Millennial Lithium—Ready for a Big Run

Lithium has gotten my attention this spring as the Global Lithium ETX (LIT) has quietly climbed to 5 year highs ($29.34). Indeed prices have not been this high since the summer of 2012 and there is substantial upside before hitting early 2011 peak of $45. The lithium spot price itself is at an all time high north of $20,000 USD/tonne having quadrupled since 2015.

 

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Goldman Sachs has called lithium the “new gasoline” and there is a supply problem according to GS:

“Total lithium demand today is 160,000mt of lithium carbonate equivalent (LCE) per year. We estimate that a 1% increase in battery electric vehicle (BEV) penetration would increase lithium demand by 70,000mt of LCE/year (or roughly half of current global demand for lithium). In order for electric vehicle penetration rates to hit industry forecasts, significant capital investments to expand commercial lithium capacity will be needed, particularly from producers and/or EV OEMs.”

Annual growth was 11% in the lithium sector from 2010-2015 but is currently forecast to average 16% through 2025.

chart 2

 

Lithium prices will remain firm if not strong for years so I’ve searched for unique companies to take advantage of this environment. Millennial Lithium (ML/MLNLF) is in a very attractive position with a terrific asset being fast tracked and a disconnected valuation in their share price. Technically, as I will show below, the stock couldn’t look more setup for a run than it is right now. But first some color on their projects.

Argentina is clearly the place to be to develop a lithium brine asset into production relatively quickly and profitably. Argentina already produces 17% of the world’s lithium and the environment since the election of President Macri is extremely business and mining friendly. There are more than 500,000 people employed in the mining industry in Argentina and the government is very motivated to attract international capital.

Millennial owns a 100% option to acquire the advanced stage Pastos Grandes flagship project in the “Lithium Triangle”. The land size is significant at 25,000 plus hectares and the company is currently drilling to define a maiden 43-101 resource. The initial resource will be defined in Q3 followed by a PEA (preliminary economic assessment) being released by year end (work was initiated in Q2).

Drilling is ongoing and we see a new release out this morning with very robust results (535 milligrams per litre (mg/L) from 93.5m to 475m or 381 meters and open at depth).

I expect more news on drilling and as the company marches towards the resource definition and PEA release the stock price should climb nicely. In fact, once at the PEA stage, we can compare Millennial’s value with the current valuation of Lithium X (LIX) which has a very similar project in terms of size, grade, virtually everything important. To catch up to a LIX comp now, ML.V would need to triple from the current $1.40 price point. The table below pulled from ML’s investor presentation shows that the best value in Argentina based lithium explorers/developers is in Millennial Lithium.

chart 3

 

Now let’s look at the charts which is really why I’m so bullish currently.


chart 4

 

After exploding in 2016 from pennies to $2.50 per share, Millennial has consolidated for 9 months! Sticking to the 50 week moving average like glue, we see the 3 “hangers” dipping below the trend line then recovering each time. This is a signal that the selling is being exhausted. MACD circled in the lower right corner has flattened and is about to turn higher. Once the dark line crosses above the red line, we will see a multi month new rally, which could be triggered as soon as this week or next. The arrows on the right are close to what I expect of the trajectory although it may be a bit more of an angled movement taking more than a couple of months to trade above the previous high of $2.50.

I think it is an easy call to put a 6-9 month price target on ML.V of the previous high at $2.50, which is over a 70% gain from the current price of $1.43. The time line is along the track of a post PEA release run near year end, giving Q1 2018 as the cushion to make a push into the mid $2’s. However, this could happen much sooner.

 

chart 5

 

Yesterday on the daily chart we saw another “hangman” showing buyers stepping in on the dip intra-day similar to what we’ve been seeing on the weekly pattern. This is bottoming activity folks…very basic stuff and bullish. The top blue line will be the first area of resistance around $1.80 where it hit in early February. After that some $2 overhead but then blue skies to $2.50. The stock may need a couple/few runs at $2.50 to break into new highs but we’ll cross that bridge when we arrive. On the way is a 70% potential gain so I suggest readers add ML.V up to $1.50-$1.55 and MLNLF up to $1.15.

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Millennial Lithium is a paying sponsor of GIL so I have a conflict of interest. Do your own homework before acting on anything that I say. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. 

