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Precious Metals

Long-Term Warrants: The “Secret” To Enhanced Returns

Consider long-term stock warrants in companies that offer that alternative versus purchasing their common shares for historically higher returns.
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This article was originally published by Munknee

Investors who would like to add the potential for amplified returns to the commodity, cannabis and psychedelics investments that they have high hopes for should seriously consider long-term stock warrants, where companies offer such opportunities, as a cheaper way to gain exposure to such companies versus purchasing common shares. In doing so, if history is any guide whatsoever, they should generate dramatically higher returns as a result.

An original article by Lorimer Wilson, Managing Editor of munKNEE.com, Your KEY To Making Money

What are Warrants?

For those of you who are not familiar with warrants, they give the holder the right, but not the obligation, to purchase the common shares of the company at a specific price within a specific time period after which, if not exercised, they expire worthless although they can be traded up to the expiry date just as with the associated stock.

Canadian Investors Take Note

Canadian investors have the option of either exercising the warrants (i.e. converting them into actual stock in the associated company according to the terms of the warrant) once they are “in the money” or selling them outright at any time before they expire. As there are symbols for all Canadian warrants the placing of orders is very easy to execute and, as such, it is convenient to use online brokerage firms if so inclined.

American Investors Take Note

American investors, unfortunately, can not convert their warrants into the associated stock like Canadians and experience the added leverage. They can only sell their position before the expiration date – and it is recommended that they do so 6 to 12 months before the expiry date because the value of a warrant often drops drastically during its final months of life – because, according to U.S. law, Americans cannot exercise a Canadian warrant unless its associated shares have been registered with the SEC and that is almost always never the case.

The above being said, Americans can still reap the potential enhanced returns that a warrant provides compared to the associated stock and perhaps, upon selling, benefit from additional currency exchange profits should the USD (used to buy the warrant) decline vis-à-vis the CAD (the currency one would receive upon selling the warrant) in the coming years.

Many American online brokers are not set up with the symbols for warrants trading on one of the Canadian stock exchanges so it may be necessary to deal with a broker directly and have him/her enter the order for you. Unfortunately for many American investors, however, some brokers/financial advisors may say that they can’t execute your order but that is just hogwash, though, as any broker who says that is actually confessing that he/she doesn’t know how to buy such securities and is too lazy to find out how to do so and provide the service and expertise you are paying him/her for. If that is the case, it is important that you ‘tell’ them exactly what you want them to do on your behalf and most will be more than happy to comply. That’s where your knowledge as to what the CUSIP number is for the stock you want to buy comes in. CUSIP stands for Committee on Uniform  Security Information Procedures which are unique codes established by the American Bankers Association for all Canadian and American securities. For more information read Americans: Use CUSIP Numbers When Buying Canadian Exchange Listed Cannabis Stocks – Here’s Why & How.

Steps for Successful Warrant Investing

  1. Determine which companies offer long-term warrants by going here.
  2. Choose a company that offers a long-term warrant of at least 24 months duration because the longer the remaining life of a warrant the more time there is for the company to execute on their business plan and more time in the event of a market downturn for a favorable turnaround.
  3. Select a company that you think has great potential because if the company does not perform and execute on its business plan the common shares will not rise and, therefore, their associated warrants will nor rise either and, if the common shares decline, their associated warrants will decline by an even greater percentage. Visit the company’s web site for their latest activity and results and review the company’s latest quarterly financial results to determine their financial health.
  4. Identify a warrant currently priced to deliver an enhanced return of at least 1.5-to-1 (i.e. a 50% greater return than the associated stock) based on your due diligence (go here for an example of how to calculate the Return on Investment (ROI) of a warrant as compared to the associated stock) or you can visit CanadianWarrants.com or CommonStockWarrants.com (subscription) to learn which warrants they calculate to be bargains, under-valued and fairly valued to help you make your decision.
  5. Buy your chosen warrant when you think the market is favorable because, while warrants out-perform their associated stock in an up market, they under-perform much more so than their associated stock in a down market.
  6. Don’t forget to sell the warrant before it expires (applicable to both American and Canadian investors) or, for Canadian investors only, to convert the warrant into the associated stock if the exercise price has been reached prior to the expiration of the warrant.

