I love to find off-the-beaten track investment opportunities.
OK, most of my portfolio consists of nice, safe, steady investments.
But at the same time I can’t resist the chance to make a lot of money quickly. I mean, who can? So I like to spice things up with a bit of a punt every now and then.
Of course there are risks – often big risks – with this type of situation. But hey, we all need a bit of zing in our lives, don’t we?
So, let me tell you about something I’ve discovered that’s got me pretty fired up.
It’s a mining opportunity. (Yes, yes, alarm bells all round, I know.) But it’s not just any old mining opportunity.
I’m not exaggerating when I say that this is probably the most exciting mine project that I’ve ever seen.
Haven’t heard of lithium? You will soon
If you’ve been keeping up with the last few Right Sides, you’ll know why I’m hot on lithium at the moment. It’s a key ingredient of the high-tech batteries used in everything from smartphones to electric cars. Manufacturers can’t get enough, and demand is rocketing.
That makes me want in – but investing in lithium isn’t easy. It’s traded in an unregulated market by big industry players.
That’s why, as I wrote recently, I think our best bet is to invest in the miners who get it out of the ground. And this is where it gets interesting.
Right now, there’s a chance to invest in what could be the most significant lithium find in the world.
Of course, there are risks. But let me give you the background, and you can make your own mind up.
Hitting the mother lode
There’s an increasingly dynamic global market for lithium, driven by new and growing uses for the metal. That’s attracted a serial entrepreneur and resource specialist by the name of David Lenigas. Lenigas has put together and sold resources businesses for billions – but it’s his latest company that really interests me.
Lenigas established Rare Earth Minerals (AIM: REM) to invest in rare earth projects across the globe. The company has had its ups and downs, but right now it’s definitely on an up.
That’s because it’s heavily involved in what many industry insiders suggest could be the biggest lithium find in the world.
The only thing is, not many people are aware of it.
Right place, right time
A big find of a metal in increasing demand… and no one’s cottoned on yet. Sounds good. But there’s something else to it that’s really caught my attention.
You might remember from my last Right Side that US electric car manufacturer Tesla is set to supercharge its lithium-ion battery production.
It plans to double global production over the coming years. To do that, it’ll need to railcar tonnes of lithium compounds straight from the mine to newly-established factories. The planned ‘gigafactories’ will be either in Texas, or California (or both).
And well, wouldn’t you know it – REM’s interest in the massive lithium deposit I just mentioned lies in the Mexican province of Sonora, just 150 miles south of the US border.
As far as these things go, this is as close as you could wish for. And a deal with Tesla could propel this company into the stratosphere.
The potential is mind-boggling
The lithium deposits in Sonora owned by REM through its joint venture partner Bacanora Minerals – a stock listed in Canada. But REM has big stakes in the areas where lithium deposits have been identified. Basically, REM funded drilling in return for an equity stake – and boy oh boy, those drill results came in good.
I’ll focus on the three mine areas of Sonora that have been evaluated. But you should be aware that there is more drilling and more results to come. These are: La Ventana, El Sauz and Fleur. REM currently owns nearly 10% of La Ventana, and the economic assessment suggests that with an investment of $114m, the value of La Ventana is $848m. This assumes lithium prices stay the same and a 20-year economic life for the mine (both conservative assessments in my opinion).
In the areas of El Sauz and Fleur, REM has a 30% direct holding. Inferred resources amount to 88m tonnes of ore, meaning nearly 1.5 million tonnes of LCE.
That’s over one and a half times La Ventana… and that was itself worth nearly a billion dollars!
Bear in mind that these guys are open pit mining lithium carbonate below $2,000 and the stuff sells north of $6,000 a tonne. If Bacanora was to sign a contract with Tesla (or anyone for that matter), I would think it would have no problem raising the finance to put the mine into operation.
There could be even more to come
Let me please put in a big, big health warning at this point. Many things could go wrong from here. The fact that these guys have struck it big doesn’t necessarily mean they’ll be able to convert the project into real cash flow. There are obstacles in their path.
But as you look at those figures, bear in mind that London-quoted REM is currently only worth around $35m. You can use the numbers to work out for yourself what they could be worth in due course.
Of course, there is a lot more to REM that I haven’t included in this very brief resumé. I haven’t even touched on its other investments in the US, Australia and Greenland.
Something to bear in mind is that drilling at Sonora is ongoing. There’s more to come, they just haven’t published any assessments yet.
There will also be many more minerals and compounds produced as by-products, like ‘drilling mud’, a mix of clays, chemicals and water which is in high demand by the fracking industry (for more on fracking, check out this link).
At last, good news for the mining industry
I would be delighted to delve deeper into this investment – and indeed of the possibility of investing directly in Bacanora, the Canadian company. Consider this an opening gambit.
This is an investment I’m more than happy to dip my toe into. There is massive potential here, but there are certainly risks too, as I hope I’ve made clear.
Whatever happens, you can expect to hear much more about REM and Bacanora here at The Right Side over the coming months.
If I were you, I’d take a good look at REM’s website. Have a look at the various projects and see what you think. And as always, feel free to leave a comment below – I’d like to hear your thoughts.
I’ll leave you with this thought: the mining industry is in tatters, especially the smaller pioneers. Nobody wants to hear a good news story right now. But I’m quite sure that REM’s will out in the end.
The only question is: who’s going to get on board before it does?