Orca Gold—Update With CEO Rick Clark

On the heels of big news last week from Orca Gold (ORG/CANWF), I thought it would be a great time for an update from CEO Rick Clark. I’ve been following Orca for years, almost 5 actually, and I’ve never been more excited about the prospects as I am right now. The new water discovery and decision to move directly into a bankable feasibility study versus PFS is very bullish as it shows a lot of confidence in the project.

 

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As you can see from the 10 year chart above we are a LONG way from the 2011 top near $20 per share. The biggest thing to understand here and gleam from the update below is that the reality in Sudan is MUCH different than the perception. But, even the perception is changing and the US government has begun to lift sanctions as Obama went out the door and it looks like the Trump administration will continue this policy. It will open up business considerably in the country and this will benefit Orca tremendously as they have a serious first mover advantage. Those of you unaware of the story should take 30 minutes out of your day to hear about this truly special situation in the gold junior sector. I am reiterating my $1.50 CDN price target within 18 months which is more than a 200% return from current levels. There are many reasons for my bullishness and I think investors will be able to make your own determination if you agree with me after absorbing the webinar recording.

This is one of my top 5 junior gold recommendations. Under a $50MM market cap, it is probably top 3 and is a six figure position for me personally. Enjoy…

Eric owns shares in Orca Gold

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Golden Predator—The Big Score?

I’ve mentioned several times that one of my favorite business books is called The Big Score by Jacquie McNish. It is far and away the best book about mining that I’ve ever read and it ties in the behind the scenes developments that we all dream of as junior resource company investors. The promoter (Robert Friedland), the monster discovery (Voisey Bay—Nickel), the senior mining execs fawning over the project as it gets bigger, and a share price that went from pennies into the hundreds of dollars per share before being acquired.

When I met Bill Sheriff (Executive Chairman) of Golden Predator Mining Corp in NYC earlier this year (GPY in Canada/NTGSF in US), I asked him if he had ever read the book because this reminded me of the early days for Diamond Fields. Let me be clear in saying that I don’t pretend to know the ultimate size or value of what GPY’s project called 3 Aces gold ore body will be, but I’m confident that is going to get a hell of a lot bigger than people perceive it to be now. It is wide open in terms of the potential and a 40,000 meter drill program this year should be an exciting time to be a shareholder. The Big Score walks through the biggest driver of a junior exploration company stock price after a discovery….drill results. Every time fresh assays were released about Voisey Bay, Diamond Fields stock continued to go higher and higher because the ore body proved to get bigger and bigger.

With this backdrop, I felt compelled to reach out to Bill Sheriff last week to record a webinar to tell Golden Predator’s story. My timing is because of the technical situation, which I’ve posted below. After a lull in news and a gold stock sector correction, we can buy into GPY at an over 30% discount to highs hit in January of over $2 per share after fresh news caused the stock to triple in less than 6 weeks. Recently there have been two fairly subtle yet important triggers in the chart you’ll see below.

 

chart 1

 

The down trend line of resistance that started in February at the high has been broken and retested already. Plus, we have closed above the 50 day moving average for 3 consecutive days which in my book is a confirmed breakout. The one thing missing is the volume but once we see it come I believe it will confirm the breakout not invalidate it. Lastly there is a small inverse head and shoulders that has formed over the last 2 weeks so these are all bullish signs. Assay news from 43 drill holes already finished should start to flow ANY DAY now and I doubt we’ll see a month go by before January 2018 (maybe even 2019!) when we don’t see new drill results released. Below the weekly chart, which shows a pretty clear trajectory of where the stock price is likely going, is the short video conference with the CEO Bill Sheriff. I strongly suggest that you take the time to watch/listen and keep an eye on Golden Predator (GPY/NTGSF) which is one of the most exciting new gold discoveries in the world, much less the Yukon.

 

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GIL Interview with Bill Sheriff-Golden Predator: 

 

I’m comfortable putting a $2.82 Canadian price target on the stock within 12 months which is exactly 100% from yesterday’s closing price of $1.41.

Eric owns shares in Golden Predator.

