European Metals Share Discussion Threads

[sambuca] 23/2/2017 19:24

A word of caution make of it what you want from Dominic Frisby.

Warning: don’t touch lithium with a ten-foot bargepole
From Dominic Frisby, across the river from the City

Today’s Money Morning comes with a stark wealth warning.

Avoid lithium.

It could seriously damage your wealth.

Here’s why.

Lithium stocks have gone crazy

This story starts, like many a splendid afternoon, with a good lunch. I’d been invited to hear a lithium company present.

When I say “lithium company”, I mean a company that is developing lithium assets with a view to eventually producing lithium. (Most of the world’s lithium is extracted from brine through evaporation and electrolysis, while some is produced by crushing, roasting and leaching rock – spodumene rock, to be precise.)

The company is looking to raise some money. I took a look at the chart.

In early 2016 it was 6c. By September it had hit $2.50.

OMG.

I then had a potter through the charts of some other lithium explorers and developers. Pennies have become dimes. Dimes have become dollars. There are five and ten-baggers all over the shop.

The price of lithium carbonate and lithium hydroxide (you can’t sell pure lithium as it has a tendency to explode) has, meanwhile, more or less tripled.

Goodness me, I’ve missed out here. Quick! Jump in?

Not so fast.

I get the lithium story. It’s the fuel of the cleantech revolution.

Fifteen years ago its main uses were in ceramics and glass, lubricants, and aluminium and rubber production. Battery technology accounted for just 5% of the 70,000 tonnes of annual demand. Now battery technology accounts for 40% and annual demand is 163,000 tonnes.

According to Deutsche Bank, the market is set to triple by 2025 to 534,000 tonnes. Lithium demand for electric cars, e-bikes, and energy storage is going to rise rapidly. Energy storage and electric vehicles are the big drivers. One electric car alone requires 63kg of lithium. Where’s all the supply going to come from?

Cue a massive rush into lithium exploration and development stocks.

One microcap gold explorer I follow had been going nowhere for years. Suddenly it doubled. And it kept on going on up. How come? Then I found out it’s now a lithium play. And it’s not stopped going up.

I’m getting a sense of deja vu

We’ve been here before, folks.

Every few years a commodity comes along which is going to save the world in some way. Demand is going to balloon and there’s no supply, because people have been ignoring it for so long.

I’ve seen it happen in uranium, in silver, in palladium, in rhodium, in rare earth metals, in potash, in graphite. It even happened in lithium a few years back (so much so that I totally underestimated how high this particular rocket could go).

There is a mad rush to acquire exploration assets in that particular commodity. Last year’s rare earth metals company rebrands itself as this year’s graphite company.

Strategic Total Focus Uranium (STFU) is suddenly Outreach Max Graphite (OMG). The suspiciously white-toothed CEO regurgitates a load of spiel about this new critical commodity, investors pile in blindly and the CEO then goes prospecting on his yacht off the coast of Guadeloupe.

And the thing is, if you get in early – and you get out – you can make a shedload of money. But if you don’t get out, you get crucified. It’s greater fool theory on steroids.

Who remembers uranium?

That was probably the biggest bubble of the lot.

For years – decades – uranium did nothing and went nowhere. Then in the early 2000s the oil price started rising and rising. It was getting rather expensive. Alternatives were going to be required. Then there was the rise of China. It was investing heavily in nuclear power stations.

The uranium price started moving up. Then the Peak Oil narrative took over. The world is running out of oil. “Nuclear power is the only thing that is going to save us!”

Prominent newsletter writers as well as the media all jumped on to the story. And everyone believed it. They always do with bubbles. They believe it because there’s a lot of truth to it – just as there’s a lot of truth to everything you read about lithium now.

In June 2007 uranium peaked. The price of uranium itself had gone from about $6 per pound to more than $150. There were hundreds – I mean hundreds – of uranium exploration companies. No more than a dozen had assets with a reasonable chance of becoming producing mines.

One company I followed – Laramide Resources (LAM.TO) – was (and remains) a legit uranium exploration and development play, with two or three genuine properties. Its stock went from one cent – yes, C$0.01 in 2002 – to C$16.70 by spring 2007. It went up by even more than bitcoin.

Then it came down again.

In 2016, with the assets now further developed than they were in 2007, it touched C$0.14.

The same thing is going to happen to lithium.

If you’re in lithium, have an exit plan. If not, look for the next big thing

I don’t know if we’ve already seen the peak, or if there is going to be another surge up. Nobody knows. But I can tell you with utter surety that the bottom is going to fall out of the lithium market.

It’s a bubble – same as uranium, rare earth, rhodium and graphite all were. Like all bubbles, there is an utterly compelling story at the heart of it.

