Grandich Q&A with new Rodinia CEOhttps://www.grandich.com/2010/06/grandich-client-update-a-q-a-with-rodinia-minerals-new-executive-chairman/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=The+Grandich+Letter
Rodinia Minerals: Lithium for a Green Future and Potential for a Share Price with a Green Future
As I always do, I want to start by reminding everyone of the potential biases and conflicts of interest that can arise when I am writing about client companies such as Rodinia Minerals.
The market being what it is, I didn’t push the panic bottom when Rodinia (RM-TSX-V $.32) slid from a base in the mid-to-high $.50s. But when I saw that Rodinia was bringing in a new Executive Chairman in Farhad Abasov, I figured it was time to schedule an update call. It became clear to me early in the discussion that it might be beneficial to have the comments go on the record. Farhad agreed.
Q: Farhad, tell me why you and the Forbes & Manhattan Group like Rodinia so much?
A: Peter, Rodinia is a typical example of an F&M portfolio company as it fits perfectly within our disciplined business model:
1. Clear and Strategic Focus on Resource Companies. As early as two years ago, and through discussions with colleagues in Asia, I identified lithium as a significant strategic metal, and helped lead F&M’s acquisition of a lithium project in Manitoba, Canada. While we were attracted to this project for its long-term potential, it wasn’t a company builder, so we endeavored to find additional lithium brine assets to acquire and build a pure-play lithium story out of. In our review, we found Rodinia, which at the time was a company struggling with an identity crisis. The company was billed as a clean energy business and had a mix of uranium projects and a little known property in Nevada that was prospective for lithium. We saw significant opportunity in this Clayton Valley asset and found a vehicle to build our vision in Rodinia.
2. Disciplined Investment Approach. At F&M, we know what we are looking for. We focus on excellent assets with the potential for significant growth and a long-term ability to build real assets. So, as I mentioned, we saw that potential in Clayton Valley. We had a project adjacent to the only lithium brine producer in North America, and we had some previous data on the area that suggested the basin extended onto our land to the north. But, to ensure that we didn’t overlook anything, we immediately moved to stake the land to the east and south of the producer such that we completely enveloped the Silver Peak operation, which is owned by Chemetall Foote, a subsidiary of Rockwood Holdings. And with the Rodinia platform in place we selectively added other lithium brine projects that we targeted in our original review – 4 projects in Argentina that we believe all have the potential to become producers in the future. The most significant of which is the Salar de Diablillos project, which is unique because we do not share the salar with any other operators or developers.
3. Build Assets. We have a saying at F&M that “we are not traders, we build assets.” Obviously, given the nature of our business, we have to exit investments eventually, but we only enter those that we believe we can build into real assets; into producing companies. We typically look at it as a 3-6 year time horizon, but we are not limited or constrained by this time frame, instead we focus on putting drill holes into the ground, proving up resources and building for production. To accomplish this, we put a strong management team in place and we look to attract a knowledgeable and connected board of directors. At Rodinia, we have a management team that includes a VP Exploration that has previous experience with lithium exploration in Argentina. Many of our junior competitors are applying traditional resource exploration techniques to the lithium space, whereas at Rodinia we are employing proven industry methodologies. We also have key leadership that came with mining-focused investment banking and legal experience.
4. Deliver Excellent Returns. This is a work in progress, but I should highlight that we have discovered lithium brines in Clayton Valley that appear to have higher concentrations than those previously reported by Chemetall, and we’re intersecting great grades at Diablillos that position the project as a leader in Argentina.
Q: So, is it fair to say that you’re not really new to Rodinia and that you’re not just getting started?
A: Yes and no. While I only became the Executive Chairman about a month ago, I did spend a lot of time in our evaluation and pursuit of lithium projects and of course I have been a shareholder of Rodinia since F&M got involved, so it’s fair to say I’m not completely new. But I would say that we are indeed just getting started at Rodinia. We haven’t completed our first 12 months of involvement yet, and we’re only now getting to a stage where we can aggressively explore our projects. We were only just discovering lithium in Nevada when our initial program finished and we’re intersecting great grades with an auger drill in Argentina that only allowed us to explore to depths of 5 meters. We’re going to get drills going at both sites in short order and we are very encouraged by what lies ahead.
Q: There has previously been a lot of attention centered on lithium and lithium-related applications, do you see this continuing?
