I know I keep saying it, but things really are getting quite exciting for our lithium play in Mexico. Lithium is an element that is and will continue to play an increasingly vital role in our lives.
There is huge and growing demand for this metal – it’s in all those rechargeable batteries that you find in everything from smartphones to electric vehicles.
And as an industrial resource, lithium production is tied to a handful of players. It only makes economic sense to extract the metal in a few specific geographic locations, where the lithium is both plentiful and easily extracted.
The massive new find in northern Mexico seems to tick all the boxes for economic extraction. Only thing is, nobody seems to care. As excellent drill results were released over recent months, the market gave a collective “couldn’t care less”.
And that’s exactly the issue I want to look at today.
What we have here is a classic example of a small stock, trading in a thin market, that is just not being picked up by the investment community. And that spells opportunity.
When great news is simply ignored
Let’s first remind ourselves about our lithium play. Rare Earth Minerals (AIM: REM) is a London-listed investment company. It has a significant stake in a lithium resource in Mexico owned by its joint venture partner, Bacanora Minerals (TSX: BCN). If REM is the investor, then BCN is the miner at the coalface, so to speak.
Recently BCN announced plans to list its shares on London’s Aim market. And I’m not surprised, because the Canadian markets seem to ignore everything that’s going on with this business.
In the last three months, BCN has issued at least ten important news releases. And yet, the market barely reacted.
And I’m talking about big stuff. Stuff such as new drill results that find not only more and more lithium, but better grades too. Another news release detailed the fact that BCN can produce the all-important battery grade lithium, seemed to fall on deaf ears.
What about the fact that the company is close to putting together a borate mining programme, the fact that they could be making decent profits from ‘drilling mud’ – a by-product of the mining process – and nobody cares.
To top it all off, we’ve seen countless new releases relating to new financing arrangements – and more monies to do more drilling. Again, anybody taking any notice?
With these sorts of news releases, I would have expected trading volumes to go through the roof. Yet the numbers of shares transacted in Canada has been pathetically low.
BCN management must have been perplexed as its joint venture partner in London rallied hard as the Canadian releases came. Of course, REM have a significant chunk of exposure to the Mexican lithium story, but BCN has much more – maybe five times as much!
Now, don’t get me wrong, over the course of 2014, BCN has near-on doubled. And you’ve got to remember, these sorts of stocks are extremely risky. There’s a very real risk that investors lose everything – all you need are some bad drill results.
But if positive results emerge, share prices regularly double, quadruple and much more.
Frankly, if Canada’s listed mining industry wasn’t in such a sorry state, I believe BCN’s share price could be at least double, or triple what it is now.
And let’s face it, probably the only reason BCN has put in a semi-respectable performance is because REM itself has been scrambling to buy its shares in the market.
REM’s management must be looking on wondering the same thing as me: Why on earth is nobody taking any interest at all in the amazing story that is BCN?
The latest on the London listing
As part of the exercise of bringing BCN to Aim, the listing will also include a fund-raising to the tune of £4,750,000. As well as covering costs, this will provide funding to bring the borates project to pre-feasibility and further establish the potential for the lithium project.
We have to bear in mind that this is still a company at the early stages of development – there’s plenty of work to do before production is in place.
That said, given the fantastic profitability that could be in play with both the borates and the lithium projects, then if they were already producing, this thing would be trading at many multiples of today’s price.
It’s also worth considering how far this company has come in a short space of time. And that will be a story its new City PR firm Buchanan will be sure to be getting out in the months ahead. There’s a backlog of news yet to be absorbed by the market.
BCN’s shares are currently trading at around 69 Canadian cents. The fund-raising is expected to be done at 60.5 cents – though unfortunately isn’t open to the public.
When the shares list in London – which I hope to be soon, I expect to see them trading somewhere in the region of 38p – the sterling equivalent of its current price.
However, as the company starts to get the message out, that’s when things could get interesting. If and when the company brings forth news about the commercialisation of its projects, that’s when the fireworks really go off.
Now with a higher profile London listing, and a dedicated PR team, I would hope the message starts to get through loud and clear. I’ll let you know when the shares are available to trade in London. I would think this could be a risky, but great stock to tuck away for the medium term.