If you’re in, lucky you, clever you, well done you. I wish I was, and I’m cross with myself for missing out. A bubble is a bull market in which you don’t have a position, I often say. I’ve missed it. More fool me.

But at least I can see this for what it is.

You should now have your exit strategy clearly mapped out – and you should certainly have taken your original stake and some profit off the table.

If you’re not in, you should stay away.

You want to make megabucks? Work out what the next go-to commodity is going to be, the next commodity to save the world. Cobalt, maybe? Phosphate? Titanium?

Any ideas, please post them in the comments section on the website. I’d be glad to hear them.

Until next time,

Dominic Frisby
MoneyWeek

Sam

[banshee] 23/2/2017 13:34

I reckon the BCN involvement was dreamt up by REM BCN and EMH between them when the price of EMH was in the low thirties, in which case it would have boosted EMH - by the time the paperwork was done and the price of EMH had moved on to 80p though, it was more of a nuisance than a benefit.

[runthejoules] 23/2/2017 09:03

SPread up to 3p on HL. Had hoped TESLA news would boost this more...

[bookwormrobert] 23/2/2017 07:47

Shares fell heavily on ASX overnight - now $1.12AUS or 69p.

[myst1] 23/2/2017 07:23

Proactive article:

European Metals has a large, low-cost, lithium project right on the German border
Share
12:39 22 Feb 2017
European Metals now has the largest lithium resource in Europe
European Metals has a large, low-cost, lithium project right on the German border
Drill core from Cinovec
How many ten-baggers have there been in mining over the past few years? These have been lean times, so you’d think the answer would be not many, and you’d be right.

But European Metals Holdings Limited (LON:EMH) (ASX:EMH) is the exception that proves the rule, or just about.

Shareholders who bought in at the time the shares listed on Aim are now sitting on nearly seven times their money, as the price has rocketed from 10.75p on the first day of dealings in December 2015 to 75.25 now.

Whether many shareholders actually did buy in on that day is open to question, since the company already had an Australian listing, and in subsequent months the shares came under some pressure on the downside as liquidity dried up after some initial enthusiasm.

By February of 2016, they had drifted to 5.125p.

But what a turnaround since then. The lithium market was already flying, but it was at that point that European Metals started to post really encouraging news from its Cinovec project in the Czech Republic.

There was an announcement on metallurgy, following a A$1.75 mln fundraising, and suddenly the shares started to move – to the point where European Metals had to issue a statement to say that was “not aware” of any reason for what it called the “significant increase” in the company’s share price to 14.75p.

There was a lot more to come after that though. In the months that followed, as lithium continued to ride high in investors’ minds, with talk of Tesla, electric cars, ballooning battery use and lithium brine companies popping up all over Canada, European Metals made steady progress at Cinovec.

In May there was a drilling and resource update, in July an update on pre-feasibility work, in September news of likely capital cost savings that run to the tune of US$85 mln.

Fast forward into February 2017 and the latest round of drilling at Cinovec has been completed, the company is making moves towards securing a mining license, and chief executive Keith Coughlan is feeling distinctly upbeat. The resource has just been established at nearly 11 mln tonnes of lithium carbonate equivalent.

“We’re within two months of finishing our pre-feasibility study now,” he says. “And at that point we’ll be able to show hard numbers. The key things will be the net present value, the capital expenditure and the operating costs.”

And it’s here, in the realm of costs, that Coughlan reckons European Metals has a real advantage.

Because while Cinovec is relatively low grade, the costs of getting lithium carbonate out of the ground will be very low indeed.

That’s because the type of ore that hosts the lithium at Cinovec is mica, while most other hard rock lithium deposits are hosted in spodumene, and it takes more heat and more reagent to extract value from spodumene than it does from mica.

“We don’t have to heat it to anywhere near the same temperature,” says Coughlan. “That means our operating cost is going to be very much in the bottom end of the global cost curve.”

And given the size of Cinovec, that should make for quite some operation. “We have the largest lithium resource in Europe,” says Coughlan. “We have the fourth largest non-brine resource in the world. And it could be bigger, but we’re not bothering with that for now.”

The location is ideal too. The Czech Republic is a relatively benign operating environment for miners, but perhaps more significantly, Cinovec sits right on the German border. And who’s going to be buying lithium by the crate-load? – German carmakers.

“At the moment,” says Coughlan, “the lithium market has pretty much been cornered by the Chinese. Europe is going to have to get into it from other sources. And we have a large, low-cost, long-term source of lithium right on the German border.”

Money will be needed, of course, to build the mine, but here too Coughlan is pretty confident.

“The numbers are compelling so I don’t see any problems getting that money raised,” he says. “Once we’ve done the pre-feasibility study we’ll roll straight into the bankable study and then raise the money to build it. The capex will be pretty inoffensive.”