Number of Long-Term Warrants to Choose From

  • There are 221 Canadian warrants currently trading on one of the Canadian stock exchanges (Source) of which only
    • 69 (31.3%) have a long-term duration, i.e. expire at least 24 months from now:
      • 13 (5.9%) expire in 2026,
      • 7 (3.2%) in 2025,
      • 42 (19.0%) in 2024 and
      • 7 (3.2%) expire in the latter part (October onwards) of 2023.
  • From my analysis, however, only 13 (5.9%) or so of those 69 long-term warrants appear to have any likelihood, mathematically, of coming into the money (i.e. rising to equal or surpass their exercise price and, as such, becoming convertible into the associated stock).
    • Keep in mind that a fundamental analysis of the company might well reduce that number even further if it is deemed in your due diligence that some, or all, of the companies are poorly managed, poorly financed, have poor output prospects and/or very high costs of production.

Follow-up articles will compare the performances of my portfolio of 13 long-term warrants versus their associated stocks to illustrate the contention that long-term warrants out-perform their associated stock. It will prove to be a VERY interesting exercise.

Related Articles from the munKNEE Vault:

1. Americans: Use CUSIP Numbers When Buying Canadian Exchange Listed Cannabis Stocks – Here’s Why & How

It is easy for Canadian investors to execute orders for cannabis stocks using their Canadian symbol but it is not as straight forward for those individuals (i.e. Americans) using non-Canadian brokerage houses because many brokerage houses and online brokers don’t know the symbols for the cannabis penny stocks you might wish to buy. That’s where the use of CUSIP numbers can be very helpful.

2. Stock Warrants: Do You Have a “Ferrari” In Your Portfolio? (+5K Views)

Rarely do I see others writing about stock warrants so I was delighted when Marin Katusa went into detail describing the benefits, as well as the potential risk factors, with warrants as outlined below.

3. Gold & Silver Warrants: What are They? Why Own Them? How are They Bought & Sold? (+21K Views)

With all the interest in physical gold, silver and other commodities these days, and the large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why is no one writing about the merits of investing in the long-term warrants associated with a few of those companies?” Merits? Absolutely! Here is a primer on virtually all that you need to know about warrants and how to invest in them for major profits.

4. Capture Some Incredible Potential Gains By Investing In Stock Warrants (+2K Views)

If you don’t understand stock warrants, you are not alone. Very few of the professional newsletter writers and analysts understand them so why should you? Allow me to give you a brief education on stock warrants in the following paragraphs and tell you exactly why you need this information.

5. Increase Your Returns With Warrants – Here’s How (+2K Views)

The warrant investor needs to be aware that owning the stock outright is the conservative approach. When using the warrant, the basic common stock MUST appreciate to a certain level BEFORE the warrant’s risk/reward basis becomes better than an outright stock purchase…

6. Warrants “Don’t Get No Respect” But They Should – Here’s Why

This article offers a tutorial on warrants as an underused investment vehicle, disabuses myths about warrants, shares the names of some warrants that warrant attention and makes the case for adding warrants to one’s portfolio.

7. My Rules for Successful Investing In Stock Warrants

Very few investors know about the potential benefits via the additional leverage that warrants can offer but they are substantial if you follow the 4 rules I present in the article below.

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Precious Metals

Is Silver a good buy in October 2021?

Silver extended its correction from the recent highs above $24, and we could see even lower prices in the weeks ahead if the U.S. dollar remains strong….

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Silver extended its correction from the recent highs above $24, and we could see even lower prices in the weeks ahead if the U.S. dollar remains strong. The demand for the dollar continues to grow, although it remained below its weekly high of 0.86 compared to the euro.

Fundamental analysis: Fed Chair Jerome Powell said that interest rates could rise quicker than expected

Since the beginning of September, the silver price has weakened more than 5% and reached the price levels that we had seen in November 2020. The U.S. central bank reported on Wednesday it could begin reducing its monthly bond purchases by as soon as November 2021, which positively influenced the U.S. dollar, and the most significant force behind the silver price slide is the appreciation of the U.S. dollar.

“The U.S. central bank is preparing the ground to possibly begin dialing back some of the extraordinary support it has given the economy during the pandemic. The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff,” Fed Chair Jerome Powell told reporters on Wednesday.

