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Lithium Exploration Group Inc. (OTC:BB: LEXG, Stock Forum), a U.S. Bulletin Board stock with properties in Canada and Argentina, has seen its stock price rise in meteoric fashion. Yet the move appears to be fueled by little more than an $3.3 million promotion campaign.
Between March 18 and April 28, the shares rocketed from 7 cents to a 52-week high of $10.68. Even after this week’s abrupt U Turn, Lithium Exploration was still trading at $4.48 on Thursday, giving the company a market cap of $213 million based on 48 million shares outstanding.
That’s a lofty valuation for a company that has generated no revenue since its inception in Nevada in May 2006.
Given that the company reported having zero cash at the end of December 31, 2010 it isn’t clear how LEXG can fulfill its obligations to vendors on its lithium exploration permits in Alberta and Argentina.
That didn’t stop an advertising campaign that might have boosted the stock from zero to over $10. The advertising campaign appears to have been funded by a large LEXG shareholder.
In a back-slapping report titled “The Next Exxon,’’ The Stock Detective describes Lithium Exploration as an “under-publicized mining company that is poised to produce 1,000% profits from a 2.8 billion pound lithium discovery…without drilling a single well!”
This is almost surely a reference to a December 16 agreement with privately owned Lithium Exploration VIII of Sudbury, Ont. It gives Lithium Exploration the option to earn a 100% interest in five Alberta mineral permits covering 45,952 hectares and known as the Valleyview property.
Regulatory filings indicate that the option on the five permits was previously held by First Lithium Resources Inc. (TSX: V.MCI, Stock Forum) which sold the option for $90,000, plus future payments.
First Lithium, which traded at 11 cents earlier this week, continues to hold 41 Valleyview property permits, indicating that it will have the lion’s share of any lithium developments in the future.
In January 2011, Lithium Exploration also obtained an option from Salta Water Co. to acquire a 60% stake in certain mineral claims in Salta Alta Province, Argentina. To earn the interest Lithium Exploration must pay US$375,000, issue one million shares and spend $4 million on exploration. Once the option is exercised, it can earn the other 40% by paying out $6 million. Salta Water is based in the Cayman Islands, regulatory filings show.
The Valleyview and Salta options are clearly a move to cash in on investor interest in Lithium, an industrial chemical that is recovered from brine sources (salty marshes and reservoirs) and hard rock.
Lithium appears to be getting attention because the public is starting to recognize what the electric car might be able to do and the role that lithium plays in the production of efficient batteries for electric/hybrid cars.
In setting a $10 target for Lithium Exploration, The Stock Detective says investors in the company have a unique opportunity to capture lithium’s meteoric rise from relative obscurity to the “next gasoline.’’ This is a mixed metaphor in light of the fact that lithium is used in batteries as opposed to being poured into a gasoline tanks.
As is often the case in the penny stock world, the report is accompanied by a disclaimer which reveals that The Stock Detective is working with a company called Circuit Media, which used outside writers and was paid a whopping $3.3 million to produce the report.
The Stock Detective also received a $50,000 editorial fee, according to the disclaimer which notes that Gekko Industries Inc. has approved and signed off… “as approved for public dissemination” all statements made regarding Lithium Exploration Group’s history, assets, and technologies.
According to regulatory filings, Gekko Industries is a Panama-registered company that acquired five million shares (a 10.44% stake) in Lithium Exploration on January 12, 2011. Gekko, bought the shares from a former company officer and director for
.0001 or $5,000, setting itself up for potential profits in spite of what has been spent on the promotion campaign.
In a letter to shareholders dated April 27, Lithium Exploration President Alex Walsh said it has come to the company’s attention that in recent weeks, various organizations, websites and paid analysts have been promoting the company’s stock.
“We seek to clarify that we have not engaged in any such activity, and have no connections to, or relationships with, anyone who would be engaging in the promotion of our stock,’’ he said.
The letter was released only 48 hours after OTC Markets Group Inc., the U.S. operator of the Bulletin Board quotation system, slapped a Caveat Emptor warning on Lithium Explorations’ stock page, complete with an ominous-looking skull and crossbones logo.
In an email note to Stockhouse, OTC Markets Group spokeswoman Grace Keith said the Caveat Emptor or buyers beware warning means there is a public interest concern associated with the company.
It may include a spam campaign, questionable stock promotion, known investigation of fraudulent activity committed by the company or insiders, regulatory suspensions, or disruptive corporate actions.
Keith declined to be more specific.
During the time it is labeled Caveat Emptor, any stock that is not in the current information category will also have its quotes blocked on otcmarkets.com.
Meanwhile, Walsh had perhaps the best advice for investors. In the April 27 letter to his company’s shareholders, he said anyone thinking of buying Lithium Exploration stock should seek an opinion from a qualified investment professional, prior to making an investment.
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