Lithium and cobalt are ‘just starting’ but fickle investors don’t make it easy
Mining & Resources
Battery metals are only “just starting” says a top US advisor — but fickle investors bouncing from cobalt to cannabis to crypto don’t make it easy for emerging players.
A continous decline in the price of lithium and cobalt stocks over the course of 2018 has made it harder for juniors to raise cash, says Eddie Sugar, a partner with New York-based corporate advisory firm EAS Advisors.
Part of the problem is investors looking for the “next run” rather than focusing on the long-term story, Mr Sugar told delegates at the International Mining and Resources Conference in Melbourne this week.
“People ask me if I think the run in lithium and cobalt is over.
“We don’t look at runs. We look at the holistic way of looking at the industry — and we’re telling you it’s just starting.
“But the marketplace does [look for runs] and so it’s harder to find people to invest in lithium and cobalt today because of what happened.
“They’ll wait for the next run and then everybody will pile in again.”
An exodus of investors from the junior resources space over the past couple of years could be blamed on investors jumping over to cannabis and crypto, said Miranda Werstiuk, senior vice president of private Canadian investment bank IBK Capital Corp.
“In Canada over the last 18-to-24 months we saw a lot of capital leave the junior space and move into cannabis and the cryptocurrency space,” Ms Werstiuk told the conference.
“When you look at the capital that used to flow in the junior space — we were doing a transaction a month quite easily with a really good base of investors.
“All of a sudden that capital went elsewhere because there was much greater liquidity, return on investment was a lot quicker and a lot higher.”
Is the cannabis run over?
But the cannabis run appeared to be over there and there was hope money would flow back into resources, MsWerstiuk said.
“Now that initial cannabis bubble has burst I think. As with the dotcom boom in the early 2000s it’s all cyclical, so we’re hoping that some of that capital will flow back in.”
The other thing the industry needs is a big new discovery, Ms Werstiuk said.
“I think something that would really excite at least our early stage investors is if there was a good solid discovery to excite the market again,” she said.
Too many rushed IPOs
Depressed stock prices could also be partly blamed on resources juniors rushing into initial public offerings too early, said Mr Sugar.
Micro and small caps needed to adjust to a changed retail investment environment, he said.
“If you go back to the 80s and 90s in terms of financing mining companies there was a very large retail population in Canada, Australia even in London that were financing this.
“If you look at some of the instruments that have been implemented in the United States and other places from ETFs [exchange traded funds], you can now buy a junior mine ETF, you can buy a lithium ETF.”
An ETF is a type of investment fund that trades on a stock exchange and tracks a stock index, a commodity, bonds, or a basket of assets.
This meant investors could easily get exposure to a particular industry without investing in individual companies.
“I think that’s changed a lot of the ways that junior mining companies need to look at how they are going to get financed.
“We would suggest that they stay private a lot longer than they do … because I don’t think they’re ready for prime time so to speak.”