?EUR? Wealth Minerals (WML-V) is far and away the best value proposition in Lithium today.
?EUR? They own a massive piece of the highest grade, lowest production cost Lithium salar on the planet, direct neighbors to 1/3rd of current global production.
?EUR? They will pay substantially less in royalties than the two largest global lithium producers, SQM and Albemarle, who lease their rights, where Wealth owns theirs.
?EUR? Via ENAMI, they are partnered with the government of Chile, one of the friendliest global mining jurisdictions.
?EUR? The next wave of global growth is necessitated on the build-out of battery grids, which will require vast amounts of Lithium.
?EUR? The trend towards protectionism and tariffs makes securing these resources a key imperative for economies of the world.
?EUR? The management of Wealth understands the coming demand and the true value of their assets. They will not be undersold.
?EUR? Potential partners and buyers are realizing the situation, and could end up in a bidding war for Wealth.
The junior lithium sector has been quiet and weak of late, as has the broader market and especially anything in the small cap space. The lithium sector has advanced to the point where the hyped up companies that don't have the means to ultimately deliver are beginning to show their cracks. The next stage the industry will go through is one of consolidation and demise. Companies with feasible assets will all partner up with majors to finance production, and everyone else will trickle value until there is little left.
We are going to look at why Wealth is going to be one of the winning companies in the space, and the strong motivators, both political and economic, that will likely result in Wealth's being the next junior to form a major partnership and charge into production.
Atacama, Atacama, Atacama. This is a massive, world class asset. The production from this salar currently represents about 1/3 of global supply, and 15% percent of known global lithium reserves, not taking into account the high potential for the northern portion of the salar to add to these reserves. Wealth has a very substantial 46,000 hectare piece of this salar, and their geophysical results showed a massive lake of brine below the surface that has very high conductivity. Conductivity means Lithium, and Lithium in the Atacama salar means the potential for the highest grades of Lithium brine on the planet. Their direct neighbor in the salar, SQM, tests their grades at up to 1890 mg/L, which is more than double what other major commissioned projects in Argentina have. For example, one of the the biggest project getting the go-ahead in Argentina is Lithium Americas joint Cauchari-Olaroz project with SQM. They have an average lithium brine concentrations of 698 mg/L and they have secured hundreds of millions in financing to build the first stage, a 25,000 tpa production. Lithium Americas Corp (LAC) owns 50% of this project, with SQM owning the other half, and LAC has a current market cap of nearly $600 million. At the height of the lithium excitement in 2017, they were worth nearly $1.2 Billion. Wealth's market cap is currently about $140 Million, and their asset level could dwarf LAC's.
Wealth bringing Atacama into production would very easily be 25,000 tpa, and the potential for a 50,000 tpa is feasible, given the vast potential brine supply in this property. For perspective, SQM is expanding their Atacama operation to 100,000 tpa for 2019.
While the Atacama property is a crown jewel, the Laguna Verde and Trinity projects have the potential to be just as big as other major projects that are going into development in the region.
Laguna Verde is a lake which has about 220 mg/L Lithium concentrations on the surface. Partnering with Tenova Advanced Technologies, Wealth has tested a membrane based lithium recovery process with brine from the lake, and the result was 100% lithium recovery. With proven technology that skips the traditional evaporation process, this could be a producing asset in a relatively short term. They have now drilled the site to test the concentrations of sub-surface brines, and are currently doing a feasibility study for a 20,000 tpa production.
The Trinity project is going to be drilled in the short term as well. Pending those results, a feasibility study will uncover the potential capacity of this resource.
Management is what gets a deal done, and investing in a company without well proven management is not advisable. Fortunately Wealth has exceptional leadership.
CEO, Henk Van Alphen, has had a long and successful career building exceptional value for shareholders. Henk has been directly responsible for raising over $200 million in the last 10 years and has been closely associated in financing an additional $800 million.
The efforts in Chile are spearheaded by Executive Director, Marcelo Awad. Marcelo Awad has had a long and distinguished career in the mining industry, including 18 years with Corporaci??n Nacional del Cobre de Chile ("Codelco"), most recently as Executive Vice President, and 16 years with Antofagasta Minerals S.A. ("Antofagasta"), the Mining Division of Antofagasta Plc) including 8 years as CEO from 2004 to 2012, a period of very significant growth for Antofagasta. In the 2011 Harvard Business Review, Mr. Awad was ranked as the number one CEO in Chile, 18th in Latin America and 87th in the world. Recent news in Chile was holding him up as a possible successor for the CEO role at Codelco, though I believe he's has declined.
Getting to where Wealth is today has been a journey. When they arrived in Chile, they procured great assets, but had no right to exploit these resources. The recent ENAMI relationship is the ultimate validation of Chile's desire for Wealth's projects to move forward into production. It also provides a political mechanism to smooth any regulatory or community based difficulties that may have previously provided headwind. ENAMI is now the ultimate tailwind for Wealth, ensuring that the people of Chile know their best interests will be well represented, and that any project will create substantial value for the citizens of Chile and spur the economy.
A very distinguishing factor for Wealth is that they currently own 100% of their assets. This is in contrast to SQM and Albemarle, whose Atacama productions are operating on CORFO's land, and they owe them an egregious 40% royalty on any production sold for more than $10,000/MT. The royalty is a sliding scale, but with Lithium prices well above (double) the $10,000 top 40% royalty tier, this is becoming much more expensive lithium. Wealth's agreement with ENAMI is for a 10% ownership of the joint operation. At this point, Wealth retains 90% of the project, and does not have to pay an additional royalty. This profound difference cannot be overstated. Wealth's Lithium is going to be substantially cheaper (better for shareholders) than what SQM and Albemarle are able to provide. This is a value structure that makes Wealth absolutely unique in Chile. It also makes it a very attractive takeover target.
