In my opinion, the announced merger makes a lot of sense for Canada Lithium and not a lot of sense for Sirocco Mining (TSE:SIM). I’m incredibly bearish on Canada Lithium and think that its mine will be uneconomic in its first year of full commercial production. Peter Secker (Canada Lithium’s CEO) has made an incredibly smart move by merging Canada Lithium with Sirocco.
I’ve previously thought that Canada Lithium’s mine would be extremely uneconomic. It looks like the thesis is playing out. The company is desperately raising capital to shore up its working capital. It hasn’t been able to generate cash flow from the mine yet, which raises doubt about the company as a going concern. I’ve quoted the company’s financial statements below and added my own emphasis:
The Company has secured off – take partners in major Asian markets, but has not generated revenue or cash flows from its operations. The Company has limited financial resources and no current source of recurring revenue and continues to rely on the issuance of shares, debt or other sources of financing to generate the funds required to develop the Québec Lithium Project, for corporate expenditures, and to satisfy debt obligations as they fall due.
It boils down to this: I think the company is lying about its project’s economics.
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.
As somebody interested in investing, I want to figure out how to generate unusual returns from mining stocks. Here’s a look at what “worked” in the past. Continue reading
Right now there is a lot of carnage in my portfolio.