The U.S. Federal Reserve switched to a more hawkish tone, and Fed Chair Jerome Powell said that interest rates could rise quicker than expected by next year. Jerome Powell also said that Fed achieved its goal on inflation, while more than half of Fed members believe that the economy reached the employment goal.

The global business activity is recovering, the U.S. unemployment rate fell to 5.2% in August, and the rapid price increases are also a reason to begin raising rates. The prospect of interest rate hikes positively influences the U.S. dollar, and those whose interest is to invest in precious metals like Silver should have the U.S. dollar on their “watch list.”

Technical analysis: $20 represents a strong support level

Those whose interest is to invest in commodities like Silver should consider that the risk of further decline is still not over.

Data source: tradingview.com

The important support level currently stands at $20, and if the price falls below this level, it would be a firm “sell” signal. The next price target could be around $18 or even below.

On the other side, if the price jumps above $25, it would be a signal to trade Silver, and we have the open way to $27.

Summary

Silver price remains under pressure after the U.S. central bank reported that it could begin reducing its monthly bond purchases by as soon as November. The most important driving force behind the price slide is the appreciation of the U.S. dollar, and investors will continue to pay attention to the U.S. Federal Reserve comments.

The post Is Silver a good buy in October 2021? appeared first on Invezz.

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Economics

Teck Resources’ Investor Day Shines Light on Long-Term Resilience of Steelmaking Coal

Source: Peter Epstein for Streetwise Reports   09/24/2021

Teck Resources, a CA$26 billion company, is the 2nd largest steelmaking coal producer…

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Source: Peter Epstein for Streetwise Reports   09/24/2021

Teck Resources, a CA$26 billion company, is the 2nd largest steelmaking coal producer in the world. In its Investor Day presentation earlier this week it reiterated the long-term strength of the seaborne coking coal market. Colonial Coal is also 100% coking coal, with two valuable projects for sale in B.C., Canada.

On September 21st copper, zinc & steelmaking coal producer Teck Resources Ltd. (TECK:TSX; TECK:NYSE) held its annual investor day, a three-hour webcast highlighting very robust global demand for steel and the small number of critical materials essential in making it.

"However, steel is absolutely essential in building the very renewable power plants & electrified transportation systems the world needs to decarbonize."

 

 

 

 

Teck is the 2nd largest coking (metallurgical / met) coal producer in the world behind BHP. Anglo American is #3.

 

Teck’s investor day had been anxiously anticipated. A week earlier there was a rumor that the Company wanted to divest its steelmaking coal business due in part to (as per the rumor) pressure from shareholders & prospective investors calling for companies to dump coal.

A key takeaway from the event was that seaborne met coal (Teck’s specialty) will remain in high demand as several Asian countries, especially India, are building a substantial number of blast furnaces that can only be supplied by exporters like BHP, Teck & Anglo.

There’s no doubt that burning coal, be it thermal (used to generate electricity) or met (to make steel) is bad for the environment, producing greenhouse gases that are warming the planet.

However, steel is absolutely essential in building the very renewable power plants & electrified transportation systems the world needs to decarbonize.

In assessing steelmaking coal’s role in global warming it’s imperative that we separate it from thermal coal. Thermal coal is already being fazed out — readily & cost-effectively — replaceable by nuclear, hydro, wind, solar, biomass, and geothermal sources.

Teck is a prime beneficiary of thermal coal’s demise. According to steelmaker ArcelorMittal’s website,

Each new MW of solar power requires 35 to 45 metric tonnes of steel. Each MW of wind power requires 120 to 180 tonnes. Utility-scale wind farms typically produce a 100 to 300 MW, and up to 1,000 MW. ” Annually, hundreds — eventually thousands — of giant wind farms will be installed.

Steelmakers have been trying to diminish the power that met coal, coke & iron ore producers hold by finding alternatives to blast furnace steel fabrication. That initiative has only grown with increased environmental concerns. Yet, 70% of steel still comes from 20th century blast furnaces.

New technologies are on drawing boards, but none are expected to make meaningful inroads anytime soon. New methods have their own carbon footprints to contend with. Instead, new technology is being deployed at the steel plant level.

