Oil investors increasingly wiped out while lithium charges upwards

Pacific Rubiales investors never saw the knife coming.

Sure, they knew there were tough times ahead. Shares in the company had been at $6+ in mid-2015, and as high as $22 a year prior, and they were now just $0.64, what with the price of oil plunging and a massive debt load looking hard to maintain.

But PacRube, as it’ll now forever be known, was a big fat oil company. A big board ticker. Many assets that could be sold and used to keep the wolves at bay, right? Or so they thought.

It is anticipated that current bank lenders and holders of the Company’s senior notes will take significant losses on the debt of the Company that they hold and will likely be required to convert much of their remaining debt into equity of the Company; as well the Company will require additional capital. Thus, current shareholders will, as a result of the debt restructuring, likely see their current shareholdings significantly diluted (such that they will, following the restructuring, hold in the aggregate only a nominal amount of common shares) or possibly canceled or extinguished.

That’s basically a wipe out. One minute the board are looking for a solution, and the next minute the solution is everybody gets to go home without their money.

Surely many of the investors, when the axe fell a few weeks back, were gamblers who knew the risks they were taking, but figured there was more value in a liquidation than what was owed to the banks. Or maybe they had watched so much of their investment circle the drain over the last 18 months that it just wasn’t even worth selling at that point.

Whatever the situation, what was once a lay-up of an investment – big oil – is now basically Struggletown.

And it won’t change any time soon. How do I know this? Because the oil money is landing in lithium, and batteries, and electric cars. Sure, we’ll still need oil for a long time, but the Saudis aren’t going to cut back any time soon, and the Venezuelans will give you a tanker full of it for a good deal on an Ikea Billy bookshelf, and the Iranians have just joined the party, and Canada can’t even figure out if it wants pipelines to take the sticky stuff to the coast, or thinks it’ll be smarter to use trucks and trains to roll it through our neighbourhoods.

Lithium-X (LIX.V) is currently a 21-bagger for early positioners, and that fever has now extended to Golden Secret Ventures (GGS.C), which features the same players though without any outward clue as to what they have planned. Either way, a ten-bagger for those in early (and a 2.5-bagger for me thus far).

This morning I jumped in on Resolve Ventures (RSV.V), which has optioned a lithium property that butts up against the Lithium-X play, and that too has had a big month or two, moving from $0.09 in early March to $0.285 today. 92 Resources (NTY.V) is a sub-$2m market cap lithium entrant that is also up from $0.04 to $0.09 in a month.

What you’re looking at here is a good old fashioned run, folks.

Battery tech companies are also on a tear – we’ve talked about Nano One Materials (NNO.V) a lot, which we’ve taken from $0.30 to $0.60 on the promise that they have tech that can move tough-to-source cobalt out of the lithium battery mix.

Eguana Technologies (EGT.V) is another battery tech player looking like it’s getting ready for a run. They play more in the solar space, and I’ll be talking to them in the days and weeks ahead as they start gearing up their own run.

Right now Tesla (TSLA) has so many pre-orders to deal with for their next generation car, that it’s even taken the keepers of that over-inflated stock by surprise. Uber is worth billions, Lyft ditto.

E-bikes are hot. Scooters are hot. 3-wheelers are back. Anything that is aimed at an eventual end of a reliance on gasoline to get around is enjoying a long line of brokers ready to fellate whoever they have to in order to get in on a new green transport deal.

NOTE: Go easy with those three-wheelers, lads.

Which is not to say all of these companies are here to stay. If we think back to the last run on the Canadian markets, the great weed tsunami of 2014, the number of companies expressing an interest in switching to weed went from 3 to 43 in a month, and the lithium run happening right now reminds me a lot of that stretch.

This means, at some point, perhaps some point soon, the market will turn bad for a little as the hype spike wears off. But that may not happen for some time. These are the early days of the lithium rise, and the only thing you can know for sure is money is being made today.

Just not in Alberta.

–Chris Parry

http://www.twitter.com/chrisparry

FULL DISCLOSURE: I own stock in GGS, RSV and NNO, and am a consultant to the latter.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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