Sometimes a Picture Worth More Than a 1,000 Words

From an Eagles song, “There’s a New Kid in Town. We’re looking for the King, the New Messiah. We’re Following the Stars Shining Brighter…” Yes, there’s a new kid in town following the stars, that star is lithium and it’s shinning brighter in Nevada. Dajin Resources Corp (“Dajin”) (TSX-V: DJI) (OTC: DJIFF), an early-stage lithium company, put out a stellar press release on August 13th. Hint: 4,000 feet (1,200 meters), remember those numbers. 

The Company announced results of its gravity survey on its 100% owned ALKALI LAKE. The 3D gravity and airborne magnetic basin modeling was prepared by Nevada’s Wright Geophysics. These results place Dajin Resources squarely on the lithium map, a rising star. Actually, Dajin Resources is on a number of maps, an especially good one in the press release. [Please see map]

Screen Shot 2015-11-07 at 11.24.51 AM

The map delineates Dajin’s Alkali Lake property, confirming it as a deep, closed basin of 4,000 feet (1,200 meters) in depth. Alkali Lake’s depth profile suggests, but in no way confirms, the possibility of a deposit worth exploring, predicated on continued strength in lithium demand. This news could attract a lot of attention, and possibly kick start discussions on a number of corporate initiatives. The following from the press release,

Dajin’s 100% owned Alkali Lake property consists of 138 placer claims covering an area of (2,811 acres) 1,138 hectares of the enclosed basin. Surface sampling in March and April confirmed the presence of near surface lithium brines. The basin is situated approximately 7.5 miles (12 km) east-northeast of Rockwood Lithium’s Clayton Valley lithium operation, the only brine based mine in North America. In addition, Alkali Lake’s claims are 12 miles (20 km) east-northeast of Pure Energy Minerals’ (TSX-V: PE) (OTC: HMGLF) Clayton Valley resource. Like Clayton Valley, Alkali Lake is a classic, fault bounded closed basin.”

Don’t fail to look at the map, I spent hours on it…

Did someone mention 4,000 feet (1,200 meters)? Surface sampling confirming near surface lithium is a prerequisite. However, 3D gravity and airborne magnetic basin modeling is a different matter. This announcement places Dajin in the Major Leagues (or whatever the ice Hockey equivalent), among early-stage peers. As mentioned, Nevada is home to the only lithium brine operation in North America, it’s been in production for decades.

One would presume, as I do, that Rockwood staked the very best properties. Finding lithium deposits is easier than finding gold. Whether the lithium brine deposits prove economic requires a lot more work, but far less expensive work than in other extractive industries. Therefore, the overused theme, “closeology” may not be unwarranted in the cases of Dajin and Pure Energy.

It’s essential for readers to view the map by clicking on the link, the image above is just a teaser. [Please see map]. The linked map is actually 4 maps. As one clicks on it, 3 more pop up in succession. Instead of 1,000 words, it’s a stealth 4,000 words. Alkali Lake is nearly as large as Pure Energy’s property and at 4,000 feet (1,200 meters) in depth, a potentially very substantial deposit. Screen Shot 2015-11-07 at 12.22.09 PM

Dajin’s Alkali Lake appears to be roughly the same size as Rockwood’s lithium brine operations, (not the size of all its Nevada holdings). Readers following the lithium sector know that the majority of lithium supply comes from the, “Lithium Triangle” of Bolivia, Chile and Argentina in South America.

Instead of a lithium triangle, Neveda’s lithium trio is more like a line of three points, disheartening to say the least. It reminds me of when Pluto was demoted to mere asteroid. Nevada could become a, ‘Lithium Triangle’ in years to come. To date, the three points of interest, Dajin Resources, Pure Energy and Rockwood’s Silver Peak mine, are not compatible with the coveted triangle formation. Not a problem, I declare these three…. Nevada’s, “Orion’s Belt” of lithium.

Astute readers likely notice the proposed Western Lithium / Lithium Americas (“WLC” / “LAC”) merger is not yet included in this commentary. While a great deal in many key respects, WLC’s project is far north in Nevada, its basin crosses into Oregon. The pro-forma company appears to be focusing on Argentina. And let’s face it, there’s no more room in Orion’s Belt anyway. Still, I touch upon the proposed merger below.

Why lithium, why now, why ANY TSX-listed company?

In the past year, gold is down 15%, zinc 21%, silver 23%, copper 27%, palladium 29%, platinum 33%, nickel 44% and oil 55%. How does that compare (roughly speaking as lithium is highly use-specific) to lithium carbonate or hydroxide prices?

Simon Moores of Benchmark Mineral Intelligence, a very well regarded metals and minerals consulting firm, explained, “on average, lithium carbonate prices are up roughly 20% in the past year and hydroxide about 25%.Moores reminds readers NOT to rely heavily on data points in industry markets that are neither transparent nor liquid. “Reported lithium prices can and do vary widely based on a large number of factors. We at Benchmark rely on proprietary information and a network of fellow experts to assess the pulse of the market.”

Why might lithium prices be moving in the opposite direction of other metals and minerals?

Pundits are starting to come around. Not just on lithium, but sectors like uranium. Yet believers are still contrarians, nonconformists, misfits. As one of just a handful of pure-play lithium juniors or merit, Dajin Resources (TSX-V: DJI) (OTC: DJIFF) has as much leverage to a rebound in natural resource stocks as any. 

Yes, attention on the lithium sector appears to be growing. Consider that the average daily trading volume of the combined (TSX-V: DJI) and (OTC: DJIFF) tickers of roughly 1.075 million shares, [Source: GoogleFinance]. Pure Energy’s equivalent combined (TSX-V: PE) and (OTC:HMGLF) trading volume nearly 1 million shares and Western Lithium’s ~ 900k shares.

Conclusion

A WLC / LAC company would have a market cap of approximately C$ 125 million. As much as I like the thesis and benefits, of Western Lithium and Lithium Americas, consider the valuation of Dajin Resources’ Enterprise Value [fully-diluted market cap, plus debt, (zero for Dajin), minus cash] of roughly C$ 10 million. That C$ 10 million EV includes cash proceeds of C$ 1.5 million from the exercise of deeply in-the-money options and warrants. Like the proposed WLC / LAC deal, Dajin is diversified in both Nevada and Argentina. Dajin’s 100,000 hectares in Argentina is larger than that of Lithium Americas’. However, please recognize that Dajin Resources is an earlier-stage company in both Nevada and Argentina. As such, the Company’s substantial valuation discount to peers might be warranted for now, but not to be maintained if lithium demand soars as many believe it will. 

There you have it. Dajin Resources. High risk? You bet. Compelling risk/reward? Yes. Bet the farm? Let’s not get crazy now.

Disclosure

 

Dajin Resources (Ticker: DJIFF) & (DJI.v) and Pure Energy Minerals are highly speculative, small cap companies listed on the U.S. and Canadian market exchanges. An investment in either is not appropriate for everyone. Readers and investors are encouraged to do their own due diligence before buying or selling stocks, especially small caps. Due diligence should include consulting with one’s own investment advisor. The author, Peter Epstein,CFA, MBA, owns shares of Dajin Resources. Mr. Epstein is not a registered financial advisor. Readers should take this fact into careful consideration. 

Mr. Epstein wrote this article entirely on his own and it expresses only his opinions and conclusions, He cannot verify that the facts and opinions herein are accurate. However, Mr. Epstein believes the information contained in this article to be accurate. As of the date of this article, Dajin Resources and Pure Energy Minerals were sponsors of EpsteinResearch For more information about EpsteinResearch and to sign up for free,  articles and written interviews, please provide an email on the home page. 

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