As long time market players know, the mineral exploration industry has long been built on luck, timing, and (occasionally) skill. But because timelines in mining are long, being able to see what’s going to be hot next year rather than chase what’s hot now, is an important quality. A nimble exploration company can position themselves in front of a trend that isn’t a trend yet, if they’re smart, and be the first mover when everyone else catches up.
I’ve long been a Moneyball guy, and that’s Moneyball thinking at it’s best.
We have seen a legion of companies rush into the lithium sector through 2015, and some of those have already shown their short ‘best before’ date. There was the first wave into the Clayton Valley, Argentina for wave two, and recent Quebec acquisition news, as all companies in the space play the game of who is going to be fastest into the sector, and to garner the crowd’s attention and its investing dollar. This happens at such a rapid pace that acquisition news releases roll like snowballs until the day the investor finally pushes back and says, “Next.”. When they stop placing their bets and moving on loose news and hunting elsewhere as a pack, it all shifts to the next big thing.
Cobalt is the next big thing.
When Cruz Capital (CUZ.V) had the foresight to look at the riches in the niches, rather than going all in on lithium like everyone else, they placed a strong side bet on another element required in lithium ion technology, and which is currently supplied using ‘blood cobalt’ from horrific circumstances in the Democratic Republic of the Congo.
Okay, clearly the world needs less third world people plunging into toxic two-foot wide holes underneath someone’s kitchen. But we all like new cellphones every other year.
Which is Cruz quietly went about assembling eight separate cobalt prospects across North America over the last year and, as a result, the stock spiked to a high of $0.71 recently off a low of just $0.07 over the last several months.
Rather than Cruz reacting to the street, the street reacted to Cruz, and set off a stampede of recent cobalt acquisitions, some of which Cruz actually supplied. Cruz has first mover advantage in more ways than one, in that it’s the cobalt property supermarket for those looking to, like they did, get in early.
Some highlights off their supermarket aisle include some prospects with an interesting pedigree and history. For example, the high value historic grab samples and assays from three of the eight properties they have in their lootbag include:
- The Bucke Cobalt Prospect in the Larder Lake mining division of Ontario, which returned assays grading 13% cobalt and 240 g/t silver (historic Ontario data).
- The Johnson Cobalt Prospect, which encountered grab assays over 300m up to 10.5% cobalt, 69 g/t AG, 12% NI and .4% CU (historic data).
- The War Eagle Prospect, where surface samples of 6.41% cobalt, 3.59% nickel and 7.25% copper (historic data) have been taken.
These aren’t ‘set your hair on fire and raise $300 million now, we’re all going to be flying helicopters to work’ numbers. But they’re great production-worthy cobalt numbers, if the properties can be fleshed out.
The Company completed a $2 million financing last August at $0.30 per share. They also did a small flow through financing at $0.40 a share. But the stock kept running and now it’s getting close to where the institutionals may start sniffing.
Which is where things get exciting, if you’re not an institutional investor. Today, Cruz is locking in a 3 for 1 share split – TOMORROW.
Not a rollback, a forward split. This means the company, which has approximately 14,908,082 shares issued, will be multiplied by a factor of 3 to a total of 44,724,246 issued.
This doesn’t include the dilution of outstanding warrants which will add another 18,000,000 shares and, if exercised, bring another $2.7 million into the company bank account.
The price of the stock will be divided by 3 and should trade at around $0.22 a share. It also means, any upward moves will be a larger percentage shift than they would have been last week
The unmitigated gall of deciding $0.67 is too high a price is something I’ve not seen for a long time, but it’s that sort of brash move that has made Cruz a company worth watching. It’s gone from a nobody to a cobalt supermarket. It’s Wal-Marting cobalt properties and making no excuses for playing in the shallow end of the pool while doing it.
A recent sale to Scientific Minerals (STM.V) shows the plan is working, and having a stake in that company now offers diversity and risk mitigation, while pointing to more deals (and JVs) being likely in the future.
The Cobalt Development Institute of the UK held a conference in Soul Korea last May and published a newsletter regarding the outcome of the conference and the current state of the global cobalt market. In a nut shell: China and the rest of Asia currently account for 74% of global cobalt demand and that’s growing. This is primarily for the manufacture of rechargeable lithium ion batteries, which we use in our cellphones and laptops, ipads etc. Korea retains the largest market share for Li-ion batteries, but that’s changing. Germany’s Karlstein BMZ Gmbh has opened up Europe’s largest Gigafactory to service the growing demand for lithium-ion batteries (which all require cobalt) and BMW is committing to a completely emission-free car lineup by 2020. Add what’s happening in Nevada with Tesla, Chevy and Ford in the US, Toyota in Japan, and Hyundai in Seoul. You can argue that lithium demand can be met by existing producers, at least for a while. But the world demand for cobalt is going through the roof.
FULL DISCLOSURE: Cruz Capital is an Equity.Guru marketing client, and the author owns stock in the company. Please do your own due diligence.