After that, construction is likely to take between 12 and 24 months, at which point European lithium supplies will become that much more secure. And in a world where protectionism is making a sudden and rapid return, the importance of that may come to be much more widely appreciated.

[wrtmf] 22/2/2017 23:23

agreed melody.

in a similar vein, bacanora [funnily enough], didn't tie up all the sonora prospects, because alix resources and lithium australia took on tecolote and tule to the north/south and on lithium bearing trend.

details here, [old article - see map]


in a further twist, he he he, emh and lithium australia for a time had working relationship on the metallurgy front. lol, these lithium companies sure like to swing.

recap
emh/bacanora = neighbours
bacanora/[alix + lit aus] = neighbours
emh/lit aus had a fling!

[melody9999] 22/2/2017 19:24

I suspect its wrong for us to criticise our BOD when we do not know about the situation. Maybe they did look at Cinnwald and decided no for a particular reason. Does every shop in the high street buy the shop next door just because it is for sale?

More important is that you focus on delivering something rather than expanding the possibilities - especially when you are comfortable with the size / quality of your existing asset. And the market will be large enough for multiple players.

[banshee] 21/2/2017 20:44

BCN did not pay 35 million, that is just spin, they paid 5 million for 50% with an option to buy the second 50% at 30 million, which is rather different, and much nicer from BCN's point of view.

If they don't like the results, or if resource prices fall, they can negotiate the price down, regardless they get to keep their 50%. They can also take up in 2 years and/or sell on immediately at a higher price with minimal cash being tied up in the meantime.

This small expenditure will make cash raising for their other projects significantly easier, and pay for itself in that way alone imo.

[ahbroad] 21/2/2017 20:01

What, like tin?!

LMFBO

[bookwormrobert] 21/2/2017 19:41

Myst1 - It all depends on how you look at things. Cinovec is nearing completion of its preliminary feasibility study, not even its definitive bankable feasibility study, but EMH's market cap is 95 million pounds. If this was any other metal than lithium, things would be very different indeed.

[myst1] 21/2/2017 18:57

Bookworm,

I can't believe you see this as negative. It just endorses the value of Cinovec.

See copy of tweet below from David lenigas (REM):

Interesting to see BCN just bought in to the smaller part of the Cinovec Lithium deposit for a stonking €35m. Makes Cinovec really valuable.

The BCN deal on mini Cinovec makes EMH's Cinovec worth a massive amount. And @CzechLithium has tin! @keith_coughlan All good for @RareEMplc

EMH is CHEAP!

[runthejoules] 21/2/2017 18:25

Should have been easy to raise €5m to stop the competitors even if they've got no money themselves! But for processing etc this may turn out to be a good thing in the end.

[rafboy] 21/2/2017 18:19

Emh still has the lithium and tin underground. It is still worth a very significant sum. They didn't need to buy across the border.

[ahbroad] 21/2/2017 18:13

Get over it bookworm!

[herschel k] 21/2/2017 16:39

I think we heard you the first ten times bookworm..........

[bookwormrobert] 21/2/2017 16:32

If Cinovec is good then Cinnwald is good. It's the same deposit - just cut in two by a national border. Cinnwald is only partially explored, but its probably about 1/2 the size of Cinovec (rather than the figures quoted on this bulletin board). Speaking for myself, I think EMH's board has really screwed this up.

[luisfrg] 21/2/2017 16:19

Madness that people are selling...so short sighted

[herschel k] 21/2/2017 16:18

surely then banshee, the question bookworm should be asking him/herself is.......is Cinnwald actually any good then?

H

[banshee] 21/2/2017 16:01

Any potential bidder could have had 50% of Cinnwald for a few million Euros though, a trifling sum. I imagine Cinnwald themselves would have preferred a serious player to BCN as partner, but it seems no-one else was that motivated.

[ahbroad] 21/2/2017 15:58

doesn't make a blind bit of difference. The resource is completely different in terms of size, and economics (not to mention programme).

I think EMH have done the right thing here, and this only goes to show the value in what they have (and are progressing rapidly)

[bookwormrobert] 21/2/2017 15:45

For myself, every which way I turn today's announcement about Cinnwald, it seems to me highly beneficial to BCN, and a bad mistake by the EMH board. They've lost the exclusivity of their appeal. Now every company proposing to take EMH over will bargain EMH's price down by threatening to put their money in BCN / Cinnwald instead. Not good.

[banshee] 21/2/2017 15:14

Certainly if it had been our Serbian friends RTZ or similar, it would be seen as both a high quality validation of EMH and an obvious precursor of a bid. We'd be up 50% by now, from BCN though, it merely muddies the waters.

[bookwormrobert] 21/2/2017 13:09

Hi Banshee! Care to speculate on your own question?