…
“Not just in Nevada but in the world’s ‘Saudi Arabia’ of lithium.”
The “Saudi Arabia” reference must be to the source of much of the world’s lithium, the salt flats of the upper Andes in South America, with production largely in Chile and Argentina and some huge unproduced (largely for political reasons) potential in Bolivia.
And we get some hints about the other guy behind the company, in addition to the hints about Frank Giustra — apparently there’s another “flipper” involved here who has turned little commodity stocks into fortunes before, these are the clues:
“2016 Catalyst #1: The BIG Lithium Buyout of 2016
“This man has done it time and time again.
“He founded a uranium play called Energy Metals Corp. with $10 million. Two years later, he turned around and flipped it for $1.8 billion.
“That’s an 18,000% return.
“Good enough to turn $10,000 into a staggering $1.8 million retirement nest egg.
“Shortly after, he once again made shareholders millions — doing the exact same thing with a company called Potash One.
“Again, in just 2 ½ years he was able to build and sell the asset — this time for $4.50 a share, and all cash, in November 2010.
“You get the picture.
“This guy is a genius at taking small sums of money and generating mega-fortunes for himself and investors.”
OK then… so who’s the company here?
This is, as some of you have already surmised, Lithium X (LIX on the Venture exchange in Toronto, LIXXF OTC in the US). And yes, Hodge probably could have gotten his readers involved in the private placement that got the ball rolling last Fall at 15 cents a share — that was when the current company was created out of a reverse merger, a private placement, and the acquisition of lithium claims in Nevada from a company called Clayton Valley (the acquirer was then called Royce Resources, it changed to Lithium X quickly after that).
Lithium X has been moving quickly, they’ve since acquired other potential lithium projects in Nevada and also bought an Argentina lithium asset called Sal de Los Angeles in an all-stock deal, and they’ve sold new equity along the way in raising a total of something like $25 million (including a $10 million offering that closed just a couple weeks ago). The market cap now, assuming no warrants or preferred shares that I haven’t noticed, should be just about C$100 million. The stock did peak around C$2.50 in mid-April, it has come back in a bit and now trades around C$1.60.
And… I’ve got to get out on another training ride, so I have to leave it there for you to discuss among yourselves. This is a case of arbitrage to a “name” investor, a promotional executive, and an improving lithium market — which is my way of saying that the assets they’re buying are, according to the investors bidding up the share price, worth more in the hands of Lithium X than they were under their previous owners.
That could quite possibly remain true in this case, at least for now, but it gives room for a considerable amount of volatility because the valuation is based not just on the assets “in the ground” and on the timeline to potential commercial development of those assets, but on investor sentiment as folks jump aboard what they consider to be a thrill ride.
That works really well while it’s working, and if lithium continues to rise in price and profile it may well keep working, particularly if there’s a real “lithium bubble” in the share prices of the junior lithium names… but it’s important to remember that the downside can be sharp and fast if you’re wrong about lithium, or if management loses the love of investors, or if this does turn out to be a lithium “bubble” akin to the graphite bubble or the rare earths bubble that we saw in past years and you don’t manage to sell near the top.
Beyond that, which is a general caution that doesn’t necessarily relate to the specific assets acquired by Lithium X (which I haven’t researched at all, other than to note that the purchase price was very low compared to the valuation of LIX), you’re on your own today — think Lithium will keep booming? Do you want to hitch your wagon to investors like Frank Giustra to try to catch the next wave? Think Hodge is right about this stock going into the $30s this year? I’m sure there are some Gumshoe readers out there who own this stock, so please let us know your thinking by sharing a comment below. Thanks!