Brian Paes-Braga: 28-Year-Old Lithium-X CEO On Meeting Frank Giustra, Building A $100M Company

Includes: LIXXF, TSLA
by: Palisade Radio


Lithium demand set to soar, driven by electric vehicles.

What is next for Lithium-X?

Why Lithium price is not a major factor in battery price.

Goldman-Sachs called lithium the new gasoline.

At just 28 years of age, Brian Paes-Braga is the CEO of Lithium-X (OTC:ROCEF), that has gone from a market cap of $5 million to over $100 million. This is despite the fact that the company only started trading roughly seven months ago.

Brian and his co-founder and mentor Frank Giustra developed a recipe for success: being respectful to your share structure, not diluting and obtaining world-class assets. These are three ingredients he believe are at the core of Lithium-X's success. The improved economic climate in Argentina has also helped greatly and, at the same time, the price of lithium has risen more than threefold.

Storage of erratic green power sources is key to switch to green technology. This, along with the massive rise of Elon Musk's Tesla (NASDAQ:TSLA) electric car company, is driving ever-increasing demand.

We also wanted to ask Brian the difficult questions surrounding lithium. Does the entire boom rest on the shoulders' of one man- Elon Musk? With a 4X rise in lithium prices, does upside still exist? How to deal with the roughly 100 new entrants into the space? Is that not indicative of the bursting point of a bubble?

Palisade Radio Host, Collin Kettell: Welcome to another episode of Palisade Radio. This is your host, Collin Kettell. On the line with us today is an entrepreneur, a young entrepreneur in the mining space, a very rare breed. His name is Brian Paes-Braga. You might know him as the CEO of Lithium-X. Brian, welcome to the program.

Founder and CEO, Lithium-X, Brian Paes-Braga: Thanks, Collin. Thank you for having me.

CK: I want to start out by giving a little bit of background on how you got involved in the mining space. You are 28 years old. You started a company in the lithium space about a year ago and the company has quickly gone from a market cap of a few million dollars to well over a hundred million and you have become the leader in a very hot space. Can you give us a little bit about your background, Brian?

BB: Yeah sure, Collin. Not only just hearing a little bit about yours. You are a young guy with passion about the space. I did not have family in it but I did have a surrounding in Vancouver of a lot of successful mining financiers and entrepreneurs that had started sub-$10M market cap companies and built them to multi-billion dollar market caps, picked the right space and really went and built these companies. My background actually was financing junior resource companies as a stockbroker for about five years. Then I was a merchant banker, not unlike you right now, with a group here in Vancouver, put together a few companies, and then really felt that this lithium space was going to take off.

Last summer, with me and my junior partner here, we took look at the fundamentals by demand. We felt there is a lack of investment opportunities which has obviously changed dramatically as you mentioned. There are probably a hundred names out there now but previously there is kind of a blue ocean pure play with the lithium name and I feel like Lithium X had the opportunity to be that leader, come out of the gates quite fast. With the team that we put together and the access to assets and capital we intend to be the pure play name for investors looking for exposure to the rising price in the lithium market.

CK: Yeah, Brian, you have developed quite a team and that starts with your cornerstone investor, Frank Giustra. We actually have not had Frank on the show surprisingly, but many of our listeners are probably quite aware he has been a very successful, serially successful, mining entrepreneur and also in the filmmaking industry. Frank, I guess, got introduced to you and was impressed with what you brought to the table and decided to back you in this venture with Lithium X. Can you tell our listeners about how you got acquainted with Frank?

BB: Sure, yeah. Mentors have always been very, very important to me. They have really advanced my growth throughout my life in the different stages I have been in. Frank was someone I looked up to from a very young age. I did not know him at all, but as you mentioned not only from a movie business perspective, resource success track record, but also from a philanthropic. He really lives an amazingly well-rounded life. Anyone that knows him knows that this guy is just larger than life and just an amazing, amazing man.