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McEwen Mining—Updated Targets

I tend to write about McEwen Mining (MUX on TSE and NYSE—I will be speaking in USD price terms–$2.97 currently) every May it seems but that hasn’t been intentional. But so be it, now happens to be a great time for an update. As you can see below (I’ve posted what I wrote in May 2016 with a link to the initial buy recommendation on the blog from May 2015 if you would like to review the progression of thoughts), I initially recommended MUX at $1.09 so in 24 months the share price has tripled essentially.

Last summer the price doubled within 2 months after our update and Q&A/webinar with Rob McEwen posting in May 2016. We took off our principal risk in July 2016 literally at $4.90-$5 as my alert was right at the interim top. I have recommended adding that position back on and then some each time the share price has dipped below $3. So, we own a much bigger position “on the house” now than we did last summer and I have just added even more to my position in the high $2’s. There is a chance the gold miners remain weak through the summer, which is normal, and we could have a chance to add even cheaper. But technically and fundamentally, this is where investors want to be adding to their positions.

During the May 2016 video, I raised my price target to $10 by the end of 2017. I am maintaining the $10 price target but am expanding the time horizon to 18 months from now (year end 2018). I believe we’ll see MUX test last summer’s high of $5 by the end of 2017 and it may trade higher than that but I’ll be a bit more conservative on the timing as it is a very aggressive call on ROI from here. WE MUST BE IN THE HABIT OF ADDING TO BEST OF BREED GOLD MINERS WHEN THEY ARE DOWN EARLY ON IN A NEW BULL CYCLE. This is a discipline and unless you have the resolve to buy when things don’t look rosy, you will rarely make money in the market, especially in mining stocks!

There is nothing wrong with MUX. This is a normal fluctuation in prices! MUX will trade with the sector and I believe will outperform it going forward due to their excellent assets and operator at the helm, Rob McEwen. Timing is everything and now I feel is a good time to revisit the webinar with Rob for a refresher or to introduce you to this quality company for the first time.

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One year ago in May 2015, I initiated coverage on McEwen Mining (NYSE: MUX) (TSE: MUX) at $1.09 per share with a strong buy recommendation and a 12-24 month price target of $3 (speaking in terms of USD MUX on NYSE). You can read the report here.
The share price has gone up by 150% and closed today at $2.53. During my webinar below, which Rob and I recorded today, I raised my price target to $10 per share by the end of 2017. I will be walking through more solid economics in my next report but we did some back of the napkin tabulations on the webinar. Rob demonstrated that when all categories of reserves are measured, and including their copper monstrosity that is Los Azules, MUX owns 46 Million ounces of Gold equivalent ounces in the ground right now. Stick that in your pipe and smoke it! In the report from May 2015, you’ll see a 10 year chart showing 3 major bottoms and two major tops since Rob took over UXG (now MUX). The 3rd top will be hit again, and it also will likely be breached. The price has twice hit $10 per share when MUX wasn’t nearly as established. Rob McEwen has put $127 MM of his own cash in MUX to acquire his 25% equity ownership position. His only reward in building the company is share price appreciation as he takes no salary, no options, no bonuses, etc. His personal cost average is just under $2 per share. We can buy today just 20% above his cost basis but he has been busting his hump building value in the business for well over a decade, we just press the “buy” button. Enjoy the 45 minute or so webinar for yourselves. The camera didn’t zoom back and forth to who was speaking so you’ll have to look at my mug throughout! Or better yet, just turn up the volume and listen versus watch….it’s a talk/Q&A.

Check out the webinar below with Rob McEwen and sign up with your name/email for updates on MUX and other unique investing ideas from GIL.

 

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

New Gold—A Gift from the Gold gods

 

New Gold (NGD/NGD.TO) closed on Friday at $3 on the US market (I will be quoting the price in USD-you will have to multiply by 1.31 to equate the CDN exchange equivalent). The share price began to collapse on January 30th leaving a large gap on the chart at $3.96 (Jan 29th closing price). The even more significant flush came on January 31st, after analysts at the major brokerage houses downgraded the stock from a buy to hold, virtually across the board. That day, the price sank all the way to $2.39 intraday, just about sliced in half in 2 days! The news that caused this panic was an announcement that NGD would delay commercial production on their massive new Rainy River mine to November 2017 (this was previously scheduled to start “mid-year”).

