By Steven Ralston, CFA
• Wealth Minerals (WML.V) announced that the company had entered into an agreement with ENAMI to form a strategic alliance
◦ Management anticipates that it will be 24-month process to formally form and efficiently structure a JV partnership for the development and commercialization of two of Wealth Minerals’ projects: Salar de Atacama and Laguna Verde.
◦ The JV will be 90% owned by Wealth Minerals and 10% owned by ENAMI with free-carried interest.
• Wealth Minerals reported fiscal 2017 results (period ending November 30, 2017)
◦ During fiscal 2017, equity financing activities provided Wealth Minerals a total of $16,961,554 to help finance the company’s activities
◦ During fiscal 2017, Wealth Minerals made all option payments required to keep its Option Agreements in good standing
• Lithium pricing update
◦ Spot prices rallied to over $25,000 during the fourth quarter of 2017.
◦ Thus far during 2018, spot pricing has been under some pressure due to:
• in mid-January, a contract between SQM and CORFO was announced sparking concerns over increased supply coming to market
• in late-February, Morgan Stanley forecasted a scenario of lower lithium prices as a consequence of an anticipated surplus by 2022
• we expect that the expansion of supply will come on line slower than anticipated and that the increase in global demand is being under-estimated
• The recent election in Chile resulted in a pro-business, pro-investment President who is expected to be very friendly to the advancement of lithium mining projects
Strategic Alliance with ENAMI
On March 19, 2018, Wealth Minerals announced that the company had entered into an agreement with ENAMI (Empresa Nacional de Minería aka National Mining Company of Chile) to form a strategic alliance that should result in a JV partnership for the development and commercialization of Wealth Minerals’ Projects in the Salar de Atacama and Laguna Verde. Management anticipates that it will be 24-month process to formally form and efficiently structure the JV, which will be 90% owned by Wealth Minerals and 10% owned by ENAMI with free-carried interest.
Under current Chilean law, lithium can only be exploited by the Government of Chile, a Chilean state-owned company or special operational contracts specified by the President of Chile. Only three (3) entities qualify to advance lithium projects to production in Chile: ENAMI, CORFO and CODELCO. ENAMI was founded in 1969 as a state company to promote the success of small-and-medium sized Chilean mining companies by providing toll milling and processing services. Founded in 1939, CORFO (Corporación de Fomento de la Producción aka Production Development Corporation) is a state development agency designed to promote economic development and business investments in Chile. CORFO is the governmental agency that has contracted Albemarle (ALB) and Sociedad Química y Minera de Chile S.A. (SQM) to extract lithium from the Salar de Atacama. CODELCO (Corporación Nacional del Cobre de Chile aka National Copper Corporation of Chile) is Chile’s state-owned copper mining company, formed by nationalizing foreign-owned copper companies in 1976. Though CODELCO focuses on copper production (and also produces molybdenum and gold doré), the company appears to meet the state-mandated qualifications to enter the lithium space.
Capital Funding During Fiscal 2017
During fiscal 2017 (ending November 30, 2017), equity financing activities provided Wealth Minerals a total of $16,961,554 to help finance the company’s activities and fund the necessary option payments to maintain its formal option agreements in good standing. During the year, Wealth Minerals successfully closed five non-brokered private placements, which provided $15,933,929 in net proceeds. In addition, the company received $1,027,625 from the exercise of options. Also, Wealth Minerals issued 850,000 shares towards the option agreement on the Salar Property; 1,000,000 shares on the Laguna Verde Project; 2,000,000 shares towards the Five Salars Project; 4,000,000 shares on the Salar de Atacama Project and 1,000,000 shares towards the Salar Green and Union Projects. As a result, shares outstanding increased 34.1% to 97,384,562 shares from 72,615,911 at the end of fiscal 2016.
