By Peter Epstein, CFA, MBA epstein.peter4@gmail.com http://EpsteinResearch.com
The purge has arrived. Well perhaps not quite a purge, but it’s coming. It will be rejuvenating for the Lithium, (“Li”) sector. From 2016 highs, the shares of dozens of globally-listed Li juniors are down by 40% or more. Reminiscent of the cannabis craze 18 months ago, the Li sector is witness to a lot of shenanigans. Like cannabis, if ingested Li can make one feel better, but investing in newly minted Nevada (“NV”) Li juniors can cause confusion and anxiety.
Company name changes, sudden moves to Li from unrelated sectors, repeated touting of links to Albemarle’s Silver Peak brine operations, Tesla Motors, it’s giga-factory, Elon Musk, aggressive valuations, etc. Notably, Li juniors sometimes fail to mention where reported lithium values come from and other important information like brine chemistry. Li concentrations in surface samples are not readily comparable to those found in brine solutions. They represent different things. Vague reporting of Li values leads readers to scan press releases looking for the highest reported Li parts per million (“ppm”) number, irrespective of comparability across companies.
Four NV focused juniors (of more than 30 I’m monitoring) have sizable market caps (C$30 -C$90 million). Dajin Resources Corp, (TSX-V: DJI) (OTC: DJIFF) (Frankfurt: A1XF20) (“Dajin”) is not one of those four, it hosts acreage (hectarage) in both NV & Argentina (“ARG”). Dajin’s controlled land package in ARG encompasses about 230k acres (~93k hectares), larger than that of Lithium Americas (TSX:LAC). As an aside, Li junior exposure can also be had in exciting places like Mali, Namibia, Tanzania & Zimbabwe….
NV is a hotbed of Li speculation, but caveat emptor, readers must be careful in equating a Li land rush with that of say an oil & gas “fracking,” frenzy. A promising oil & gas play can be drilled relatively quickly, establishing it as prospective for hydrocarbons, or better suited for cultivating cannabis. Remember, proximity to potential economic Li concentrations is much more important than proximity to Tesla Motor’s (TSLA) giga-factory!
Dajin Resources has accomplished more than most in Nevada
Free Reports:
Dajin is an example of a Li junior with staying power. Led by an experienced and respected team including technical advisors & consultants, it has been operating with boots on the ground in Nevada for about two years and over six years in ARG. Six of eight team members listed on Dajin’s website have direct experience spanning geology, mining, drilling, green field exploration, exploration techniques, regional mapping, geoscience, hydrology, project management, social responsibility, geothermal energy & volcanism. Several team members also have experience on the ground in NV & ARG.
In a prior article on Epstein Research I explained why Dajin is well ahead of most global Li juniors. In this article I discuss the under-reported issue of NV water rights. Essentially, there are a few dozen NV focused Li juniors, most clustered in a few basins spread across a few counties. How will half, a quarter or even an eighth of these aspirants obtain water rights in a timely fashion, without undue expense?
Expert, highly experienced consultants are essential when pursuing water rights. Yet, how many NV water rights experts are out there? How many Nevada Division of Water Resources (“NDWR”) State engineers are there? Enough to process potentially a few dozen applications? A good way to introduce the topic is by describing a recent action taken by Albemarle Corporation (NYSE: ALB).
Water rights could be a showstopper for Nevada Li juniors
Albemarle filed an official protest with the NDWR against a Li junior’s application to transfer the “Place of Use” and “Point of Diversion” of a recently acquired water rights permit in Clayton Valley, NV. The dispute involves a pre-existing certificated water rights permit allowing 1,770 acre feet ((~1.233 million liters / 325.9k gallons) per year of water use for mining & milling. The junior filed an application to transfer the water permit from its current location to a location about 8 kms (~5 miles) from the nearest lithium brine production well of Albemarle’s Silver Peak Li operations.
Opposition by Albemarle in Clayton Valley underscores important points about water rights in NV. For example, not only can a new application be contested, but an application to transfer a permit is sometimes subject to the same potential for opposition. Dajin’s expert water rights consultant told me the quickest an uncontested water rights permit in NV might be issued is approximately 3 months. Most take 6-12 months
The sale, purchase and lease of water rights is routine across the State. However, by no means does attempting to buy a permit speed things up. A permit cannot be sold or leased to another party for a different use, unless an application is submitted to the NDWR and approval is granted.
