NRG Metals, Will This #Lithium Junior Jump?

{Please see disclosures at the bottom of the page}

NRG Metals’ (TSX-V: NGZ) (OTCQB: NRGMF) (Frankfurt: OGPN) is seeing increased trading volume, now averaging ~320k shares/day.  At 12.5 cents it has a market cap of C$ 8.8 M.  Management has made good recent progress on their 2 Lithium brine projects in northwestern Argentina, coinciding with blockbuster industry news hitting the tape, underpinning intense demand for lithium for years to come.

NRG announced that drilling on its 29,000+ hectare Salar Escondido project will begin within 2 weeks.  Drill results should be available by the end of October.  Positive assay results could be a game-changer.  In addition, a NI 43-101 technical report on the Company’s Hombre Muerto North project is expected before month end.  Drill permits & environmental applications have been filed.  Exploration on both projects promise to generate significant news flow later in the 4th quarter, but the near-term focus is squarely on the Salar Escondido project, where the pink zone in the image below is thought to be a zone containing brines.  

Any lithium down there?  Promising Li values?  We don’t know yet…

Readers are reminded that NRG’s projects were hand-picked by the Company’s expert Li-team after they investigated many properties & projects (and they continue to actively look for more).  That’s far different from hired guns coming in to babysit someone else’s brainchild, there’s real conviction here.  

I mentioned blockbuster news hitting the tape, what news is that?  China is planning to ban gas & diesel vehicles at some future date (2030 seems to be a good consensus guess as India just announced that date).  There have also been very bullish announcements by car manufacturers highlighting ambitious plans to rollout electrified fleets.  Volkswagen has explicitly stated it will invest $50 billion euros in battery procurement / production over the next decade.  

Smart Money Bought ALB, SQM… Has that Ship Already Sailed? 

So, what does all of this mean for tiny NRG Metals?  Investors are hungry for lithium stocks, one need look no further than companies like Albemarle (NYSE: ALB) and SQM (NYSE: SQM), or the Global X Lithium ETF, (NYSE: LIT, up 75%, 145% & 60%, respectively), in the past year.  I guess the smart money was already invested.  Recently though, the rest of the world has been getting the memo.  Will ALB, SQM & LIT soar again in the next 12 months?  Perhaps, but if they do I bet smaller, higher-beta names would likely do a lot better.

At some point, and that point may have arrived this month, investors will be looking beyond the usual suspects for lithium opportunities.  That means working down the market cap sizes to the sub-C$12 M bargain bin.  There you will find companies like AIS Resources, Lithium Energi Exploration (an advertiser on Epstein Research), Argentina Lithium and NRG Metals.

Could NRG Metals Become the Next AAL, ML or NLC?  

I believe NRG is gaining momentum (trading volume and share price moving higher), because it has 2 very promising projects, an expert Li technical team, near-term catalysts including blue-sky exploration potential, robust underlying Li fundamentals and an attractive valuation relative to peers.  Add to that; strong backing from a well known shareholder group, positive meetings with investors in North America and advanced talks with a potential strategic / funding partner.  Everything is coming together for a very exciting 4th quarter.  

Look at the chart above, it shows 13 lithium juniors with market caps ranging from $7.7 to $210 M.  These are specially screened companies that are heavily or entirely focused on lithium brine projects in Argentina.  This chart is instructive for a number of reasons.  For instance, it shows that there are not 4 or 5 dozen names to choose from, (like there are in the western U.S.).  From among this baker’s dozen are 7 companies with an average market cap of just $12.9 M.  Compare that to $93 M, (the average market cap of Advantage Lithium (TSX-V: AAL), Millennial Lithium (TSX-V: ML) and Neo Lithium (TSX-V: NLC).

That means NRG is trading at a 90.5% discount to the average of AAL, ML & NLC, yes, that’s 90.5%…. But, what if NRG Metals is only 12 months behind the robust progress those companies have made?  And, what if NRG could partner with a reputable, financially strong partner to advance its projects (and potentially lock down additional properties)?  That is exactly what management is working tirelessly to accomplish.  In that scenario, the valuation discount of 90.5% could shrink considerably next year, or perhaps even sooner. 

Could NRG Stock Rally Relative to AAL, ML & NLC ?

How about some math porn?  Assume sometime next year NRG has a few good drill holes under its belt and a maiden resource on at least one project.  Advantage and Neo have an average of 112.5 M shares outstanding.  Assume NRG’s share count were to increase by 50% to 105 M.  If NRG’s share price were to triple from 12.5c to 37.5c, its pro forma market cap would grow to $39 M, still a 55% discount to the average valuation of AAL, ML & NLC today.

But that’s just the cold, hard math to show that the potential valuation of NRG Metals if it executes and remains well funded next year looks quite reasonable.  Readers should recognize that there’s a tremendous amount of work and risk between now and then.  Helping shareholders along the way would be finding lithium on the first drill hole in October, securing a strategic / funding partner and possibly signing indicative off-take agreement(s) with that partner.  

Sticking with the math for comparative purposes, consider that Millennial Lithium recently announced the planned acquisition of additional property around its flagship Pastos Grandes project for US$ 3,000/ha.  The property is especially valuable to Millennial because they drilled (535 mg/L Li over 381.5 m) very near to it.  Is US$ 3,000/ha a benchmark for high-quality, solid Li-bearing property in Argentina?  

NRG has no drill results on either of its projects, but has 20 recent surface samples on Hombre Muerto North that average about 580 mg/L Li.  As it stands, pre-discovery hole, NRG’s market cap equates to roughly US$ 290/ha.  While Management is cautiously optimistic about upcoming drilling at Escondido, I remind prospective and existing investors alike that this is an exploration hole, anything can happen, it’s a high risk exercise. 

As project after project around the world (both brine & hard-rock) experience delays reaching production, its becoming clearer by the day how important the Li technical teams are.  NRG has one of the better ones in Argentina, and certainly one of the best among small-cap players.  This in not only important for Hombre Muerto North and Escondido, but for new properties that might come into the Company.  I’ve posted these bios of de Castro, Martin & Villarroel (just those with direct lithium experience), in a few articles.  

I urge readers to take a few minutes to compare NRG’s talented team to the technical teams at peer companies.  Be sure to compare NRG’s Executives/Directors to the Execs & Directors at the other companies (not to their consultants/advisors).

While the risks are high for NRG Metals (TSX-V: NGZ) (OTCQB: NRGMF) (Frankfurt: OGPN), the fundamentals for lithium demand simply could hardly be better.  That, combined with NRG’s strong Li technical team gives the Company an open runway to advance and see if it can become the next AAL, ML or NLC.  

Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER](together, [ER]) about NRG Metalsincluding but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of NRG Metals 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 that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this interview was posted, Peter Epstein owned stock in NRG Metals and the Company was an advertiser on [ER]. 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. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic. [ER] may buy or sell shares in NRG Metals and other advertising companies at any time.