I was introduced to him about three years ago now actually by a lovely girl that used to work with me. She knew I have always wanted to get to know him. We finally met. We became very close friends and then the friendship evolved into a partnership. About August, September last year, after my junior partner and I as I mentioned had kind of done our homework in the lithium space and felt with conviction that there is an opportunity, I approached him and he said, "Absolutely! Let us get behind it and if we are going to do it let us go build the biggest and the best and get the best people and the best assets."

Right after that someone we need to mention is our third partner, Paul Matysek, who is another extremely successful resource financier, a great man. He was the founder of Energy Metals, founder and CEO of that, sold it for $1.8 billion back in 2007 after only three years. He then founded Potash One and sold that for $434M within about a three-year period as well, and then started Lithium One and within, again, a three-year period, sold that for $112M.

Really between the two of them, Collin, Frank is the best kind of strategist, high level thinker and door opener that Lithium X and their shareholders could ask for. But Paul is really almost like my co-CEO. He has really mentored me on the road, boardroom, across the world that we have been in together. He is just a complete workhorse and so focused. Between the two of them and I think some of my young, energy, and passion, we have been able to really advance the company like you said kind of sub-$5M market cap to north of $100M and we still feel that we are just getting started.

CK: Brian, I am just looking at the wall behind you and you have got a bull painting on the wall which maybe represents the lithium bull market and as an extension to that the bull market that started to emerge in commodities. Then if you shift to the other side there is a stock chart down on the bottom screen.

BB: (laughs)

CK: I do not know if that is Lithium X's chart, but it certainly looks kind of like Lithium X's chart. I want to ask you what it is that you have done? It has only been seven or eight months since this whole thing came together in a public forum and going from $5M to $100M. Lithium being in the right space certainly helps, but you guys have emerged as a leader. What have you done in eight months to do this?

BB: Yeah, I think, Collin, a lot of it was from financing companies, all the experience I had financing companies over the last eight years. Stu Vorberg who hired me and also hired Frank Giustra when we were both stockbrokers in our early 20s, we always went through: what is the recipe to success? I think it always starts with people. There has got to be a synergy and a track record and camaraderie and culture that is great. I know we have that. It comes down to share structure and really being respectful to the share structure of the company, not diluting all your shareholders early on and really trying to continue to raise capital to create prices that we have been successful to do. You got to get lucky and we did get lucky with timing. I think we had conviction that lithium was going to move. But, really, we went public Nov 30th and lithium price had moved from $5,000, $6,000 a ton to some contracts in China. I just came back from China, going north at $20,000 a ton.

Sometimes you got to get a little bit of luck along the way on timing. We just emerged just before the whole kind of boom happened. But I think it comes down to people, structure, and then you can go and look for the world class assets and that was what we have been able to do. We started in Nevada and now we have acquired I think one of the top five salars in the world in Sal de los Angeles in Argentina. Not to mention, jurisdictionally, Argentina was a bad word in boardrooms for the last four, five years. Macri has come in and probably had the best start to 120 or 150 days of a politician, I think maybe on history. But in modern times he has really done an amazing job with that country. They have now got oversubscribed bond issuances. It is amazing! We got timing, people, and structure, I think, has been our secret to our success and focus and hard work. It is not rocket science when you work with good people and you work hard.

CK: Brian, when a commodity goes up 400% in just a few months' time even with catalyst in place and when commodities go up that much everybody justifies why they are going up that much and why they will continue. One can look back in the past and say that this is oftentimes the bursting point of a bubble. What would you say to people that think that lithium is in a bubble? We have all the signs, fifties of companies jumping into the space, picking up every piece of ground possible with lithium on it. It has just been a huge rush. Why do you think we are not in the bursting point of a bubble?

BB: Yeah, any of these charts always look scary. Fundamentally, when I started this company too, Collin, was I have a firm belief that the world is kind of shifting away from fossil fuels. The world does not want oil spills anymore. The world wants a cleaner world. From our homework lithium was that element that kind of brought it all together from a storage perspective, not to mention that lithium is a very new market. It started in really the pharmaceutical business and then it emerged into glass and ceramics and that was a lot of the demand and still is for the industrial lithium. But then consumer electronics came in to vogue in like early 2000s and now the computer we are speaking on, our phones, everything is kind of rechargeable batteries, and, again, the underlying theme there is lithium ion batteries.