Option Payments During Fiscal 2017
Pursuant to active option agreements, during fiscal 2017 Wealth Minerals paid US $3,000,000 on the Salar de Atacama Project, US $3,000,000 on the Five Salars Project (Ascotan, Piedra Parada, Lejia, Siglia and Huasco Concessions), US $500,000 on the Puritama Property (Salar de Aguas Calientes), US $700,000 on the Laguna Verde Project, US $600,000 on the Quiso Project (Salar de Quisquiro), US $200,000 on the Laguna Verde Land Package (Salar Green and Union) and US $66,850 on the Salar de Pujsa Concession (which was subsequently relinquished).
Lithium Pricing Update
After the steep run-up during the first half of 2016, spot lithium product pricing (battery-grade 99.5% lithium carbonate Li2CO3) corrected slightly and dipped below $18,000 during the first quarter of 2017 despite continued demand for lithium concentrate and lithium carbonate. However, spot pricing began to firm and strengthened during the third quarter of 2017 after Xin Guobin, China’s Vice Minister of Industry and Information Technology, announced at an auto forum in Tianjin on September 9th that Chinese regulators are working on a timetable to phase out the production and sales of fossil fuel vehicles. Spot prices rallied to over $25,000 during the fourth quarter of 2017. Thus far during early 2018, spot pricing has been under some pressure, especially after a contract was announced between SQM (Sociedad Quimica y Minera) and CORFO (Corporación de Fomento de la Producción - Chile’s governmental agency for the promotion of production) in mid-January, which allows SQM (SQM) to produce up to 216,000 tonnes of lithium carbonate annually through 2025, reducing the risk of a lithium carbonate supply shortage.
Government Regulation to Bolster Lithium Demand
On September 9, 2017, at an auto industry event in Tianjin, Xin Guobin, China’s Vice Minister of Industry and Information Technology, announced that Chinese regulators are working on a timetable to phase out the production and sales of fossil fuel vehicles. The Chinese Ministry stated that “relevant research” has begun in order to compose a timeline with an initial goal of having at least a fifth of Chinese automobile sales comprised of electric and plug-in hybrid cars by 2025.
As measured by the Global X Lithium & Battery Tech ETF (LIT), the announcement sparked a 14%+ rally in lithium-related stocks over the subsequent seven market days.
The announcement follows similar plans announced by the French and UK governments in July 2017. In early July, Nicolas Hulot, the French Ecology Minister, announced plans for “an end to the sale of petrol and diesel cars by 2040.” A couple of weeks later, Great Britain made a similar announcement under a draft plan to improve air quality through the reduction of automotive emissions.
Fiscal 2017 Results
On March 29, 2018, Wealth Minerals reported financial results for the 2017 fiscal year ending November 30, 2017. For the fiscal year, the company reported a loss of $12,733,758 ($0.15 per diluted share) versus a loss of $7,825,061 ($0.14 per diluted share) in fiscal 2016.
Exploration and evaluation expenditures and professional fees expanded significantly due to increased exploration activities and increased need for legal services, respectively. Exploration and evaluation expenditures increased 412% or $2.28 million while professional fees increased 418% or $1.39 million.
The weighted average number of common shares outstanding increased 55.0% YOY to 84,204,987. At the end of the fiscal year, 97,384,562 shares were outstanding.
Wealth Minerals is a junior mineral exploration company that is well-positioned to benefit from its portfolio of prospective lithium projects in the Lithium Triangle. The company holds control over portions of four lithium salar projects in northern Chile (Atacama, Trinity, Laguna Verde and Five Salars). Management has recognized the increasing interest in lithium brines located with the Lithium Triangle, which appears to be the global sweet spot for low-cost incremental supply of lithium. The company’s business plan is comprised of acquiring greenfield lithium concessions, advancing the properties through exploratory studies (brine sampling, geophysical surveys and drilling) to an extent that they appear technically feasibility and economically viable and then developing these properties into revenue generating operations. The Agreement with ENAMI creates a path for the development of Wealth’s Atacama and Laguna Verde Projects.
Rising prices of the lithium compounds, especially lithium carbonate, appeared to be forerunner of an expected potential future supply shortage of high-grade lithium to feed the demand being generated by Electric Vehicle (EV) manufacturers and builders of battery gigafactories. Management is positioning the company to benefit from the upcoming expected growth of demand in the lithium space.
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By Steven Ralston, CFA