 

teck

Carbon capture and other methods (such as the advent of Li-ion battery powered container ships) offer no silver bullets, but they’re reasonably affordable & fairly effective. Unsurprisingly, Teck is a big fan of carbon capture & fossil-free shipping!

Tens of trillions of dollars in debt-fueled economic stimulus packages in the 2020s alone will buy a staggering amount of steel, which will continue to consume vast amounts of met coal. There’s no practical, large-scale substitute.

"Teck is a big fan of carbon capture & fossil-free shipping."

Although I believe met coal should be given more slack, some good projects will, inevitably, fail to get funded or die on the permitting vine. This suggests that met coal prices are likely to remain stronger for longer. Teck forecasts the potential of a meaningful deficit in the seaborne market from 2025-2030.

According to Teck’s presentation, the 10-year avg. inflation-adj. met coal price is ~$180/Metric tonne (“Mt”). Fastmarkets lists four hard (and premium hard) met coals ranging in price from ~$336 to $601/Mt (Sept. 22nd), and averaging $475/Mt. That average price has quadrupled from its 2020 low!

teck

Will prices in the next 10 years average $180/Mt? No, my guess is prices might return to $225-$275/Mt.However, can steelmakers take the chance of multi-yr. stretches of $300-$400/Mt pricing? Vertical integration into met coal is a move that all steelmakers should seriously be considering.

Teck’s trailing 12-yr. normalized (adjusted) annual EBITDA {from presentation slides} is $2.2 billion. At a “new normal” avg. long-term met coal price of say $240/Mt, EBITDA would be closer to $2.95 billion = CA$3.75 billion.

In my view, the valuation of Teck’s steelmaking coal biz. in today’s bull market is > CA$12 billion. If a robust bidding war were to break out, with prices at, or near, all-time highs, I believe the transaction value could surpass CA$16 billion

Which other steelmaking material companies might be poised to benefit from Teck’s bullish vision of the future? One seemingly undervalued company is Colonial Coal International Corp. (CAD:TSX.V).

Colonial has two 100%-owned, PEA-stage met coal projects in B.C. Canada. One borders Teck’s Quintette project, the other is sandwiched between two of Anglo American’s projects. While Teck has met coal reserves of ~800M Mt, all in B.C., Colonial has resources (not reserves) of 695M Mt.

The Huguenot project is ~620 km north-northeast of Vancouver, close to the boundary with Alberta. Huguenot’s PEA contemplates an open-pit only scenario; 27-yr. mine life @ 2.7M Mt/yr., at a cost of ~US$110.4/Mt & upfront cap-ex of US$303M. At current met coal prices, I estimate 2.7M Mt/yr. could generate ~CA$775M/yr. in EBITDA.

Colonial’s other project, Gordon Creek, is planned as an underground mine; 30-yr. life @ 1.9M Mt/yr., at a cost of ~US$81/Mt & upfront capital of US$300M. At current met & PCI coal prices, I estimate 1.9M Mt/yr. could generate ~CA$504M/yr. in EBITDA.

teck

Therefore, combined EBITDA could be ~CA$1.3 billion/yr. (at currently sky-high pricing). Having said that, it would likely take a buyer at least five years to approach full-scale production.

Assuming a 40% retreat in pricing, annual EBITDA would still be ~CA$774M. If one applies a 4x EBITDA multiple on that CA$774M, the indicative future value of Colonial could be ~CA$3.1 billion, (less CA$766m in initial cap-ex), equals $2.33 billion.

Discounting that figure back five years at 8%/yr., nets ~CA$1.6 billion.

I believe a well-funded steelmaker, miner, commodity trader or OEM could afford CA$1.5-$2.0 billion for Colonial’s 695M resource tonnes.

Colonial is run by experts in met coal & in mining, and by people with meaningful work experience in western Canada. For the past two years, the Company has been engaged in a process to divest one or both of Huguenot / Gordon Creek. They’ve retained a number of investment bankers to assist.

Soon after the sales process began, COVID-19 struck. India had a particularly difficult time, and Indian groups are thought to be among the most interested in Colonial’s assets. Indians, along with Chinese, Japanese, Australian, Korean, Russian, Canadian & American groups!

 

"[The] first bid will refocus everyone’s eyes on the size of the prize."

