Scientific Metals (STM.V): The Clayton Valley is for suckers

Lithium-X (LIX.V) may have built itself up quickly on the back of a nice big swathe of property in Nevada’s Clayton Valley, but the LIX crew isn’t betting the house on that patch of dirt. In fact, they’re already picking up lithium property in South America and elsewhere.

Why? Because the Clayton – shh, don’t tell anyone – is kind of a bust, is why.

That’s not to say there isn’t lithium there; there definitely is, in fact it’s being mined already at Albemarle’s (ALB) Silver Peak mine. No, there’s no question as to whether there be brine in them thar hills.

The problem comes here:

“It would appear that Albemarle Corp. does not wish to allow future competition for lithium brine production in the Clayton Valley basin,” said Warren Stanyer, President and CEO of Nevada Sunrise.  “Albemarle is the largest consumer of groundwater in the Clayton Valley, and our existing permit, senior to many of Albemarle’s own permits, is the only remaining appropriation of groundwater in the Clayton Valley that is potentially available for a lithium brine extraction operation.”

You need water to process lithium brines. And the Clayton Valley is in Nevada, which is as dry as any of Donald Trump’s ex-wives.

Nevada Sunrise continues:

According to the appraisal report, the Clayton Valley basin is currently “over-appropriated”, and stated that any new application for water use in an over-appropriated basin would be carefully reviewed by the [Nevada Division of Water Resources], and that it is uncertain if any new applications for water rights would be granted.

Now, I have a little somethin’ somethin’ invested in the Clayton, specifically in little Resolve Ventures (RSV.V), which hangs off the southwest edge of LIX’s property. But I’m not in there for a three year plan, I’m in there because it’s cheap, low risk, and doing as promised. It’s a cheap buy-in to a high stakes game of poker that, currently, is paying off.

But if we’re looking at the macro view of lithium, we should be getting out of Nevada as the be all and end all, and looking into historic oil drill holes from the last several decades from all over.

Why? Because lithium has been a pain in the oil industry’s ass for decades now. In the 60’s and 70’s, the stuff just got in the way. You had to get past the brines to get to the oil.

Today? Now you need to get past the oil to get at the brines.

lithiumprice

The issue here is there’s a dogfight happening among high end tech companies to get better and better electric cars and batteries. Tesla is the easy one to point to but Google, Apple, the new Faraday Future company is setting up in Las Vegas with needs for lithium by the ton – and with hundreds of millions of taxpayer dollars – and then there’s Big Auto itself, which has to keep up. Ford, GM, Chrysler, Dodge, BMW, Fiat, Toyota, Mazda, Kia… any of these companies that doesn’t have electric car plans is already dead.

Lithium is in demand. And the companies that have long supplied it are running low.

So we can go chest bump in the Clayton, or we can go further afield and look for opportunities that are quick to production, have existing drill holes and data, and are dirt cheap because nobody has wanted them for years.

We’re talking dry oil wells that have historic brine presence, loads of infrastructure about, and plenty of data.

And Scientific Metals found one. Actually, two, and according to the head honchos of STM, more are on the way.

Cast your mind’s eye back to the 1960’s. It was a different age. The Vietnam War was grinding on. The Supreme Court was deciding whether states could stop inter-racial couples from getting married. JFK was there, then not. The moon was unattainable, then not. People drank Tang by choice.

And in Utah’s Paradox Basin, men in hard hats and Levis were looking for oil.

One of their drill holes didn’t do so well. In fact, it blew out so much brine that it had to be abandoned for its intended use. We’re talking 50,000 barrels a day, with a recent NI 43-101 showing 15 million barrels of brine present, and with lithium levels testing as high as 1,700 ppm.

Let’s put that in perspective: Silver Peak in Nevada shows 200 mg/l as an average. Pure Energy’s resource grade is 102 ppm. In Alberta, the Deep Valley lithium property in the Fox Creek-Sturgeon Lake area comes with historic samples showing 140 ppm, which are among the highest ever recorded in that province, yet still less than a tenth what they’re seeing at the Paradox play.

I should probably mention Scientific Metals owns the Alberta property I mentioned above. And today they announced they got their mitts on the Paradox dig.

Oh, and the brines at Paradox come to surface without pumps. That’s right, the pressure of the aquifer itself is enough to bring it to surface at a good clip.

This is bananas.

The Paradox property has the potential to produce 8,786 tons of LiCO3 per year, according to that 43-101, and if we’re charitable and say prices will settle down at $10,000/ton (it’s looking more like double that, with orders from China hitting $20,000 per ton, but still), that’s $87m in revenues per annum, attainable quickly, a literal stone’s throw (if you have a hell of an arm) from Nevada, where the Tesla Gigafactory is planned..

I do not think this will happen under current management, however. What’s much more likely to happen is this mob slaps as many drills in the earth as they can, updates that 43-101 quickly to show a ton more potential, and trades the whole enchilada away to someone who can make use of it and will pay a premium for it. Like an LIX or an NMX, for example.

Consider this: STM’s market cap is about $11 million right now. Lithium-X’s is about $100 million. Nemaska Lithium is over $400 million, American Lithium is $50 million, and Pure Energy, anchored as it is in the Clayton, is at $37 million.

A 4x or 5x current market cap takeover of STM is doable for all of those players and the market wouldn’t even blink at it. In fact, the market would respect the move.

But until that happens, cheap cheap cheap cheap cheap.

And if it doesn’t happen, STM is actually in a great place regardless because management of this outfit is rock solid. Take director Wayne Tisdale as an example. If you don’t know who he is, you haven’t been playing in the mining space for the four decades like he has. Tisdale runs his own merchant bank and sits on a load of boards, including Declan Resources, Opal Energy. He’s raised over $2 billion across a string of highly successful companies. Tisdale was instrumental in the Rainy River Resources 8 million oz deposit acquisition by New Gold Inc for $310 million in 2013, and the $120 million sale of Ryland Oil & Gas to Crescent Point in 2010.

Brian Kirwin is a geo who has been at it for three decades for companies like Placer Dome, Freeport McMoRan, and Cominco. Then there were top exec spots at American Bonanza Gold, Nevada Copper, Vengold… Now he’s serving as President of STM. These are non-nonsene operators.

If that’s not enough, hidden in the background is the Sara Creek Gold project, which is a legacy property from the company’s days as Suparna Gold. I wouldn’t say the South American property is a reason to buy, but it certainly doesn’t hurt to have as a secondary asset for a little lunch money down the road.

I spoke to Tisdale and Kerwin late last week with some other analysts and the big takeaway here is they’re not grabbing properties to send a stock spiking, nor to justify a salary. They’re looking to quickly move to production, without spending a fortune, and make this company a legit entity that can do business with the big names that have desperate need for their product. They know the race is on, and they feel their plans get them an inside track that nobody else is focused on just now.

I bought into the financing happening now because I just don’t see down side. Not in this market. Not with these people. Not now. The stock has been trading between $0.09 and $0.10 since it went live and, despite a bit of a sloppy share structure, this is one lithium play where the value hasn’t already been eaten up.

There are plenty of pretenders in lithium at the moment. This is not one of those.

— Chris Parry

http://www.twitter.com/chrisparry

FULL DISCLOSURE: I’m an owner of the stock and will be serving as a marketing consultant to the company, so do your own due diligence and never trust anyone who tells you to buy or sell a stock on the internet.

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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