What shifted the demand now is, again, it is not rocket science, but you now have, for example, my Tesla. You have got like a hundred times lithium in a Tesla car battery than you do on a laptop or on a small handheld device. If you are a believer in electric vehicles, which I am, and you are believer in what people like Tesla is doing, whether you believe in what Tesla is doing or not from being able to deliver 400,000 vehicles or whatever. You would really rather be a believer in electric vehicle coming into the big car manufacturers of Volkswagen, of Porsche, of all these big, big companies. You have to see the demand side of lithium continuing to be robust because there are only about 500,000 electric vehicles delivered last year and Elon Musk, with one model, has 400,000. That is not to mention all these other car makers I mentioned.

Then the big question mark in the demand side is how big is energy storage going to be and how big of a part of energy storage will lithium be? And this comes down to allowing green technologies that the issue with them over the last ten, fifteen years had been the variability nature of them. You have thermal coal power plant or you have a natural gas power plant. You have got consistent energy and that is why that infrastructure has been in vogue for so long. People are tired of the issues now with that so they move into solar cells and windmills. Unfortunately, the sun is not shining all day long so it is variable in nature. Windmills, it is not windy all day long. But now what technology has allowed is storage of this power to then use it at peak times. If that becomes as big as some people say it will I do not see the demand side correcting. Do I believe there is going to be volatility in the price? Absolutely! Any economics in history you do not always see the spike and you do not have natural corrections.

I think it will be the leaders in the companies that handle these price moves and either hedge out some of their production, not unlike an oil and gas producer. Some of the great oil companies right now that are hanging in there did not bring on a lot of leverage and hedged out a lot of production at $80, $90, $100, $120 a barrel. Use tactics like that that actually build a proper business, but to comment on the pricing I do think there is going to be continued volatility because it is a narrow market. A little bit of buying can affect the upside and a little bit of selling can affect the downside, so investors need to be aware of that.

CK: Is this entire industry relying on the success of Elon Musk? He is obviously a poster child for the solar movement, the electric car movement. I mean he is a huge leader there. But at the same time the lithium demand is built into a lot of other places. Do you think that a lot of these lithium companies rest on the success of Tesla and Elon Musk?

BB: Yes, personally, Collin, I think Elon Musk is an absolute visionary and leader of our time and I hope everything he wants to do, he does. I think if anyone has got a shot, he does. But having said that for a lithium explorer, developer, and producer like we intend to be, but I do not think it is a binary event. I think what Elon Musk has done and Tesla has done is they have changed consumer thought process and behavior. He saw a trend and I think when I drive my Tesla and our friends drive their Teslas, they feel like they are doing their part. They are helping out a little bit and they feel good about it. I think he has changed consumer decisions, which is the most powerful thing. Now you are going to see other well-known brands come in and build off of that. I think that is where you are going to see the real quantity of orders of the kind of 90 million cars delivered every year, new cars delivered every year. I think you are going to start to see a lot of other percentage be electric vehicles.

I just came back from China. A lot of the new technologies are actually full lithium metal batteries. They do not even have the graphites, the vanadium, and the nickel cathodes. The guys who presented to me over there, they are kind of leading edge of technology that the new batteries that are the best performers are 100% lithium metals. It gave us great confidence learning that that I do not think the substitute effect would happen anytime soon.

I think it is also worth mentioning, Collin, that early on in our research we found that lithium is only about 2.5% of the final cost of a battery. Again, to mention that substitute effect with the price doubling or tripling or quadrupling or going even higher, you are really not going to see, I think, a change in a material or a lot of R and D that goes into a substitute product. I think that is going to take time. If lithium was a 30 or 40% cost of a battery starting out at $5,000 a ton that is something that we would need to be concerned with. I think the environment was ready for lithium price to move and another reason why we are bullish on getting into the space.