Understandably, COVID-19 has slowed the sales process considerably. In my opinion, it might still take months before one or both projects are sold. However, an opening indication of interest, a bid, even a “stink bid,” could come at any time. That first bid will refocus everyone’s eyes on the size of the prize.

 

teck

It seems odd that with Colonial trading at CA$1.05/shr., a suitor’s bid of say US$0.75 per resource tonne — considered by most to be too low — could vault the share price above CA$3/shr.

Colonial has 183.4M fully-diluted shares, no debt & ~CA$6M of fully-diluted cash. The Company is valued in the market @ US$0.21 per resource tonne.

Some shareholders are quick to point to comparable transactions and record high met coal prices to suggest > US$2-$4/Mt in the ground is called for. That’s certainly possible, but to be prudent, readers should not base investment decisions on best case scenarios. US$1.50/Mt equates to CA$7.25/shr. (NOT a price target)

Some of the same buyers from 2011-12, but significantly more steelmakers, coal / copper / iron ore miners, commodity trading firms (like Mitsui, Mitsubishi & Glencore), and perhaps even large automakers — are watching Colonial. Perhaps it’s time for giant Indian & Chinese thermal coal-heavy players to diversify into met?

There are only a handful of high-quality met coal resources of this size (695M Mt in total) anywhere in the world, no less in a great mining / met coal jurisdiction like B.C. Canada, and actively for sale.

It might be unwise for a Major steel company to allow Colonial’s projects to be sold too cheaply to a competitor, possibly giving that competitor a meaningful, long-term cost advantage.

"Retail investors have a rare opportunity."

teck

Retail investors have a rare opportunity. Trading volume is not consistently large enough to allow institutions to build multi-million share positions. But, investors looking for thousands of shares can get it done.

Make no mistake, an investment in Colonial’s stock offers a high-risk, high-reward, high share price volatility proposition. Readers are reminded not to invest more than they can afford to lose.

If one agrees that poor trading liquidity, the drawn out sales process (largely due to COVID-19), and the word COAL in the Company’s name might be driving significant undervaluation, then it’s time to take a closer look at Colonial Coal.

teck

 

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.

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Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Teck Resources and Colonial Coal International Corp., including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

The author, Peter Epstein of Epstein Research [ER] has no current or prior business or personal connection with any mgmt. or board member of Colonial Coal, nor does he or [ER] have any prior or current business relationship with the Company. Mr. Epstein owns shares of Colonial Coal, obtained in the U.S. market, via open market purchases. Mr. Epstein may buy or sell shares in the Company at any time.

Mr. Epstein is not currently, and never was, an investment advisor, stock broker, agent, legal advisor or investment professional of any kind. Nothing contained in the above article should be taken as advice or as an offer to buy or sell any security. All facts & figures, incl. commentary on indicative company valuations are believed to be somewhat accurate & reasonable, but might not be — therefore they are for illustrative purposes only. Facts & figures / calculations / valuations, etc. should not be relied upon without further investigation by investment professionals. Mr. Epstein is not providing any share price guidance or buy/sell recommendation. Mr. Epstein may or may not write about Colonial Coal in the future. He & [ER] are under no obligation to update readers going forward. The shares of Colonial Coal represent a high-risk investment opportunity that may, or may not, be suitable for readers. As such, readers are urged to consult with their own investment advisors before making investment decisions.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

Streetwise Reports Disclosure:
1) Peter Epstein's disclosures are listed above.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.  

 

( Companies Mentioned: CAD:TSX.V, TECK:TSX; TECK:NYSE, )

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Articles

Victory Resources Well-Positioned to Benefit from the Resurgence of Lithium

2021.09.25
The global lithium market has seen a resurgence this year as governments worldwide begin to take aim at more stringent environmental targets,…

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2021.09.25

The global lithium market has seen a resurgence this year as governments worldwide begin to take aim at more stringent environmental targets, driving up interest in electric vehicles.

A vital ingredient in EV batteries, lithium has seen its demand rebound from a sluggish two-year window between 2018 and 2020. In turn, the EV battery boom has given lithium prices a second charge.

In China, the world’s biggest EV market, the price of battery-grade lithium carbonate increased by 68% during the first two months of 2021 on the back of high battery demand, according to Benchmark Mineral Intelligence, a leading data provider for the Li-ion battery supply chain.

