Nemaska Lithium (NMX:TSXV) has climbed the TSX Venture ranks and left most of its junior resource counterparts in the dust over the past two months.
The lithium exploration company announced last week it is preparing to finance its project and build a mine amidst heightened demand for its potential lithium hydroxide product. Today I’m going to look at some of the more obvious factors which led to Nemaska’s recent success.
Nemaska Lithium outperforms on TSX Venture
Nemaska Lithium (NMX:TSXV) has climbed the TSX Venture ranks and left most of its junior resource counterparts in the dust over the past two months. The lithium exploration company has announced it is preparing to finance its project and build a mine amidst heightened demand for its potential lithium hydroxide product. Today I’m going to look at some of the more obvious factors which led to Nemaska’s recent success.
On July 3rd Nemaska Lithium traded for $0.16 per share. The company’s shares have doubled in the past two months on increasing volume in August and early September, rising to a new 52-week high of $0.35 per share today.
Why do some projects get approved while others fail? How does one junior resource company gain attention, interest and respect from the markets when others go unnoticed and fade away? While the answer is multi-pronged and not always clear, three necessary components are timing, location and strong management.
Nemaska has advanced its key asset, despite the worst bear market in Canada’s small-cap sector due, in part, to 3 key reasons: strong communication, an ‘in vogue’ commodity and a mining supportive jurisdiction in Quebec.
Lithium: a story of rising demand
Timing in respect to advancing the right commodity at the right time can be everything. Nemaska has been fortunate as interest in lithium has remained high and increased in recent years, despite a collapse in the general commodity market. As you can see from the below graph, demand for lithium in batteries constitutes much of the market.
The company provides a detailed breakdown of demand within the lithium sector on its website. Nemaska writes on its website that:
“Battery grade lithium hydroxide demand is forecasted to grow by 30% per year from 2012 to 2020 – driven by the electric vehicle industry, electric storage and the increase in total demand from all applications.”
source: http://www.nemaskalithium.com/en/Markets
Increasing prices, usually follow an increase in demand, which has been the case for lithium over the past few years. Rising demand and rising prices for the said commodity are two things a junior resource company cannot control, but are paramount to overall interest and the said juniors chances at securing financing and ultimate success.
Look at crude oil prices between 2011 and 2014; oil and various natural gas plays, such as the Montney formation, were a great place to be as oil traded north of $100 per barrel. Try looking up some of those high flying junior oil stocks today and its tumbleweed city.
image source: http://www.infomine.com/investment/metal-prices/crude-oil/all/
Quebec: a mining jurisdiction to watch
In Nemaska Lithium’s latest press release from September 4th, Guy Bourassa, President and CEO stated:
“Quebec is an excellent jurisdiction in which to build a mine, in particular the Eeyou Istchee James Bay region. Since the beginning, our project has been supported by the various Quebec exploration funds…”
And that,
“Whabouchi is the only permitted lithium project within the Eeyou Istchee James Bay territory…”
Click here to read the entire quote and full press release.
While a lot of junior resource company CEOs talk up their respective jurisdictions, reviewing how a Province or country fares against other regions of the world can be very telling.
The Fraser Institute Annual Survey of Mining Companies, for 2014, which was released in February of this year, shows Quebec rising in the ranks. The Institute rates 122 jurisdictions around the world based on their geologic attractiveness and the extent to which government policies encourage exploration and investment.
Kenneth Green, Fraser Institute senior director of energy and natural resources, made these comments in regards to Quebec’s rising notoriety:
“Quebec was atop the national and international rankings from 2007 to 2010 but tumbled down the list in recent years as a result of increased red tape, royalty hikes and uncertainty around new regulations.”
He also stated that:
“The confidence mining executives now have in Quebec is due in part to the province’s proactive approach to mining policy and its Plan Nord strategy to encourage investment and mineral exploration in northern Quebec.”
source: http://www.marketwired.com/press-release/fraser-institute-quebecs-mining…
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As most industry pros know, staying at the top for too long in anything is a recipe for disaster. Speaking with a friend and colleague this morning, whose key asset happens to be located in Quebec, reminded me of this fact. Higher taxes and more scrutiny are usually what follows.
