Canadian Stock Exchange
Silver Is Sweet And Lithium Is Lovely – make sure you own some
Canadian Stock Exchanges - E. A. Schiller
With year end around the corner, New Years’ resolutions are in order and from snow covered Kelowna, British Columbia here are some of words of wisdom in preparation for 2011. To achieve success in investing I will pay more attention to commodities that have applications not fully recognized and try to identify companies exploring, developing or producing these commodities.
I recently attended a conference on rare earths and lithium projects and studies in Victoria, B.C. and it was very obvious that minerals comprising these elements are on the radar screen of many companies worldwide. This trend was evident this past year at the Prospectors and Developers Convention in March, in Toronto and the Round Up in January, Vancouver where rare earth and lithium banners were seen on many company booths and undoubtedly will be replicated in their 2011 sessions.
Rare earth elements have a wide range of applications in alternative energy and defense technologies, including fuel cells, rechargeable batteries, hydrogen storage, radar and stealth detection and currently their most popular application as permanent magnets used in electric and electric-hybrid vehicles. Lithium ores are processed into three principle products - as a carbonate, a hydroxide and a metal.
Batteries are the most prominent application but it is used also in pharmaceuticals, ceramic glasses, aluminum-lithium alloys, lubricating greases and dyes. The cell phone revolution is here and pretty soon almost every breathing human being will own one and consume these elements in their telephone apparatuses. The top dog of lithium stocks is Sociedad Quimica Minera de Chile (SQM- NYSE) with solar or playa deposits in Chile and producers of lithium carbonate, lithium hydroxide and lithium metal. In May of this year it was $31.50 US and in late November it was trading around $51.40 US. In late 2008 SQM was trading around $15.00.
Potash Corporation of Saskatchewan (POT-TSE and POT-NYSE) owns 32% of SQM. This interest which has significant value was not mentioned in the recent failed takeover of BHP of POT. Companies exploring for lithium range from those evaluating solar deposits in Argentina and Bolivia like Orocobre Limited (ORL-TSX-V) trading at $2.75 and Dajin Resources (DJI-TSX-V) trading at 23 cents and in Nevada several companies are exploring similar deposits.
The second type of lithium deposits is found as the mineral spodumene in pegmatites generally in Precambrian terrains in Canada and elsewhere. In Quebec, Canada Lithium Corp (CLQ-TSX & CLQMF-US OTCQX) is completing a definitive Feasibility Study on a spodumene-pegmatite project near Val d’Or which would lead to construction of an open pit mine and processing plant capable of producing by late 2012 approximately 43 million pounds of battery-grade lithium carbonate. The company has an agreement with Japanese metals trading firm, Mitsui and Co. Ltd. CLQ stock trades around $1.39 up from 50 cents in mid- 2010. The stock responded favourably to the announcement that BlackRock Inc. (BLK-NYSE) , with $3.5 trillion under company management underwrote a $10 million financing of 12.5 million shares at 80 cents.
Close behind and pursuing the same kind of deposit is Nemaska Exploration Inc. (NMX-TSX-V) currently developing their Whabouchi spodumene -rich pegmatite in the James Bay region of Quebec. They announced in November that they successfully produced Li2CO3 grading 99.96 %; from a one-tonne sample from drill cores. The results from the lithium carbonate samples confirm that all specifications for trace elements are met and that this a premium product, worth approximately $2.00 /kg more than the standard 99.5% grade at present market prices. Nemaska stock trades around 50 cents up from the mid-thirties a few months ago.
My next resolution is to pay more attention to precious metals, especially gold-silver ratios. We all think of gold as the premium of metals and most gold bugs buy coins from Canada as Maple Leafs (24 karats) and Krugerrands (22 karats) from South Africa or US Americans Eagles (22 karats) or American Buffalos (24 karats) as a safety net against currency fluctuations. Historically the Au/Ag ratio has been around 15 and now is around 50 so for the inbalance to get on side should see silver rise in price inordinately more relative to gold.
Silver has come front and center and it is no longer the poor kid on the block but the metal with considerable industrial usage and not a bad metal to have in bars and coins under your mattress. So how do we approach taking advantage of this potential “uber metal”. If you have a strong box in your cellar you buy the metal in bars or coins or go to the coin shop or bank or buy equities in producing silver companies or the now popular ETFs that now include those that hold common shares of silver producing companies.
