​What Does a Junior Resource Exploration Company Do in a Bear Market?

Gary C. Bizzo  |

I was writing a different article for this week until I realized that the company I am working with One World Lithium (CSE:OWLI) had something to say about raising capital that is inspiring.

An inspiring story about raising funds? Sounds ridiculous, right?A public company sells stock and offers warrants on excellent terms in a Private Placement to accredited investors. Hmmm. Sounds good unless the market is falling apart at your feet and brokers are telling you not to worry because it’s still a bull market undergoing a healthy correction.

Facing corrections sounds to me like the beginnings of a bear market.

The problem with my current project, lithium prospecting, is that after Goldman Sachs  (GS) monumental statement in March, 2018 that lithium had reached its peak because there was excess supply so the price of lithium will drop. Without exception, every company in either exploration, development or production of lithium were shredded by up to 90%

Now the question is how could it crash? It’s the main component in batteries for electric cars and China announced in 2017 that there would be 5 million electric vehicles produced by them by Q4 2019 including all of Volvo’s vehicles – duh!

Volkswagen even announced that they would spend $50B on the electric car ‘offensive’ by 2023.

Then there is the fact that aside from Australia lithium production, the remaining production is in the South American triangle of Argentina, Chile Bolivia and the Democratic Republic of the Congo. There is a major supply problem as the political risk in the DRC and Bolivia limits future supply, while Chile has virtually nationalized the Lithium industry as amongst other things, the Chilean Government wants a 30% interests and has reduced allowable production from the Salar de Aticama that holds 27% of world supply and is supplying 15% of world supply.

This is bad enough, but there is one other factor influencing the market, as all production in Australia is from hard rock that is some 300% more expensive than production from Argentina.

The bottom line is the trend for low cost production in a stable environment is getting smaller, leaving Argentina in the lead.

The company that I am associated with (after researching and writing an article about them here) is in Mexico. Part of the former NAFTA and current USAMC agreements this legitimizes Mexico as a viable source for minerals in my mind.

So, the market has tanked and traditional sources of capital raises are seemingly taking a long respite. They have dried up. My broker buddy. Mike, involved initially in this resource took the entire summer and half the fall off because “nothing was happening. “

I guess we could have called it quits, thrown in the towel and said – Next?But my bud, Tim Brock at One World Lithium said, “hell no, forget the brokers, lets find our own investors and keep on going………..its like creating our own market”.”

We both laughed because I am marketing guy with little expertise in the mining industry and he is the mining guru who knows little about marketing but we put our heads together to find a way to raise capital.

Create our own market – hmmm, an interesting comment.

The traditional brokers, promoters and hangers on in the junior resource stocks (which we used to call the “penny dreadfuls”) were obviously smoking the marijuana that they were actively investing in and had no interest in junior mining stocks because Goldman Sachs told them so.What’s an old time promoter going to do? Find a new market.

Exciting people into buying stock is a promoter’s skill so it seemed obvious to approach investors who were, but didn’t consider themselves, high wealth individuals but with a twist. Let’s approach guys from the oil patch, blue-collar guys who didn’t have a broker, accountants who only liked mutual funds and average guys who felt everyone else got the opportunities except them.

Let’s reach out to them and point out a cool property in Mexico that has all the traits for a successful lithium operation and give them the opportunity the brokers refused to give them. .

This reconfirmed to me the power of the “bush telegraph” as the word got out to their friends and associates who shared in the excitement.The market is alive as long as you stay away from the brokerage houses with presentations and mindless PowerPoints.

Then the word gets out to investors who own car dealerships and it happens all over again. One World was able to raise $1.275M out of a Private Placement of $2M by this method. The rolling close allowed us to enter the next phase – fully funded drilling in January. I guess it is a half-truth, but buying begets buying and now there are some investment funds and senior lithium companies showing up. So One World has achieved forward momentum by going around the brokerage community who are now showing up.

What does the future look like for this junior mining company? Some fund managers have now taken an interest and investors on the edge waiting for the market to turn around have shown interest where none existed.

It all comes down to a faith and belief in your product. If you can convince enough people to believe in what you do the market will follow.

Personally I think conglomerates like Goldman Sachs making announcements about a resource that is clearly part of a growing trend of environmental change is careless and misguided. They stalled a growing field of exploration and production while many believe to have heavily invested in the shrinking pricing themselves.

My buddies; the accountant, the small restaurant owner and the blue-collar investor have just bought into a dream. The investment of these people in One World varies between $ 5,000 and $150,000.

A dream with an affordable price of admission with a good chance of changing their lives? Is the risk worth it? Hell yes!

Gary is CEO of Bizzo Management Group Inc. in Vancouver. He has mentored over 1000 business leaders, investors and entrepreneurs. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018.

DISCLOSURE: I am doing social media consulting with this company.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GS Goldman Sachs Group Inc. (The) 175.84 -2.99 -1.67 2,611,447 Trade
OWLI:CNX One World Lithium Inc 0.19 0.00 0.00 32,980

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