Canada Lithium: why I sold out

In short, I don’t know how to verify the economics of its project.

I used to assume that (pre-)feasibility studies can be trusted to some degree.  However, I looked into Consolidated Thompson’s technical reports on the Bloom Lake project and then I looked at Cliffs’ numbers– there is a huge discrepancy.  The technical reports show operating costs of around $30-31/ton (see page 135 of the PDF for operating costs) while Cliffs is currently reporting cash costs around $85-90/ton.  So now I feel like I really don’t know what I’m doing… it seems like you can’t take anything seriously when it comes to juniors.

You could try to compare Canada Lithium’s numbers to Talison Lithium’s.  However, Talison has a much larger operation that benefits from economies of scale. (EDIT: It doesn’t.)  It’s also at least double the grade.  Canada Lithium’s presentation (slide 23) claims that its mine will have slightly lower cash costs than Talison’s operations (*the two operations do not produce the same final product).  I have a hunch that the opposite will be true.

Even if the two projects were similar in scale (and grade), some deposits can have subtle flaws that make comparisons inaccurate (metallurgical risk is something to watch out for).  Because of all the problems in the junior mining space, I don’t want to mess around with marginal deposits.  Small embellishments to economic assumptions can cause an uneconomic deposit to appear economic.

Considering Canada Lithium’s credibility problems in the past (e.g. lawsuit over lithium resource estimate), it is really important to verify their numbers.  Unfortunately, I just don’t know how to do that due diligence.  I should probably swear off junior exploration companies and sketchy mining stocks, but I haven’t.

Peter George connection

In the past, Canada Lithium had a different name and a different CEO.  They hired the infamous Peter George to write a technical report on their gold deposit.  The report claimed somewhere around a million ounces of gold (I don’t remember the exact figure, but it’s not really important).  Several days after the report, the predecessor company raised capital following the small pop in the share price.  In the subsequent quarter, the gold property was written down to almost 0.  There doesn’t seem to have been an economic deposit of gold.

Peter George is currently in trouble due to the Barkerville Gold debacle.  Barkerville’s stock is halted over concerns about the accuracy of his technical report.

Disclosure:  No position in Canada Lithium.  I sold between 49 and 55 cents… missing its current run-up on news of Talison Lithium being bought out.  I own Northfield Capital, which owns shares in Canada Lithium.

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