CK: Brian, I have so many questions I would like to ask you. I know we only have about five minutes left. I want to ask you what is next for Lithium X now that the market cap is $100M? That changes the dynamics and type of investors that might be interested from the ones that have that high risk that are interested in investing at $5M. What do you say to people that say, "Look at the stock chart. It has done so well, but why should I invest at this point?" Is this a production story? What comes next?

BB: Yeah, I think we are being careful obviously with disclosures. I think investors need to just watch Lithium X over the next kind of four to eight weeks. We just closed on our acquisition last week with the Sal de los Angeles in Argentina. Our vision is to continue to get world class assets, world class people, and build really a household name. I do think that the producers at this point will get a lot of value like Orocobre is getting, like Galaxy is getting, like General Mining is getting because of the supply crunch and because of the pricing. The producers hold a lot of the cards right now. Some of the delays and failures like Canada Lithium and RB Energy and Orocobre has been a little bit delayed, too, in ramping up production.

The market was ready for some of these 15 to 25,000 ton year operations to come online and they just have not. That is part of the supply crunch. I think if a company like ours can focus on getting into production sooner rather than later it is something that is definitely important to us. We would also like to look at acquiring more assets. We think it is still early innings on this space and it is going to have its ups and downs like any commodity cycle. This is no different. But I think this early innings on how important lithium is to the world. We got Goldman Sachs saying it is the new gasoline. There are a lot of push. There are not really a lot of ways for big investors and you mentioned a lot of the retail speculative investors I think got Lithium X to this price level into point. But we are now seeing institutions start to come to the market and we are really excited to have those institutions come in at a time where we are going to start to lean on them for capital to grow. We do have over $10M in the bank. We have got all the money we need for now and now we just need to be opportunistic on capital raises alongside potential merger and acquisition opportunities.

CK: Brian, you discussed how lithium's cost is not a prohibitive component of lithium ion batteries in terms of the cost. If the price of lithium goes up four times as it has it does not make the batteries unaffordable. That kind of reminds me of the play with my favorite commodity which is uranium where the cost of running a nuclear plant the fuel component is only a couple percent. That is a very good thing for somebody invested in lithium and uranium. If the price of that commodity goes up they benefit significantly without costing the consumer. I know a CEO never wants to say what else he is investing in. But what else do you like in the commodity space? Are we in a broad commodity bull market now?

BB: I do not think we are in a broad commodity bull market especially this stuff that I am seeing in China, too, the kind of the last super cycle that was driven by real infrastructure and metal, coal and iron ore. I do not see that. I think that gold is going to have a good run here because of just the macro environment of negative interest rates. I think we will see some volatility come back into the broader index. The Dow has had a good kind of five to seven run and I think gold will start to pick up. But really my focus is lithium and building Lithium X and using my partner's track record into a multi-billion dollar market cap company.

But personally I think gold will do well as well and I am putting some money into the gold space. Again, I cannot ignore my partner, Frank Giustra, and his passion for it either. That would be where I would focus on some of the other more ferrous metals and non-ferrous metals and some of the energy mix. I think you are right on the uranium. I do not know enough about the space. I have some good friends that have big positions in the uranium space and they say the same thing and it makes sense to me. I just do not have the same education level that I do in the lithium space.

CK: Okay, well, Brian, thank you so much for coming on the program. It is refreshing to meet and talk to other young people in the industry. You are certainly outshining most, if not all of them, your age and many people above your age. Best of luck with Lithium X moving forward. I hope 2016 is a very good year for yourself and the lithium business.

BB: Thank you, Collin. You, too, and again it was great to know you, too. We will keep in touch.

Brian has spent almost a decade in the international financial sector working with firms ranging in services from underwriting, mergers and acquisitions, asset management, venture capital and private equity. He has held various positions focused on deal origination and capital raising including VP of Retail Sales of a Canadian Broker Dealer as well as Managing Director of a Boutique Merchant Bank. Brian advises and invests in real estate along with many public and private companies across multiple industries, where he is able to apply his passion for entrepreneurship and depth of experience in venture capital. Brian is also a Board Member of Community First Foundation, which focuses on childhood hunger in the Vancouver, Canada area through its program Backpack Buddies.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.