Silver, coined the ‘white metal’ in contrast to the yellow metal is “red hot”. Silver has risen 55% this year whereas gold has risen only 20% this year. There are several outstanding silver producing stocks including Pam American Silver Corp (PAA-TSX) and Silver Wheaton Corp (SLW-TSX) with gains of $20.00 in February/010 to $36.80, and $10.00 in February/010 to $36.00 in November, respectively. Pan American has seven producing low cost silver operations in Mexico, Peru and Bolivia. Silver Wheaton has 15 silver purchase agreements and two precious purchase agreements in exchange for upfront payments providing the company to buy precious metals at a discount to prevailing prices, in addition to producing silver mines in Mexico and South America.
Juniors looking like eventual producers include Orko Silver Corp. (OK-TSX-V) and Orex Minerals Inc (REX-TSX-V) both of whom have seen significant price increases this year. Orko is developing one of the world’s largest silver deposits, La Preciosa with partner Pam American Silver, located near the City of Durango, Mexico. Indicated resources are quoted at 68.9 million ounces of silver equivalent and inferred resources of 77.6 million ounces of silver equivalent. In 2010 Pan American has budgeted $10 million for the exploration and development of the project and working towards completing a full feasibility study by year’s end. Orko stock trades around $2.40 up from around $1.00 in February. Orex is exploring a property in the Coneto Mining Camp, north of Durango where 400 years of mining has taken place and believed to be under-explored. Over 40 veins of silver and gold are under investigation. Orex stock trades around 85 cents up from 30 cents in September.
One of my favourite gold stocks did a lot of glowing since the last issue and for those who paid attention will note that Gold Canyon Resources (GSU-TSX-V) soared from 70 cents in September (30 cents in August) to over $2.00 in late November based on the release of three drill holes on their Springpole gold property northeast of Red Lake, Ontario. Hole SP10-024 intersected 225 meters of 1.48 g/t Au, including 47 meters of 3.47 g/t Au. Hole SP10-019, 50 meters to northwest of hole 024 intersected 307 meters grading 1.44 g/t Au. These holes in addition to others were drilled to test the Portage Zone now determined to be 950 meters in strike length. The Gold Canyon story is the cinderalla story of Canada and a credit to the company that remodeled the geological thinking of the project to what appears could be a large gold deposit.
With uranium prices exceeding $60 a pound we have to mention something about another uber commodity. The Chinese are buying uranium from Cameco big time and the stock responding appropriately at around $38.00 up from $26.00 in September. All the juniors active in Saskatchewan and to the north in Nunavut are likewise pleasing shareholders such as Hathor Exploration (HAT-TSX-V) and partner Terra Ventures (TAS-TSX-V) on their Roughrider project. HAT moved quickly through $3.00 to $3.12 in late November and seemed headed for higher levels and TAS hit 50 cents both responding to great drill results and price increase of uranium. Form Uranium Corp (FDC-TSX-V) with uranium projects in its back pocket in Saskatchewan and Nunavut has discovered an interesting Rare Earth property on its North Thelon project in Nunavut. An 8 by 10 kilometer intrusive igneous body has been found to contain widespread REEs with averages of 0.42 to 0.52 % total RE0. This is an early stage discovery in East Nutaaq associated with goyazite, an aluminum-strontium-phosphate clay mineral will be investigated in detail in 2011. Forum trades around 25 cents up from about 10 cents this past summer.
In closing I must say a few words about potash now that BHP is suffering from whip lash from the failed Potash Corporation takeover, and now a couple of juniors are now in the spot light in the Saskatchewan saga of who is next on the takeover hit parade. As soon as the Ottawa politicians said no way Jose to BHP, K+S Aktiengesellschaft took a run at Potash One Inc (KCL-TSX-V) and entered into a supported agreement to which K+S will make an offer to acquire all the issued and outstanding common shares of Potash One at a price of $4.50 a share or about $434 million loonies. This was a 31.3% premium over the 10-day weighted trading price of the shares up to and including Nov. 19, 2010. Potash One holds several potash licenses in Saskatchewan including the Legacy project – an advanced Greenfield project to develop a potash solution mine. From out of the wood work came Western Potash Corp.(WPX-TSX-V) and Encanto Potash Corp. (EPO-TSX-V) who became potential takeover candidates and spurred on new shareholder buyers. Both own lands over potash bearing formations and logical suitors to deep pocket potash pursuers. (Potash mining in Saskatchewan is a two or three billion exercise). WPX trades around $1.20 up from 45 cents in August, and EPO trades around 43 cents up from around 12 cents in August.
So silver is sweet and lithium is lovely however a little potash is damn well pretty.