An Eagles song, “There’s a New Kid in Town. We’re looking for the King, the New Messiah. We’re Following the Stars Shining Brighter.” Yes, there’s a new kid in town, following the stars shining brighter. The star is lithium, shining brighter, in Nevada. Dajin Resources Corp (“Dajin”) (DJI:CA) (DJIFF) , an early-stage lithium company, put out a stellar press release on August 13th. Hint: 4,000 feet (1,200 meters), remember those numbers.
The Company announced results of its gravity survey on its 100% owned ALKALI LAKE. The 3D gravity and airborne magnetic basin modeling was prepared by Nevada’s Wright Geophysics. These results place Dajin Resources squarely on the lithium map, a rising star. Actually, Dajin Resources is on a number of maps, an especially good one in the press release. [Please See Map].
The map delineates Dajin’s Alkali Lake property, confirming it as a deep, closed basin of 4,000 feet (1,200 meters) in depth. Alkali Lake’s depth profile suggests, but in no way confirms, the possibility of an economic deposit predicated on continued strength in lithium demand. This news could attract a lot of attention and possibly kick start discussions on a number of corporate initiatives. The following from the press release,
“Dajin’s 100% owned Alkali Lake property consists of 138 placer claims covering an area of (2,811 acres) 1,138 hectares of the enclosed basin. Surface sampling in March and April confirmed the presence of near surface lithium. The basin is situated approximately 7.5 miles (12 km) east-northeast of Rockwood Lithium’s Clayton Valley lithium operation,’Rockwood,’ the only producing brine based lithium mine in North America. In addition, Alkali Lake’s claims are 12 miles (20 km) east-northeast of Pure Energy Minerals’ Clayton Valley project. Like Clayton Valley, Alkali Lake is a classic, fault bounded closed basin.”
Don’t fail to look at the map, I spent hours on it…
Dajin’s recently completed gravity survey. One of the four maps mentioned.
Did someone mention 4,000 feet (1,200 meters)? Surface sampling confirming near surface lithium is a prerequisite. However, 3D gravity and airborne magnetic basin modeling is a different matter. This announcement places Dajin in the Major Leagues (or whatever the ice Hockey equivalent), among early-stage peers. As mentioned, Nevada is home to the only lithium brine operation in North America, in production for decades.
One would presume, as I do, that Rockwood staked only the best properties. Finding lithium deposits is much easier than finding gold. Whether the lithium brine deposits prove economic requires a lot more work, but far less expensive work than in other extractive industries. Therefore, the overused theme, “closeology” is not unwarranted in the cases of Dajin and Pure Energy.
It’s essential for readers to view the map by clicking on the link, the image above is just a teaser. [Please See Map]. The linked map is actually 4 maps. As one clicks on it, 3 more pop up in succession. Instead of 1,000 words, it’s a stealth 4,000 words. Alkali Lake is nearly as large as Pure Energy’s property and at 4,000 feet (1,200 meters) in depth, a potentially very substantial deposit.
Dajin’s Alkali Lake appears to be roughly the same size as Rockwood’s lithium brine operations, (not the size of all its Nevada holdings). Readers following the lithium sector know that the majority of lithium supply comes from the, “Lithium Triangle” of Bolivia, Chile and Argentina in South America. Nothing is happening in Bolivia in the next decade.
Instead of a lithium triangle, it’s merely a line between two points, disheartening to say the least. It reminds me of when planet Pluto was demoted to mere asteroid. Nevada could become a new, ‘Lithium Triangle’ in years to come, Unfortunately, the three points of interest, Dajin Resources, Pure Energy and Rockwood form a straight line, not an attractive triangle formation. Not a problem, I declare these three the, “Orion’s Belt” of lithium.
Astute readers likely notice the proposed Western Lithium / Lithium Americas (“WLC” / “LAC”) merger is not included in this commentary. While a great deal in many key respects, WLC’s project is far north in Nevada, its basin crosses into Oregon. The pro-forma company appears to be focusing on Argentina. And let’s face it, there’s no more room in Orion’s Belt anyway.
Why lithium, why now, why any TSX-listed company?
In the past year, gold is down 15%, zinc 21%, silver 23%, copper 27%, palladium 29%, platinum 33%, nickel 44% and oil 55%. How does that compare (roughly speaking as lithium is highly use-specific) to lithium carbonate or hydroxide prices?
Simon Moores of Benchmark Mineral Intelligence, a well regarded metals and minerals consulting firm, explained, “on average lithium carbonate prices are up roughly 20% in the past year and hydroxide about 25%.” Moores reminds readers NOT to rely heavily on data points in industry markets that are neither transparent nor liquid. Reported lithium prices can and do vary widely based on a large number of factors. Mr. Moores relies on proprietary information and a network of fellow experts to assess the pulse of the market.
Why might lithium prices be moving in the opposite direction of most other metals and minerals?
Pundits are starting to come around. Not just on lithium, but on sectors like uranium. Yet believers are still contrarians, nonconformists, misfits. As one of just a few pure-play lithium juniors, Dajin Resources (DJI:CA) (DJIFF) has as much leverage to a rebound in natural resource stocks as anyone. I’m not alone in my view of the proposed WLC / LAC merger as a great deal on multiple fronts. The combined company would have a lager market cap, possibly enabling a more liquid trading vehicle for institutions to enter. WLC would gain access to LAC’s technology partner POSCO. The combined company would be geographically diversified and overall be a stronger company.
Yes, attention on the lithium sector appears to be growing. Consider the average daily 3 month trading volume of the (TSX-V: DJI) and (OTC: DJIFF) tickers. It’s just shy of 700,000 shares, [Source: YahooFinance]. By comparison, WLC’s equivalent daily trailing volume is approximately 500,000 shares and LAC’s roughly 375,000.
A WLC / LAC company would have a market cap of approximately C$ 125 million. As much as I like the thesis and benefits, consider the valuation of Dajin Resources, an Enterprise Value [fully-diluted market cap, plus debt, (zero for Dajin), minus cash] of roughly C$ 10 million. The C$ 10 million includes cash proceeds of C$ 1.5 million from the exercise of deeply in-the-money options and warrants. Like the proposed WLC / LAC deal, Dajin is diversified in both Nevada and Argentina. Dajin’s 100,000 hectares in Argentina is larger than LAC’s and Dajin has a superior Nevada footprint and easier flow sheet than WLC’s [opinions entirely my own]. Please recognize Dajin Resources is an earlier-stage company then those mentioned herein. As such, the Company’s substantial valuation discount to WLC / LAC is somewhat warranted.
There you have it. Dajin Resources. High risk? You bet. Compelling risk/reward? Yes. Bet the farm? Let’s not get crazy now.
Dajin Resources (DJIFF) & (DJI:CA) and Pure Energy are speculative, small cap company’s listed on the U.S. and Canadian market exchanges. An investment in either is not appropriate for everyone. Readers and investors are encouraged to do their own due diligence before buying or selling stocks, especially risky small caps. Due diligence should include consulting with one’s own investment advisor. The author, Peter Epstein,CFA, MBA owns shares of Dajin Resources. Mr. Epstein is not a registered financial advisor. Readers should take this fact into careful consideration.
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