Simply put, if you are invested in a specific jurisdiction, you should know how it fares against other jurisdictions, nearby and far away, that might be competing to supply that same commodity. Also, location is more than just about getting pay load out of the ground; it is about refining it in a cost efficient manner and delivering it to end users. If all the end users for lithium happen to be located in Australia, then a slightly more expensive mine in Australia will win out against one in Canada every time.
Another way to look at supply and demand is to say, for example, if China produces 50% of the world’s lithium and consumes 50% of the world’s lithium, the said company not located in China really only has half the global market to compete for. Who is producing what and who is consuming what when it comes to niche minerals or commodities is vital to understand.
Nemaska: explains the lithium sector
While some, perhaps more well-known commodities, don’t need explaining, Nemaska has been proactive about its approach to educate its prospective and current shareholders. Check out this excerpt from its June 8th press release:
“Lithium hydroxide is currently the battery chemistry of choice for many battery manufacturers, including Tesla Motors. Unlike many other commodities, lithium hydroxide has increased in price from US$8000/t in 2014 to US$9,500/t in the first half of 2015. Future demand for lithium products remains strong into the foreseeable future. Five new lithium battery megafactories are scheduled to be on line in 2021. Simon Moore, of Benchmark Intelligence, estimates these megafactories will represent total new capacity of 87 GWh requiring an additional 70,000t – 100,000t of lithium carbonate equivalent by 2021.”
In that same press release, Nemaska clarified that:
“Nemaska Lithium is currently the only company with a process to go directly to lithium hydroxide from concentrate. All other manufacturers of lithium hydroxide currently produce lithium carbonate first and then transform it to lithium hydroxide.”
Click here to read the entire press release.
The company clarified on September 4th that “the selling price of lithium hydroxide has increased and currently sells for over $8,500/t.” So, while lithium prices have declined, some $1,000 from the June price of $9,500, they are still up on the year.
Below is a more in-depth look at the lithium market and the various demand projections taken from Nemaska’s website:
source: http://www.nemaskalithium.com/en/Markets
Nemaska Lithium delivers clear message in press releases
Nemaska Lithium has separated itself from other juniors in that it has released continuous, relatively straight forward press releases that are easy to understand. Nemaska has released 6 press releases since June 8th – not bad for the summer months – in what has been a wretched period for commodities. This alone, the fact the company was staying active, represents the development of an in demand asset. In a June 8th press release the company reported that:
“Mr. Bourassa will explain Nemaska Lithium’s proprietary process and how the company is projecting to make the highest quality lithium hydroxide product at the lowest cost.”
Click here to read the entire press release.
That’s pretty easy to understand. Bourassas spoke at the New York Society of Security Analysts’ 16th Annual Metals and Mining Investment Conference on June 9, 2015 and at the 7th Lithium Supply & Markets Conference at the Andaz Xintiandi in Shanghai, China. Again, proactive management.
In today’s market, few junior resource companies are speaking at conferences in China. This was another clue that demand for lithium and lithium hydroxide, along with the advanced stage of the company’s assets, warranted additional exposure.
Nemaska Lithium: next stop project financing and mine construction
On September 4th Nemaska Lithium announced that it has received the General Certificate of Authorization (CA) for the Whabouchi Project from the Quebec Ministry of Sustainable Development, Environment and The Fight Against Climate Change.
The company reported that:
“The CA is the most significant permit for mining projects in Quebec and allows Nemaska Lithium to pursue project financing discussions to start mine construction.”
Bourassa continued, “We are very encouraged by the continuous strengthening in demand for lithium compounds in particular lithium hydroxide which has seen a double digit increase over the past 18 months. Also the selling price of lithium hydroxide has increased and currently sells for over $8,500/t.”
Click here to read the entire quote and full press release.
Nemaska Lithium last traded at $0.33 per share Tuesday on over 1.25 million shares at 11:49 AM EST, two cents from its 52-week high.
The market has differentiated Nemaska Lithium from its peers due to the strong lithium and lithium hydroxide market and the steady advancement of its Whabouchi Project, during the worst junior resource market in history. Remember, on September 4th the company stated that: “Since the beginning, our project has been supported by the various Quebec exploration funds.” This was a key pillar to Nemaska’s success as this type of support from a strong mining jurisdiction such as Quebec has proved invaluable for junior lithium explorer so far.
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