Wealth is partnered with the government in an extremely mining friendly jurisdiction, with direct ownership of a massive asset that has the potential to be a truly world class production. The resource is a strategic material that is highly sought after for the next global wave of expansion. The wave is at its very infancy, so the market has not yet seen the full force of the demand that is building behind the scenes.
Geo-politically, we are in a new era where protectionism and tariffs dominate the global conversation. We see China and the US throwing new tariffs at each other on an almost daily basis. The threats are backed by a huge push to bring manufacturing closer to end users. In an age of robotic manufacturing, where employee costs are a negligible consideration, there is no reason nor additional value in having a company manufacture something and then send it to the other side of the planet for use. This old system is going to change, and the result is going to be more insular economies that can and must provide for themselves. We may have seen peak shipping of finished goods around the globe, and are starting a new era of local manufacturing.
The next wave that will push economies forward is a revolution in power storage, and a rebuild of power grids. There are many things we do and use today that are not currently consuming electricity directly, but in five years they will. Electric cars are coming fast, and we've all read of the tens of billions being spent by every major car company to be ahead in this race. Massive infrastructure is going to be built out to charge these cars globally. Saudi Arabia is planning a $200 Billion (yes BILLION) solar array, and that comes with a correspondingly massive battery grid to allow off-peak consumption. We are going to see battery projects like this on every continent. We are going to see all massive energy producing infrastructure tied to new battery grids. If there is a hydro dam, there will be a corresponding battery grid. If there is a solar array, there will be a corresponding battery grid. Eventually, if the sun shines on a house, there will be a local solar array, and a local battery. We won't get in to the digitization of currencies, contracts, identity, the coming internet of things and Artificial Intelligence, all which will consume huge amounts of energy. Blockchain mining facilities are some of the largest energy consumers on the planet with this new digital network consuming more energy than entire countries. I may be digressing, but it could well be the case that the demand for batteries and a new electrical grid is not properly being accounted for.
Think about it. Decades worth of economic expansion is going to be tied to this new theme of battery storage. It ties into all the major advancements we are making in the economy today. Politically, we are closing up, and everyone seems to want to do it at home, alone. Global tensions are rising, and if we cannot provide for ourselves, we run the risk of a giant tariff wall being thrown up in front of our ability to expand the economy and build future electric infrastructure.
China is leaving us behind in the race for battery materials. They have half the global planned capacity for battery production. The US has 15%. China is making bids to lock up supply of the resources required, most notably the current bid for 32% of SQM for $5 Billion. SQM's flagship property is of course the direct neighbor of Wealth Minerals on the Atacama salar. The Chilean government is trying to block the deal over concerns that China will monopolize the global lithium market.
If you do not have batteries, you will not participate in this next massive wave of expansion. If you do not have Lithium, you will not have batteries. This realization is dawning, and the rush is coming.
So who is going to partner with Wealth Minerals? The world is going to produce a massive wave of batteries for this next generation, but the supply arrangements are not yet locked up. China is coming after the market hard, to a degree that governments like Chiles are becoming concerned about monopoly over global energy storage. South Korea is making big moves to be a leader in the space as well. North America should want to be the global provider of the next generation of energy technology, but most major contracts these days seem to be going to Asia. North America is going to be reliant, yet again, on foreign manufacturing to uphold a leading standard of living, but at a time when the government is sending very clear messages that they are protectionists. If economies don't secure their own supply of these future metals, they will have no chance at global economic leadership through this next cycle.
From what we have seen globally, it's very plausible that an Asian entity tries to secure major supply by buying into Wealth. That is what we have been seeing for months, with the SQM bid, the LIX takeover, Tianqi's massive endeavors into the Australia Greenbushes projects, and staking claims in Chile. There are also major battery manufacturers in South Korea (LG, Panasonic, POSCO, Samsung) that need to secure their supply. Samsung and POSCO have agreed to build a cathode plant in Chile. If one of these groups were to partner with Wealth, the leaders of Albemarle and FMC should see it as a shot across the bow. Tesla should see it as a shot across the bow. Chile's government is already ringing the alarm on the potential SQM deal with China. Is North America losing the race for one of the next biggest global industries? This is a real race to secure supply, and Wealth has an asset that leads the pack.
It's not likely that Wealth will sell itself outright upfront. Value is unlocked in stages, and they still need to drill and prove up the Atacama property. We have seen Henk Van Alphen, Marcelo Awad and Tim McCutcheon speak many times in the media about partnering with a major company to finance the build-out. Maybe they sell 5% or 10%, or 20%. Then, when the projects are all financed and being built, the market can set the overall value for the company. Comparable projects put the value of going into production at many multiples of the current share price for Wealth. Look at the market caps of Orocobre ($1.3B), Galaxy Resources ($1.17B), Lithium Americas Corp ($579M), Nemaska ($510M). Wealth is at $138 Million, but should end up at least in the middle of that list.
The one thing that seems quite obvious is that someone is going to partner, and we will be charging headlong into production in the best salar on the planet. This is one of the best and largest undeveloped Lithium assets globally, already partnered with the Chilean government.
The big question is not will a deal be done, but, who looking for Lithium can afford to let a world class asset like this slip away?
$WML