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Big-Cap Lithium Stocks Are Hot, But My Top Pick Is Micro-Cap Power Metals Corp

· pwrmf,power metals corp,lithium,stocks

Stock quotes in this article: ALB, FMC, SQM, PWRMF

The "Big Three" lithium stocks -- Albemarle Corp. (ALB) , FMC Corp. (FMC) and Sociedad Quimica y Minera de Chile (SQM) -- have all popped higher in the last month, but they have never featured in my Chinese Client's portfolios. They are just not interested in pure commodity plays.

These three stocks had been falling for most of 2018, but bottomed out around March 1 and have rebounded strongly over the past weeks. SQM is up 5.6% since closing at $48.00 on April 2, while Albemarle and FMC has gained 5.6% and 16.0% respectively since April 2.

These stocks saw a major inflection point in January, when SQM announced that it had gained approval to expand Chilean production. Chile's stable democracy makes its briny salt flats a relatively safe place for mining companies to invest capital. Supply won't be an issue for lithium, project realisation is, especially as demand increases over the next few years as automakers produce more electric cars that run on lithium-ion batteries.

New supply is tough

Anyone who has been following the lithium story knows that it is very tough to bring new supply online. Just ask Orocobre, the most prominent example of a lithium brine greenfield operation - they are still trying to optimise their operations! The graphic below from their presentation is a dramatic example of how tough it really is to bring new supply online.

Instead, I am searching for emerging companies with "killer technology" to smooth the global auto industry's transition from gas engines to electric powertrains.

One name that I like is Power Metals Corp, a US39 million micro-cap that is currently testing new ways to extract spodumene from hard-rock lithium material. Power Metals have engaged Dr James Blencoe, founder of LMI and Orion Laboratories to commercialise a method to extract lithium compounds (lithium, aluminium and silica) from principal spodumene materials or concentrate.

The technology is modular and highly scalable, thereby enabling a small “factory footprint,” and holds the potential to decrease overall hard-rock lithium production costs, a potential "killer technology".

Power Metals Corp is a tiny company (and thus a risky stock), but I think that the upside is there. After all, I've been following the mining sector for nearly 20 years, but lately, keeping up with industry trends seems like a lecture in process engineering.

The R&D efforts are spearheaded by Dr James Blencoe, CEO of LMI (Light Metals International). Dr Blencoe is an expert in thermochemical processing, having previously developed a technology to Magnesium One (CSE:MDD) to produce 99.9% wt pure MG material at lower cost and faster scalability using a modular plant operation. Dr Blencoe has a BS degree in Mining Engineer and a PHD degree in Geology from Stanford University. He has more than 40 years of experience designing, constructing, operating and maintaining specialised equipment for advanced chemical production. He has published more than 50 articles and reports, in leading peer-reviewed scientific journals and technical magazines and is the lead author of three US patents on magnesium production.

Every mining company is scrambling to delineate resources and reserves. There will be a flurry of NI-43 reports and JORC reports being published by these companies over the next couple years, but for the most part, these companies do not have the technical expertise to extract lithium compounds, regardless whether they are hosted in brine or hard-rock.  

If someone like PWRMF can come up with a "killer technology" in lithium compound extraction, that company will have a truly valuable expertise.

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