As of May 21, Benchmark’s year-to-date lithium index is up 74%, its lithium carbonate index gained 103%, and its lithium hydroxide index posted a 56.7% increase.

Lithium’s Second Rally

A similar trajectory is developing in H2 2021, with lithium prices continuing to climb and surging to their highest in more than three years thanks to an upsurge in EV sales.

Global sales of electric vehicles were up 150% in the seven months to July to just over 3 million units, compared to the same period in 2020, with about 1.3 million sold in China, according to EV battery consultancy Rho Motion. For 2021, Rho Motion expects global EV sales to reach as high as 5.8 million.

The EV boom has depleted stocks of battery materials such as lithium, causing the supply to tighten in major markets.

In China, lithium carbonate output in August rose 19% year-on-year to almost 20,000 tonnes, according to state-backed research house Antaike, but this output would be easily outstripped by demand from the EV sector.

Benchmark estimates that demand for lithium is expected to jump 26.1% or about 100,000 tonnes LCE to a total of 450,000 tonnes this year, flipping the market into a deficit.

A recent report by Roskill stated that competition for the control of EV battery production is also intensifying, with Europe aggressively building its own production capacity to challenge China.

“Right now it’s very simple: the market is so tight that players are fiercely competing for any spot tonnage available,” said Max Deudon, a trader at Transamine in Geneva. More investment in lithium production is needed to meet future needs of the electric vehicle supply chain, analysts say.

“Things are heating up and there is huge anxiety about where lithium supply is going to come from in the near future,” said Benchmark Mineral Intelligence analyst George Miller in a Reuters report.

“If new lithium doesn’t start coming to market, we might start to see electric vehicle production rates hamstrung by a lack of raw material supply,” he added.

One place that holds the key to unlocking the tightening lithium market is the US state of Nevada, which hosts an abundance of lithium-rich claystones that have yet to be fully explored.

Among those that have commenced exploration activities in Nevada is Victory Resources Corporation (CSE: VR) (FWB: VR61) (OTC: VRCFF), which is anticipating further advancement on its Smokey lithium project in the near term to benefit from the EV revolution.

Prolific Lithium Region

Victory’s Smokey lithium project is located about 35 km west of Tonopah, Nevada, within the famous Big Smokey Valley that traverses three counties across the state.

Esmeralda County — where the project is situated — is one of the world’s most prolific regions for lithium clay deposits (Noram, Cypress, American Lithium, Spearmint, Enertopia, Jindalee). These deposits all have proven large tonnages with acceptable lithium grades in excess of 900 ppm.

Albemarle’s Silver Peak, the only producing lithium mine in North America, is also found here, in an area known as Clayton Valley. Named after an early settler and mining engineer, the Clayton Valley has become a focal point of lithium exploration over recent years.

The Smokey lithium property lies approximately 35 km north of Clayton Valley, adjacent to and possibly on trend with the Clayton North project (930 ppm Li) held by Australia’s Jindalee Resources Ltd.

Farther away, Noram’s Zeus lithium project (900 ppm Li) is about 25 km to the southeast, while 35 km to the northeast is American Lithium’s flagship Tonopah Lithium Claims property (1,000 ppm Li).

Smokey clay lithium project and other properties in the region

In this prolific lithium region hosting, Victory’s Smokey project covers a total of 350 claims covering 7,000 acres of land with excellent access and relatively flat ground.

The property shares similar geologic settings to the Clayton Valley and the many exploration projects nearby. It is located in the Walker Lane trans tensional corridor on the western margin of the Basin and Range province.

The property’s geology consists of Miocene – Pliocene tuff deposits, claystones and siliciclastic beds (Esmeralda Formation) with overlying younger alluvium deposits and desert pavement formation. The claystone, which can carry high lithium concentrations, is observed as highly weathered light grey to tan mounds of unconsolidated clay from 0.10-1.50m thick.

The flat-lying nature of the claystones, together with the frequent occurrence of transported cover, requires drilling to fully validate and assess the Smokey project’s lithium potential as indicated by surface sampling.

Loner Property Update

The recent lithium rally isn’t the only positive development the company has to report on its growth prospects.

Earlier this month, Victory announced that extensive mapping, sampling and drilling on its Loner gold property, also in Nevada, have indicated the potential for a larger system than previously understood. As a result, the company has staked 8 additional claims and is re-evaluating the system.

