Don't buy things that are trending on Twitter or the front page of USA Today, warns Gold Stock Trades publisher Jeb Handwerger. Buy them when they are unloved and on the back page. In this interview with The Energy Report, he singles out the unloved companies that could become media darlings in the coming boom in energy metals, uranium and—eventually—oil sectors. And he stresses the importance of the single most important commodity in the investing space ever—time.
Jeb Handwerger is an author, speaker and founder of Gold Stock Trades. He studied engineering and mathematics at University of Buffalo and earned a Master's degree at Nova Southeastern University. After teaching technical analysis to professionals in South Florida for over seven years, Handwerger began a daily newsletter, which grew to include thousands of readers from over 40 nations. In 2014, Handwerger highlighted the two top stocks on the Best OTCQX 50.
The Energy Report: The recent announcement that Tesla Motors Inc. has signed an agreement to purchase lithium from Pure Energy Minerals Ltd. has created quite a bit of buzz in the mining world. How is this different than previous agreements with Bacanora Minerals Ltd. and Rare Earth Minerals Plc?
Jeb Handwerger: The most significant difference is that this is in Nevada, where the Tesla gigafactory is being built. The battery and carmaker will need large quantities of lithium at a cheap price, and sourcing it in its backyard will be a smart move for the supply chain.
Years ago, I predicted the growth of the lithium-ion battery market and the need for a secure domestic supply of the critical materials used to make them. This is just the beginning. We're in the early stages of a revolution in powering transportation and homes. This really is disruptive technology. Annual growth in the battery space could be around 20%, which means that demand could double every five years. These batteries make smartphones, laptops, tablets, electric cars and even solar energy practical.
While the TSX Venture Exchange has been crushed in 2015, our positions in junior lithium mining companies have continued to outperform in dramatic ways. The news out of Tesla to secure supply from Pure Energy Minerals is a huge validation for the concept of lithium in Nevada.
In July, Pure Energy released an Inferred resource estimate of 816,000 metric tons of lithium carbonate equivalent on the Clayton Valley lithium brine project near Albemarle Corp.'s Silver Peak producing mine in Nevada. Now that Tesla has validated the project—and the investors that believed in the company—the company will be able to go to institutions and raise capital. There is still a lot more work to be done on the development, but Pure Energy is working with POSCO and Tenova Bateman to refine the plan. Like the gigafactory, production is probably two or three years out, and by that time, Pure Energy will probably have been bought out by a major like Albemarle. Once management comes out with a preliminary economic assessment (PEA) and shows the economics, this will be an irresistible takeout target. There is still a lot of upside there.
We believe this is the early innings of a great game in this lithium-ion battery market. This offtake agreement could affect the entire lithium space and, hopefully, spread to other junior mining companies.
TER: What other lithium mining companies do you think should be getting more attention in the wake of that deal?
JH: We've also followed the earlier-stage Dajin Resources Corp., which has the Alkali Lake property and Teels Marsh property in Nevada. Both are earlier stage, but in the same area as Pure Energy. Dajin also has the Salinas Grandes in Argentina, but Argentina goes up and down. Nevada is always good. It is supportive of mining and a rule of law. That's the ideal place if you're looking to invest in mining.
A couple of years ago, I highlighted Western Lithium USA Corp., which had a phenomenal run in 2014, even before Tesla chose Nevada. This company was No. 1 on the OTCQX in 2014. It has the Kings Valley deposit in northern Nevada, with a plan for production of 26,000 tonnes per year of lithium carbonate. Management raised $5 million ($5M) from major institutions and just merged with Lithium Americas Corp. to create a significant lithium company.
TER: Lithium is just one of the ingredients in making a battery. Graphite is another. What does this deal mean for the graphite space? Are you anticipating more offtake agreements on the graphite side as well?
JH: I am. I think it's very important to have a secure supply of graphite since the market continues to be flooded by the Chinese. It's a critical mineral for lithium-ion batteries. Right now, the prices are extremely cheap because most of it is controlled by the Chinese, and the global economy has slowed down. But in the next three to five years, I expect more demand from the graphite sector in North America.
The key to success will be processing the graphite to meet the needs of the battery manufacturers. That is why I like Great Lakes Graphite Inc., which is developing a processing facility in Ontario at the Matheson project. It has secured the facility to process and to micronize graphite for specific industrial applications.
I also like Graphite One Resources Inc. (GPH:TSX.V), which has a massive deposit of large-flake, high-grade graphite in Alaska. The company is in the midst of a $1.5M financing that will enable it to quantify the economics of the processing operating costs, and take it closer to a PEA. It's a potential secure supply of large-flake, high-grade graphite located in the U.S. that would be a natural fit for Tesla's gigafactory.
TER: You also follow the uranium market. Are you more optimistic about prices now that Japan has announced it is restarting nuclear reactors?
JH: There will be a rebound in the uranium market, possibly within weeks. The reactor restarts in Japan will be a major turnaround for the sector. Japan was a possible seller of uranium over the past few years. It is going to become a buyer once again. China will soon announce major plans to fight pollution and build out its infrastructure, which will include building major nuclear power plants at a record pace. India is also committed to nuclear. The uranium sector must not be ignored.
There is going to be huge growth in the Athabasca Basin, which has been highlighted recently by the consolidation of Denison Mines Corp.'s high-grade Wheeler River project on the east side of the basin with the massive Patterson Lake South (PLS) discovery controlled by Fission Uranium Corp. That merger is going to create a new Denison, which is a potential blue chip company. Denison has been around for a long time, but now it can boast the lowest cost uranium projects in the world. When uranium prices turn around, Denison, which is trading now at pennies, could be trading at dollars and maybe tens of dollars.
TER: What juniors in the Athabasca could benefit from the scenario you describe?
JH: I'm watching the Fission 3.0 Corp. group closely. This management team is developing a basket of exploration projects in the basin. One of the projects, Clearwater, is partnered with a company called Canex Energy, which is right next to PLS, and it has a drill hole only 330 meters away that Fission drilled. It seems that the anomaly goes right onto Canex's Clearwater property. That's one project that I'm excited about.