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Lithium Sector Heating Up, But It Hasn't Bubbled Yet

|Includes: LAC, LIT, Nemaska Lithium, Inc. (NMKEF), OROCF, SQM, TSLA

About a year and a half ago I had a brain storm, thinking that with Tesla (NASDAQ:TSLA) and electronic cars seemingly poised to go mainstream over the coming years, an investment in the Lithium space seemed like a good bet.

So I researched it, and something interesting kept popping up, articles that advocated avoiding investing in Lithium Mining Companies. Here's a prime example from last August with the very blunt title:

Don't Invest in Lithium Mining Companies

This article was forthright in its opinion, saying in part:

  • Any lithium "junior mining stocks" with promises of "valuable reserves" trying to ride on the coattails of Tesla should be avoided like the plague.

Great advice (sic).

Those heeding it, who might have been considering an investment in a company like Nemaska Lithium (OTCQX:NMKEF) (which I've blogged about several times over the past year) would be chagrined to know that NMX on the TSX Venture exchange went from less than 25 cents in August of 2015 to its current PPS of about 90 cents. In the past 12 months it has climbed about 500%. If that kind of ROI is the plague, then bring on the plague.

Then there's Orocobre, (OTCPK:OROCF) also traded on the TSX with the symbol ORL which was trading around $1.80 at the start of August 2015 and fell all the way to the $1.40 area before the end of 2015. Its now trading over $3.

And let's not forget the most recent big star performer, Lithium X Energy (OTCPK:LIXXF) which trades on the TSX Venture under the symbol LIX. It just started trading at the end of November 2015 via a reverse merger. After opening around 40 cents its now trading up around $1.50.

For those who "avoided junior lithium mining stocks like the plague" as the earlier linked article suggested...well, they're probably kicking themselves now.

Now, to be completely fair not every Junior Lithium stock has experienced wild growth. One that I own, Lithium Americas (LACDF) has been something of a soap opera and has gone on a roller coaster ride. They merged with Western Lithium and adopted Western's symbol of WLC (again on the TSX) however recently changed back to the name Lithium America's and returned to their old symbol, LAC.

LAC has rebounded strongly of late, climbing from as low as 25 cents CDN towards the end of 2015 to up near 60 cents currently. They still have a ways to go though to get back to where they were trading about a year ago, when the PPS was over 90 cents.

Another Lithium Jr I own just made a big percentage jump. Durango Resources (OTCQB:ATOXF) also on the TSX with the symbol DGO.

Trading as low as .02 to .03 cents at the start of 2016 it closed at 6.5 cents today. And Durango has only 15.2 million shares listed as issued, and an ultra micro capitalization of less than $1 million CDN. If any sustained buying pressure comes in I see DGO as having the potential to make explosive gains.

Of course many investors are averse to risking money in penny stocks, and there is certainly merit to that. Penny stocks are extremely high risk, high reward plays. All the stocks I have just mentioned are listed in Canada, and they trade in the US Over the Counter or OTC.

Unfortunately for those who want to play in the "pure" Lithium space, there aren't any other real alternatives. There are also a number of Australian Jr Miners making noise, but I don't follow or trade Australian listed stocks.

Sticking to the bigger US boards you're left with large diversified companies, for whom Lithium is just one small element of their overall mining operations. One prime example would be SQM Chemical Mining of Chile which trades on the NYSE under the symbol (NYSE:SQM). Its trading at somewhere around $20 USD per share, having rebounded from down around $14 back in August but its still got a long way to go before it gets back to the $30 area it was trading at as recently as 2014.

There's also one Lithium ETF, symbol (NYSEARCA:LIT) also on they NYSE. But it too is not purely a Lithium play, having holdings in companies like Panasonic, Johnson Controls, Samsung and Tesla. Companies, in other words, that have some exposure to Lithium certainly, but only as a small percentage of their overall business models.

For those who are looking to get into Lithium stocks I still see a lot of upside, because I don't think this sector has caught fire with the general investing public. That of course could change, if media outfits like CNBC, Bloomberg and other mediums with a broad reach start touting Lithium investing like they were doing last year with Biotech or with Medical Marijuana stocks a couple years ago. If that happens I can see this sector turning into a bubble, but I don't think we're anywhere near that point yet.

But if you're looking for a "pure" Lithium play, something that is Lithium first, second and last, then the only real choice is in OTC penny land.

For any Americans (and Canadians who aren't yet aware) reading this who want to dig deep I strongly advise going to SEDAR's site to research any companies. SEDAR stands for "System for Electronic Document Analysis and Retrieval". There you can read a Canadian company's financial statements and other securities filings. You can search for corporate filings by filing in the company name you want to research here:

sedar.com/search/search_form_pc_en.htm

If you enjoyed this blog posting feel free to share it, and I always welcome any commentary. Please note that while I've mentioned numerous companies here, some of which I own, I am not making any recommendations. I expect there will be both winners and losers in this space. But at the moment Jr. Lithium miners look to me like boats that are all being lifted by a rising tide, and the tide looks like it will still be rolling in for some time to come.

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This instablog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment advisor.

Disclosure: I am/we are long NMKEF, AXOTF, LACDF.

Additional disclosure: You can find me in numerous forums where I use the names krill66 (yahoo) growacet (stocktwits) and ledrog (stockhouse).