Located 35 km south of Winnemucca in the southern Sonoma Range, the Loner property consists of 16 federal lode claims covering historic workings and exposed low-sulphidation gold mineralization. The project was optioned from Silver Range Resources for exploration purposes.

Bedrock grab sampling to date has returned up to 16.6 g/t Au, and chip sampling in old workings has returned up to 25.7 g/t Au over 1.83m. Prospecting during 2020 identified additional workings on the expanded claim block, with grab samples up to 10.6 g/t Au.

According to Silver Range, the strong gold and arsenic soil geochemical anomalies are coincident with the exposed mineralization and historic workings.

In May, Victory completed a drill program on the property, with the intention to better characterize the mineralization exposed in the known workings, and to evaluate the 200-300m wide zone of anomalous soils previously identified by Silver Range.

Ten holes for 496 metres of core were drilled in granite on the southwestern block of the property in order to find subsurface veins similar to the previously worked areas nearby.

The cores contained trace sulfides and quartz veining, but lab results showed anomalous gold throughout the granite adjacent to workings, with erratic high-grade gold (up to 15.7 g/t over a 50 cm section) in granite-hosted quartz veins. Samples also returned elevated values of arsenic (up 1,640 ppm).

At the time, the lack of silver or any other mineralization supported the company’s original hypothesis that the granite was low of the system.

Then in early July, a mapping project was conducted approximately 1 km to the north of the Loner drill program in Pershing county, Nevada.

Land was staked after two “grab” samples of mineralized rock were shown to contain over 1,000 ppm silver. This most recent project lasted 9 days and resulted in the collection of 18 rock samples, 85 soil samples, and a generalized geologic map of the newly staked property.

Field observations and current data indicate that there could be a larger system at play, should a relationship be established between the silver-bearing sandstone and proximal gold-bearing granite.

The Loner property was previously thought to be only a local epithermal gold deposit, but the size and complexity of hydrothermal activity have now led to a re-evaluation of the system. Assays of the soils and rocks collected throughout the property will reveal more information about the system, Victory said.

“From the time we optioned Loner in late December till now, the Victory team has accomplished a tremendous amount of work and we look forward to the assay results from this drill program, which will guide our next steps,” the company previously stated in a news release.

The fact that the property is in close proximity to an area in Nevada where the likes of Barrick and Kinross have interests bodes well for what’s yet to come.

Recent exploration in the area includes the Goldbanks project, an epithermal gold project, and the Coronado VMS project, which has been exploring for copper. While the Loner property is prospective for both these styles of mineralization, the latest findings suggest that this could be part of a bigger system.

Conclusion

While Victory is encouraged by its work to date on this highly prospective gold property in Nevada, the company is equally excited about the potential of its Smokey project within the lithium-rich part of the state.

Extensive sampling this year on the property has already shown strong results, including high lithium values in the claystones up to 1,500 ppm.

In the years ahead, targets to cut carbon emissions will be heavily dependent on how much rechargeable lithium-ion batteries we can produce for our electric vehicles.

Evidently, deployment of EV metals increased significantly in 2021. Data from Adamas Intelligence showed that the average lithium used per vehicle including hybrids was up 19% year over year during the month of July.

Surging demand for EV metals has already sent the price of lithium to its highest since 2018. Year-to-date, the battery mineral is up 162%, topping $21,000/tonne, according to Benchmark’s latest estimates.

Strong demand for lithium-ion batteries from EVs, consumer electronics and grid electricity storage systems are expected to put a strain on battery raw materials, including lithium, resulting in supply chain issues, Roskill forecasts.

This is where Victory’s Smokey lithium property comes into play. The company is looking to secure drill permits ahead of a drill program this year.

Given that the Clayton Valley region has become a hotbed for lithium clay deposits, a discovery hole at Smokey would be a game-changer for Victory and its recently expanded exploration focus from precious metals to battery metals.

Victory Resources Corp.
CSE:VR | FWB: VR61 | OTC:VRCFF
Cdn$0.065, 2021.09.23
Shares Outstanding 89.9m
Market cap Cdn$5.85m
VR website

Richard (Rick) Mills
aheadoftheherd.com
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