A: Absolutely! In 2009, we saw the Obama administration make $2.4 billion of grants to establish a U.S. domestic battery solution that for the most part is focused on battery compounds that revolve around lithium. That’s a real headline number, which if used as a baseline may make other news look less important, but there has been some really significant developments in the past few weeks, which shows that the focus on lithium is not going away:
- Magna International co-CEO announced the company had earmarked a $200-300 million investment for each of the two electric car battery plants it intends to build; one in North America and one in Europe.
- The Magna announcement came a week or two after its founder Frank Stronach announced a proposed transaction that would see him step aside from Magna to lead a joint venture between himself and Magna that would focus on the production of electric cars.
- Last week Toyota Motor Corp., the world’s largest automaker, announced it was buying a $50 million stake in electric car producer Tesla Motors. The press coverage on the announcement highlighted that Toyota’s strategy was likely to get access to Tesla’s battery systems and to compete with Nissan and GM in selling electric cars in the U.S.
These announcements, just a select few off the top of my head, don’t carry a $2.4 billion number on them, nor do they always highlight lithium directly, but they are significant examples that stress that a focus on lithium and lithium-related applications isn’t going away; they continue to be alive and well. It takes a more disciplined and objective review to understand that these “smaller” announcements are plentiful and in aggregate account for some magnificent investments that continue to fuel the need for additional economic sources of lithium.
Q: You’ve mentioned Toyota and Magna, who have made strategic investments in lithium exploration companies, do you see a potential for involvement by these names or others in Rodinia?
A: Peter, there will always be an interest on the part of Rodinia to explore strategic investments and involvement by industry players or end-users. I can’t say definitively that Toyota, Magna or any other company will eventually be aligned with Rodinia, but I can say that we continue to speak with groups that are very interested in being involved with Rodinia. The discussions we’re having range from strategic future off-take arrangements to purely strategic financial investments, and in certain cases we’re dealing with household names. We will continue to have these discussions and if we can find an opportunity that we believe makes sense for the company you’ll see us do it. But, we won’t do something just to say that we’re working with Big Company X.
Q: Just last night you announced a change in CEO, what does this mean for the company?
A: Yes. David Stein is passing the torch to Will Randall who was previously the Vice President, Exploration for the company. This is the right time in the company’s evolution to pass the reins – we’ve completed the restructuring and asset acquisition phase of our growth strategy and will now focus aggressively on exploring our pipeline of assets and on proving up economic resources. Will has extensive experience running exploration programs, building out resources, and exploring for lithium. He has spent a significant amount of time in Argentina over the years and has established a unique network across North and South America. He is excited about the prospects for our projects and he brings energy to everything he does. Shareholders are in good hands with Will at the helm. He and the rest of the management team are fully supported by the Board.
I should also note that David continues to be a Rodinia supporter and will remain with the company as a Director and as an advisor to Will. David presided over a challenging time and did an admirable job of navigating the ship.
Q: If you could leave a final thought with everyone, what would it be?
A: Three things:
1. Rodinia is just getting started here. The more time we spend with our flagship properties, Clayton Valley and Diablillos, the better we understand them and the better we can work to provide the results and information needed to change the market’s view of their valuation.
2. We’ve spent the past year completing the dirty work. We’re now a pure play lithium exploration and development company with 2 active exploration programs and a pipeline of 4 additional projects. We are just now reaching a stage where we can focus all of our attention on proving out our original thesis. We expect that a significant amount of our attention over the back half of 2010 will be on drilling at Diablillos and in Clayton Valley, providing for steady news flow in the second half of the year.
3. Rodinia remains the only junior to:
- Have a significant land package in North America that has also intersected lithium brines. We press released the discovery of brines averaging 370 mg/L lithium over 30 meters in Clayton Valley, Nevada – levels greater than where Chemetall is believed to be producing from currently; and…
- Control a salar outright in Argentina, which provides a streamlined process with lower legal and permitting risk as we move into production. Diablillos now has 102 auger drill samples complete and has defined a 2.5 km by 4.0 km high-grade lithium potash zone near surface. The salar nucleus is averaging 868 mg/L lithium and 9,300 mg/L potassium.
PG’s Last Word
I’ve seen the results that the Forbes & Manhattan team can drive and I believe that based on the end-use market for lithium and what we now know from the sampling initiatives in Nevada and Argentina, the stock is cheaper today than before this team got involved