INVESTMENT THESIS FOR LITHIUM EXPOSURE VIA REEDY LAGOON CORPORATION (RLC).ASX
Having watched the lithium story unfold over the last 2 years, I have taken my time to really research whether the investment thesis here is truly an investment grade story/opportunity, or just another speculative bubble that will eventually burst and disappear, taking billions of dollars of investor capital with it.
Today, almost everyone on the planet uses a smart phone, cordless power tool, tablet. Add to this the clearly obvious future for electric cars/transport and one starts to gauge the potential future of the lithium industry.
One doesn’t need to look too far to see the extent of the movement towards using batteries across the globe. The link below outlines how by 2018, every bus in the MegaCity Shenzhen will be replaced by electric buses. https://www.fastcompany.com/40506877/by-2018-every-bus-in-this-chinese-megacity-will-be-electric The city’s entire fleet–16,000 buses–will have shifted to electric, making it the first city in the world to reach that goal.
The scale of the endeavor makes it even more impressive. The largest bus fleet in the U.S., in New York City, has around 5,800 buses. Shenzhen has more buses than New York and the other top five bus fleets in the U.S.–in New Jersey, L.A., Chicago, and King County, Washington (home of Seattle)–combined.
The new buses are expected to reduce CO2 emissions by 48% compared to diesel. The city won’t stop at buses; by 2020, all of Shenzhen’s taxis will also be electric, along with a growing number of cars and trucks.
Moves like this explains why China is so active across the world in getting their hands on as much Lithium supply as they possibly can. Their motivation, to go as green as possible to reduce the burning of greenhouse gasses that will in turn reduce their number 1 problem being air pollution.
This link to a CNN Money report outlines how China is searching the entire world for as much Lithium control it can obtain. http://money.cnn.com/2017/11/20/investing/lithium-china-electric-car-batteries/index.html
“The Chinese government has been quietly instructing state-owned enterprises to hunt down lithium resources outside China, according to Francois Perrin, a portfolio manager at investment firm East Capital. He predicts that over the next few years, China will wield increasing influence over the supply of lithium and other metals used in electric batteries.”
You only need to look back to the start of Australian mining boom and where the iron ore price was, before China started traversing the world acquiring everything they could get their hands on. Things are only just starting to warm up in my opinion.
The direction all of this is moving is evidenced by news in December about Tesla’s giant Lithium-ion battery in South Australia that outperformed Gladstone Powers Station. Have a read of this article and consider the very serious implications of this trial.
This will not be an Australia only story this will be GLOBAL…and the global demand for Lithium off the back of this……mind boggling.
Lithium Brine Vs Rock
Brine deposits typically outperform hard rock and clay lithium sources on cost, permitting and sustainability. The recent technological advancements from other Lithium producers that results in increased lithium carbonate equivalent without requiring additional brine pumping is creating an even larger divide in the economics of Brine Vs Rock recovery methods.
OPEX of Brine recovery can be typically 50% of the cost of Rock, so when comparing some of the ASX Lithium hopefuls to the prospective land we are sitting on, it is NOT apples for apples.
Why Nevada?
As pointed out in the recent company PowerPoint presentation, outside of China, the 2 main regions in which Lithium Brine are currently pumped and processed are the Atacama Desert region in South America (Argentina, Chili and Bolivia) and Nevada in the US.
South American Brines typically contain high levels of magnesium, calcium and sulfates which all add to the processing costs, particularly if seeking to produce battery grade products. Brines in Nevada contain lower levels of these elements and compounds that interfere with lithium extraction, significantly reducing the cost of production.
Nevada has the some of the best Lithium to Magnesium ratios of all known deposits anywhere in the world, and for this reason, Nevada is the least risky destination for my Lithium investment dollars.
Other factors worthy of noting when comparing Nevada to South America are that Nevada is better supported from service companies (drillers, hydrologists, chemical engineers, surveyors etc.)