The NDWR reviews all applications with respect to four broad questions. First, is there unappropriated water in the basin? 2) Would the granting of a permit impact existing rights? 3) Would granting a permit be in the public interest? 4) Are municipal (domestic wells) properly protected? Further, in NV, surface rights are separate from underground rights. This makes the reporting requirements (studies, data, testing, modeling) more costly, challenging and time consuming. It’s clear to me that this process is more of an art than a science.
Applications are processed on a first received basis, sequentially, one at a time. Application(s) at the top of the line can materially delay those in waiting. Getting an application in front of NDWR is becoming harder to accomplish. In May, Dajin was granted underground water rights 1,000 acre feet per year, for its 100% owned Teels Marsh Li project in Mineral County, NV. This quantity of water requested represents the total amount of unappropriated groundwater that existed in the Teels Marsh when the application was filed. From the May 26, 2016 press release, quote,
Dajin believes that the acquisition of water rights is an important aspect of Lithium brine extraction and processing. Low cost and time proven traditional extraction methods require concentration of brines by evaporation in surface ponds. New technologies are being developed that use less water and can potentially return processed water to the reservoir. However, Dajin wishes to maintain maximum flexibility in the adoption of any future process technology for the extraction of Lithium from brine at Teels Marsh, hence the acquisition of water rights is an important step forward in Dajin’s development plans.
Water rights just one of many requirements
And now the bad news…. a water rights permit is just one of many hoops to jump through, all exploration activities require approvals. For Teels Marsh alone, Dajin planned, funded, applied for and received permits, retained experts, performed and successfully completed; seismic, gravity & geoprobe surveys, auger brine and sediment sampling, stratigraphic analysis, the collection of magnetic & geochemical data. Exploration work in NV is conducted with the granting of Notices of Intent, which allow for exploration activities contained within a 5 acre disturbance area. New Notices of Intent are required each time a new activity is proposed and reclamation is required after the work is completed.
All of this heavy lifting feeds into a model, the inputs forming a 3-D image that helps inform the structure of the basin. Understanding the structure increases the odds of choosing optimal drill targets. In addition, the data obtained from the reports, analysis, sampling & surveys has to be complied (along with base-line studies & documentation) and incorporated into a Plan of Operations to be submitted to the Bureau of Land Management (BLM). Upon approval, a company has much more flexibly to operate and drill cost-effectively, as the 5-acre constraint is removed.
Dajin has completed all of this at Teels Marsh. Recently, management retained experts to help prepare its Plan of Operations, which is expected to be granted by mid-2017.
Please consider the wisdom of George Harrison,
“But it’s gonna take money
A whole lot of spending money
It’s gonna take plenty of money
To do it right….”
“It’s gonna take time
A whole lot of precious time
It’s gonna take patience and time, um
To do it, to do it, to do it, to do it, to do it
To do it right!”
Yes, everything takes time (money), more time (money) than expected, more time (money) than investors have patience for. Presumably, timespans will grow even longer. Scary news for most companies jumping on the Li bandwagon this Spring & Summer, but an outcome that Dajin Resources Corp, (TSX-V: DJI) (OTC: DJIFF) (Frankfurt: A1XF20) (“Dajin”) has prudently planned for and executed on since mid-2014.
Disclosures: The contents of this article are for informational purposes only. Readers fully understand and agree that nothing contained herein, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered, in any way whatsoever, implicit or explicit investment advice. Further, nothing contained herein is a recommendation or solicitation to buy, hold or sell any security. The content contained is not directed at any individual or group. Peter Epstein and Epstein Research [ER] are not responsible, under any circumstances whatsoever, for investment actions taken by the reader. Peter Epstein and [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stock broker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Peter Epstein and [ER] are not directly employed by any company, group, organization, party or person. The shares of Dajin Resources are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers of this article that they will consult with their own licensed or registered financial advisors before making any investment decisions. At the time this article was posted, Peter Epstein owned shares of Dajin Resources and the Company was a sponsor of Epstein Research. Any comparison between or among stocks is for illustrative purposes only and should not be taken as fact or relied upon. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for its completeness. Mr. Epstein & [ER] are not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Mr. Epstein and [ER] are not experts in any company, industry sector or investment topic.