More Detailed CRE Newsletter CoverageHere is more detailed report recently released by Palm Beach Ventures. Please keep in mind that this is targeted towards investors who have a basic or no understanding of the lithium market. As mentioned in my earlier post this company has a big following and can influence a stock. There was also a chart showing the rise to $15 U.S. but unfortunately coudn't attach it to this post. With an increase in resource, commodity price increases, political unrest (water scarcity etc) etc maybe $15 isn't that crazy.
High-quality lithium used to make EVs is expected to see severe shortages by the mid-2020s. This deficit in the face of huge demand is forcing automakers to shore up supply.
And that’s pushing them to do something they’ve never done before: buy mining companies.
Even a couple years ago, you’d be ridiculed for even suggesting that car makers should partner with – or outright buy – mining companies. The two businesses had little overlap. And the most common metals used, like steel and aluminum, are in abundant supply.
But that’s not the case today.
The shortage of lithium is threatening EV growth plans. If a big player like Toyota or Volkswagen can’t get its hands on enough of the metal, it may be forced to shut down assembly lines.
And car makers are alert to this risk. For example:
• Tesla recently considered buying Cypress Development, an early-stage lithium mine in Nevada, to guarantee its supply for EVs. Talks fell through, but Tesla’s still on the hunt to buy mining rights in Nevada.
• Meanwhile, Volkswagen has already secured a 10-year supply of lithium from China’s second-largest producer, Gangfeng Lithium. Gangfeng is a vertically integrated lithium producer. Meaning it has its hands in everything from mining to refining.
• And Toyota’s trading arm, Tshusho, recently secured a supply agreement with an Australian lithium miner. Toyota is helping to fund the mine’s development in exchange for secured supply.We’re likely to see other automakers partner with lithium miners to secure supplies for their EV fleets.
And we’ve found a tiny company working on a big lithium mining project. As car makers scoop up deals to secure lithium, it could deliver 10x gains for us.
The Tiny Company Helping Power EVs is
Critical Elements Lithium (CRECF) is a junior lithium miner well positioned to profit from the current supply and demand imbalance.
A “junior miner” is an early-stage mining company. It means it’s found a deposit and it’s in the process of building out a mine.
The veteran team behind Critical Elements is developing the Rose Project in Quebec, Canada. We’ll take it through our POTS system to learn more about its 10x potential.
PRINCIPLES
• Dr. Steffen Haber (President) – Dr. Haber is steeped in lithium mining experience. He was the CEO of Rockwood Lithium, one of the largest lithium miners in the world. He led the deal to sell Rockwood to lithium mining giant, Albemarle, in 2015 for $5 billion. Dr. Haber understands the lithium business inside and out. He knows how to spot an early-stage project with huge potential. And how to build it into a mine. That’s why he took over leadership of Critical Elements in 2017
• Dr. Marcus Brune (Director) – Dr. Brune worked alongside Dr. Haber at the Rockwood Lithium as CFO. He has deep experience with mergers and acquisitions, as well as enterprise strategy
• Jean-Sbastien Lavalle (CEO) – Lavalle has served as the CEO of Critical Elements since 2009. He brings with him 26 years of experience in mining exploration. He got his start working as an exploration geologist for big names in mining like $17 billion Agnico Eagle Mines.
• Cantor Fitzgerald (Adviser) – Cantor is helping the team at Critical Elements to get exposure in today’s red-hot EV market. It recently helped to close out a $12 million funding round. And its next objective is to get Critical Elements the coveted Nasdaq listing, which will bring the company in front of millions of new investors, and large institutional players and ETFs.
The team behind Critical are lithium and mining veterans. Dr. Haber and Dr. Brune are coming straight from a successful exit at Rockwood Lithium. And they’re backed by a team of project managers with more than 75 years of combined experience developing and running mining operations in Canada.