RLC’s projects make it one of the few ASX listed companies with property neighboring the only known Lithium Brine Basin with production in North America, the Clayton Valley Basin. So if EVER I have seen a small cap explorer who has potential to benefit from serious Nearology….its RLC.
Add to this the Tesla Giga factory development which includes agreements with the Nevada and Federal governments to take raw materials from mine-gate to motor vehicle from supply sources within North America. Which makes this area my number 1 pick of areas to invest in.
Furthermore, we have all read how Tesla has real supply issues around its need for top grade lithium…..so with RLC’s projects all sitting within 300kms of the Tesla Giga Factory, I think we are set for some real fireworks as the market reprices this small Australian giant in the making.
RLC’s Projects
RLC has 3 lithium brine projects with strong targets, Big Smoky South, Columbus Salt Marsh and Alkali Lake North. The Big Smoky South project is located 6 kms from North America’s largest brine operation at Silver Peak which has been producing Lithium since the 60’s and was purchased by Albermarle in 2015. Albermarle Corporation (ALB) is listed on the NYSE and closed on Friday at US$127.89, with a Market Cap of US$14.13B.
Whilst ALB is more commonly known as a Chemical maker and not a Lithium producer, it is the Lithium business that has given the company its growth over the last 2 years. Just last month ALB has again raised its guidance for 2017 year end. ALB is seeing significant momentum in its Lithium business and after the buyout of the lithium assets of Jiangxi Jianglis New Material Science and Technology Company has stated its goal of capturing 50% of the growth in the Lithium industry.
Expected repricing on lead up to drill result
The first drill will be at the Columbus Salt Marsh. We are going very deep with our maiden drill. Geoff believes there is a correlation between depth and lithium grade. We are going to drill a single hole to a depth of 1,000 meters to carry out pump testing and lithium sampling….so I am expecting big things over the next 12 weeks. Consider that there has been no previous drilling in any of our target areas.
The drilling has been designed based on the results of geophysical Magneto Telluric surveys which identified strong brine targets based on very low resistivity readings obtained.
Current register
Following the completion of the capital raise and issue of script to the vendors of Nevada Lithium Pty Ltd the company will have only 398,015,288 fully paid ordinary shares, which includes 20,000,000 shares issued as restricted securities.
By my estimate, research and discussions with management, I am of the opinion that the top 20 are all insiders and account for 54% of the register. This only leaves 46% of the register as free float. For a company with no insto support, I think the register will prove to be very tight, and with management owning such a large amount of shares, that they have continued to increase using their own cash, this is going to prove a very interesting next few weeks. And consider we were at 9.9c prior to the cap raise the other month….and now we a funded for the drill….we have lots of room to move as we approach the coming month.
We are fully funded for drilling in January, I believe this is the cheapest and most highly prospective Lithium stocks on the ASX. If you are serious about taking a position in a real Lithium hopeful with 10 bagger plus potential, then I suggest you contact our MD Geoff, who has been very generous with his time in explaining just how prospective and exciting the land we sit upon actually is. Whilst Geoff and the board have a style very different to the management style of some of the other Lithium explorers in that they are not releasing rubbish hyped ASX announcements designed to drive the SP north…one does get the sense that they have planned our future many steps ahead of what looks like a make or break drill in mid January. I have met and spoken with hundreds of company CEO’s over the last 20 years, and think that I am pretty good in spotting a spruiker. However I must say that Geoff strikes me as being very smart, and very very strategic…much like a talented chess player who is always playing the game a few moves ahead in his mind.
This reminds me of the early 90’s, as a junior analyst keeping a watchful eye over Twiggy Forrst at Anaconda Nickel where he took that specky to such heights, to then start all over again at Fortescue Metals (FMG)…when there was simply no way that stock was anywhere near investment grade, yet everyone just knew he was going to pull it off….right management team, right mineral at the right time….and the rest is history. This story has a similar look and feel to me right now.
And most importantly, hardly anyone on HC is watching this.
Happy New Year to you all.
10x
RLC Price at posting:
6.3¢ Sentiment: Buy Disclosure: Held
(20min delay)
