Critical Elements Accumulation Time
1. The story and the fundamentals:
October 20, 2017:
From the National Instrument (“NI”) 43-101 technical report representing the qualifying report for the Feasibility Study at the Rose Lithium-Tantalum Project located in James Bay, Québec, the highlights are as follows:
Average annual production of 186,327 tonnes of chemical grade lithium concentrate
- Average annual production of 50,205 tonnes of technical grade lithium concentrate
- Average annual production of 429 tonnes of tantalum concentrate
- The expected life of mine of 17 years
- Average operating costs of $66.56 per tonne milled, $458 (US$344) per tonne of concentrate (all concentrate production combined)
- The estimated initial capital cost $341.2 million before working capital
- 100% equity basis for the project
- Average gross margin 63.6%
- After-tax NPV of $726 million (at 8% discount rate), after-tax IRR of 34.9% and price assumption of US$1,500 per tonne technical grade lithium concentrate, US$750 per tonne chemical-grade lithium concentrate, US$130 per kg tantalum pentoxide
- Anticipated construction time to start of production of 21 month
May 01, 2018: private placement of 7,000,000 units (the “Units”) at a price of $1.00 per Unit, which includes 2,000,000 Units issued pursuant to the exercise in full of the Underwriters’ option, for gross proceeds totalling $7,000,000 (the “Offering”). The syndicate of underwriters for the Offering was led by Canaccord Genuity Corp., together with BMO Capital Markets and GMP Securities L.P. (the “Underwriters”).
Each Unit consists of one common share (a “Common Share”) of Critical Elements and one-half of one common share purchase warrant (each whole warrant being a “Warrant”). Each Warrant will entitle the holder thereof to purchase one Common Share at a price of $1.25 per share for a period of 24 months ending May 1, 2020.
June 14, 2017: closed $3 million, representing the second and third drawdowns on the credit facility entered into with HELM AG on June 28, 2016, as a “take or pay off-take agreement.”
Subject to the take or pay off-take agreement to be executed by the parties, HELM AG has the sole and exclusive right to purchase all of the produced products including spodumene concentrate (technical and chemical grade), all lithium chemicals (carbonate, hydroxide, chloride), mica and tantalum concentrate (collectively, the “Products”).
The parties will use their commercially reasonable efforts to finalize and execute the take or pay off-take agreement by no later than 60 days following the completion of the feasibility study. Under the collaboration agreement, and subject to certain conditions, notably the exercise of the Financing Option (as defined below), HELM AG was also granted a right of first refusal to become the exclusive off-taker for all Products on any of the future projects of Critical Elements (or its affiliates).
June 2, 2016: private placement of 16,750,000 common shares at a price of $0.37 per share, which includes 2,750,000 common shares issued pursuant to the exercise in full of the over-allotment option, for gross proceeds totalling $6,197,500. The private placement was led by Canaccord Genuity Corp.
3. Technical Analysis:
After reaching a high of $1.80 in October as well as December in 2017, the stock has drifted downwards and we are now accumulating it around the $0.60 cents to $0.68 cent level. This level also supported the March and May 2017 lows and this is where we have seen previous accumulation.
Summary: “3V-Analytics®” on Critical Elements:
With a compelling story on a superb lithium asset, the stock has now sold off as investors get impatient as the permitting and development are slated to begin in the second half of 2019. This is seen from their corporate presentation from June 2018 which basically said on page 6 that permitting and construction are scheduled for the first half of 2019, (H1 2019), while production is anticipated for the second half of 2020, (H2 2020). This interlude with the stock is where we have that opportunity to accumulate an asset that is now undervalued as prices are below news that supports a higher pricing model in this micro-cap stock. Yes, it will take another 6 months before we enter 2019 but to get stock at a cheap price, we are willing to buy at previous supporting levels and accumulate between $0.60 and $0.68 cents that can only be had when markets sell off or when a large investor gets tired of the position. As such, patience is warranted as we are buyers whenever the stock descends into and/or below this level.