Now let’s take a look at how it will monetize the Rose Project
OUTSIDE
Critical Elements doesn’t have any current revenue. Its mine is still in development, so that’s to be expected. But its team of geologists have mapped out what the lithium deposit looks like underground. And we have a good idea of what it’s capable of producing.
The mine will be developed in two phases.
It will begin Phase I production of lithium in 2022. And we expect the mine to hit full capacity in 2023.
In this first phase, Critical Elements will be selling a raw version of lithium – spodumene.
Lithium is naturally found in two forms: spodumene and brine.
Spodumene lends itself to a higher-grade end product… like the high-quality lithium needed to make EV batteries. Brine ends up as a lower-quality form of lithium that isn’t ideal for high-performance batteries.
In all, the mine will produce roughly 230,000 tonnes of raw lithium per year. Based on the estimated grades, that’s roughly $171 million in sales. And after costs to operate the mine and process the ore, Critical Elements will earn roughly $104 million.
The main Rose Project has an estimated 17-year mine life. And the operating income will pay off the project’s cost in 2.8 years
We use the relative strength index (RSI) to help us avoid short-term highs. It measures how overbought or oversold a stock is.
A reading near 80 means the stock is overbought and might be near a short-term top. A reading below 20 means the stock is oversold and might be near a short-term bottom.
Critical Elements is showing strong momentum. We believe shares will gain support at this level before the next breakout higher. This is a good point to enter our position
STRATEGY
Unlike many of the brine-based lithium deposits in North and South America, Critical Elements’ deposit is much higher grade. That makes it the preferred feed product for making EV batteries… and highly coveted by automakers.
But the team behind Critical Elements is upping the ante.
Most miners only mine. They ship the ore off to refiners for processing. For most metals, this isn’t an issue. As long as the end product is the right grade, no one cares where it comes from.
But there are too few refiners that can process the high-grade lithium needed for EVs. That will create a bottleneck in the supply chain when demand for EVs really take off. But this is just another opportunity for Critical Elements.
Phase II of the buildout will see a refinery built on site. That means the team can mine, process and sell their lithium directly to EV makers. It captures more of the profit for Critical Elements. And its strategic advantage makes a partnership… or a buyout much more likely.
Management has already fielded interest from automakers that want to buy-in early. But no deal has been struck yet.
Let’s run the numbers and see what Critical Element’s total package would be worth to an automaker.
What’s It Worth?
In the mining world, a common valuation metric is net present value (NPV). This is a fancy way of figuring out what the future cash flows of the company are worth today.
Critical Element’s NPV for just the Phase I buildout is $585 million. But its market cap value is only $225 million. Most of its peers trade at a price-to-NPV ratio of roughly 1.
This means Critical Elements should be trading around $585 million. But since its entire market cap is only $225 million, it’s trading at a 61% discount to the standard valuation technique in the industry.
Also, Critical Element’s NPV after the Phase II buildout, when it completes the refinery, is $1 billion. Shares of Critical Element would have to surge 4x to hit its real NPV.
But we think the opportunity is even bigger than this. Once its refinery is up and running, it can process lithium from other mines as well. That’s another stream of income that could become hugely valuable if more refineries aren’t built in the next couple years.
Here’s a price forecast for where we see Critical Element’s share price going:
Critical Elements also has a lot more land to explore. We’ve only told you about the most explored deposit, the Rose Project.
But management sees four other sites that could more than double the total known reserves. The team is putting all of their resources behind building out this first mine. But once operational, it’ll start to use the incoming cash to map out the other sites.
These two factors make us confident that Critical Elements has clear 10x potential by 2025.
That’s why the time to strike is now...
Action to Take: Buy Critical Elements (CRECF).
Buy-up-to price: $1.50
Stop Loss: None
Note: Critical Elements trades on the OTC market. For almost all major online brokerages, buying an OTC stock is just as easy as buying a stock that trades on a large exchange like the NYSE. Simply enter the ticker symbol into your broker’s online platform, and the stock will pop up. If you have any issues, reach out to your broker for further guidance.