The problem with Bay Street/Wall Street analysts is that they are, much more often than not, the sheep and not the shepherd. They are reactionary and behind the curve instead of in front of it and therein lies the opportunity here as the hatchet job on NGD was way overdone. The company also announced a $100MM funding gap due to cost overruns, which is not the end of the world. Guess what folks? New mines are very tough to build, mistakes are made, delays happen, and costs overrun. This is the mining business, not opening a new Chipotle. Obviously, some issues become perpetual and for smaller companies can be their demise. In the case of New Gold however, this is not the case. Last week on February 8th, they reduced that shortfall to $35MM as they sold a gold stream in their El Morro project for $65MM to Goldcorp, which is obviously non- dilutive.

Rainy River is NGD’s future and that future growth is not that far in the distance. I tripled my position size between $2.65-$2.85 and feel like this was a gift from the gold gods! I initiated a strong buy on NGD to all of our subscribers in the 2nd half of 2015 at just above $2 per share ($2.10 I believe was the official price USD). The share price tripled by mid-2016 and many of us wished we had bought more. Well, now is our chance as I love it again here in the high $2’s to low $3’s for primarily an investment but also for a pretty juicy trade too.

 

chart1

 

The daily chart shows two clear bullish signals via the clear gap in the chart (these tend to get “filled” much more often than not, even if just temporary) and a rising MACD, which acts like a pendulum swinging. I’ll take a step back and look at the bigger picture via the 10 year (monthly) chart below but first let’s look at the clear fundamental driver of the story….growing cash flow and earnings starting in 2018. Obviously a rising gold price is huge leverage to all of the gold producer’s earnings but we have a company specific driver in this case and it is Rainy River.

 

chart 2

 

As you can see from the above slide in NGD’s corporate presentation, RR will virtually double the cash margin/flow of the entire company, which has 4 other producing mines. Average annual production per asset as it stands now is approximately 100,000 ounces. RR is projected to quadruple the average production of the other 4 mines and produce 400,000 ounces annually, starting in full during 2018.

 

chart 3

 

You can see the huge impact RR will have on New Gold’s overall numbers above and it is significant. Do you want to invest in this company once RR is completely on track and producing 33,000 ounces per month in less than 12 months? No, you don’t. Not if you can buy it after a hiccup cheaply because Wall/Bay Street is focused on the short term and quarter to quarter realities. This is a perfect type of scenario to snatch value away from the sheep and buy into New Gold at a discount. Action and then patience will be rewarded.

None of this speaks to a rising gold price, which I expect going forward to north of $1,500 in 2018 (NGD uses $1,250 gold in their feasibility numbers/projections). However, per $100 an ounce rise in the gold price generates $300 million in value just at Rainy River. This is because $30MM in extra cash flow is generated and at 10X earnings it should reflect in $300MM in stock value added. That means when combined with the other 4 projects, just a $100 gold price increase in 2018 would add $600MM in value minimum, or 30% to the share price.

After a 5 year brutal bear cycle, most of the surviving mid-tier and blue chip gold producers are lean and mean because they had to be. The leverage going forward on rising gold prices will be significant and benefit stock prices fantastically if we see a real move in gold. NGD provides value at these prices, leverage to the gold price, as well as growth. Looking at EGO (Eldorado Gold) as a comparison, I would buy NGD every time. EGO has a $3B enterprise value versus NGD’s $2.1B yet their 2017 production profile will be very similar to NGD’s at between 365k-400k ounces. They also are not projecting anywhere near the explosion in production volumes that New Gold is after this year due to the Rainy River asset. The bottom line is that today’s problem will end up being tomorrow’s value driver and we actually don’t have to wait very long to see it.

I’ll circle back on this post in early-middle of 2018 once RR is hitting its stride and we’re seeing the same analysts that just downgraded, then upgrading, and driving the share price into the double digits again. As you can see on the monthly chart below, we are trading right on rising trend line support around $3. I ultimately expect the share price to retest the $14 area it hit in 2011 once the current gold cycle kicks into gear given some time. In the meantime, a closing of that gap could happen in as little as days or weeks. But even if it takes a year, 33% annual profits with a very low risk profile from these levels is better than a sharp stick in the eye!

 

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I’m long NGD

 

For updates on New Gold and unique ideas on individual mining stocks, please sign up for our free newsletter below.

 

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. New Gold is a paying sponsor of our website so my viewpoint may be skewed. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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