Junior Stock Review founder Brian Leni shares his thoughts on mining M&A, the lithium space and a country he believes may have potential.
Junior Stock Review founder Brian Leni has a wide range of interests, and at Mines and Money New York he spoke with the Investing News Network (INN) about a few of them, including M&A in the mining space, lithium oversupply and a country he believes has potential.
Commenting on M&A, he said he’s noticed that major miners don’t seem to be in a hurry to engage in these activities. “At PDAC I took the opportunity to speak to some of the majors,” Leni said, noting that many of these companies are making a profit right now, meaning they aren’t interested in adding “wrinkles to balance sheets.”
In terms of lithium, Leni shared his thoughts on Morgan Stanley’s (NYSE:MS) comments on the market, noting that not all lithium production will come online as planned. “Some of the … companies that don’t have the large developmental teams, they will have issues,” he noted.
Finally, he touched on Ecuador, explaining why it might be a good time to invest in mining companies in the country. “For those that remember the … Fruta del Norte debacle, I believe that marked a bottom in Ecuador, and I think what we we’re seeing right now is a march upwards,” said Leni.
He added, “I think getting in now gives you tremendous exposure to the mineral potential that Ecuador has. The risk is absolutely there, but I think if you were to put money in now it’s a good time.”
Watch the interview above for more insight from Leni on M&A, lithium and opportunities he’s looking at right now. You can also read the transcript below.
INN: We’re here at Mines and Money in New York. It’s early, but I wanted to start of by asking how the show’s been for you so far.
BL: Great. I listened to a couple of good presentation this morning about mining finance, and it sounds like there’s a lot of money sitting on the sidelines. That’s good that it’s there.
INN: I saw that one too, definitely good to hear. You mentioned right now that one of the topics you’re interested in is majors’ lack of urgency when it comes to M&A. Can you explain why that’s an issue?
BL: So at PDAC I took the opportunity to speak to some of the majors, and my question — it was kind of broad — but asking why aren’t we seeing more M&A activity. And basically the commonalities in answers I was getting was based around — right now with metal prices being actually quite strong for the base metals, people are making profits, so there’s no urgency to add any wrinkles to balance sheets. And the second point is that there’s a lot risk with developing brownfield and greenfield projects, and at the current state of the market they’re not willing to again take the risk and buy anything.
INN: Is that something we’re seeing across the sector, or is it precious metals, base metals, something specific.
BL: Well for me … I was looking at it from a base metals perspective, which is — oddly enough … yesterday Lundin Mining (TSX:LUN) has come in and tried to — or is proposing to acquire Nevsun Resources (TSX:NSU), which would be really interesting. This is actually something that I think could spur more M&A. The other thing is the companies were mentioning that there wasn’t a lot of quality out there, which I don’t disagree with. But once those tier-one project starts to be snatched up, I think that might spur some more deals. So that’d be great.
INN: So in your opinion majors should be doing more of this right now?
BL: Sure, it’s kind of an odd thing that happens … when we’re in a bear market, typically as an investor it’s the best time to buy when others are selling. [If you look at] past cycles, typically the majors, or some of the majors at least, have bought at tops. This is the way it works sometimes, and it’s odd in a lot of ways but also understandable with how the larger companies work.
INN: We spoke last at PDAC, and we talked mostly about base metals; you are also following the lithium market though. One of the big questions in the space right now is whether we should be concerned about oversupply. Can you tell me your thoughts?
BL: Morgan Stanley came out at least a month ago with a pretty scathing report, speaking about lithium supply increasing over the next five years, and that adversely affecting the lithium price. I’ve got two main thoughts on that. First is the lithium market is quite small — there’s four major players in it that control the majority of the lithium that’s traded around the world. It’s in their best interest to keep the lithium price at a reasonable level; what that is, I’m not totally sure.
The second part to that is in the mining industry, whether it’s in lithium or other metals, things doesn’t always go as planned and … with lithium brines in particular posing a lot of issues in the development towards commercial production, I believe that you won’t, even though there may be an extra 500,000 tonnes that are expected to come online in the next five years, I would say that you would not see that whole 500,000 come online. One of the big companies, SQM (NYSE:SQM), the lithium giant from Chile … they have one of the best brine technical teams out there. I would suspect that they would be on the end of — you can count on their production coming online. But some of the other companies that don’t have the large developmental teams, they will have issues, and so I suspect that things won’t go as planned.
INN: This lithium oversupply debate I think really highlights how difficult in can be for investors to get the right information about complex markets. Do you have any advice for investors who are wondering how to figure out what’s real and what’s not. I’m thinking in lithium, but you can also talk about it in general.
BL: I think this goes back to buying quality. If you … stay within only buying the best — so the best people, the best projects — it really insulates you from the possible downfalls that can happen with investing, specifically in the junior space. So if you set your sights high and you only buy the best, you can ride these waves and you don’t necessarily have to worry about the dips. To me that would be the thing you should concentrate on the most: always buying quality.
INN: Right, and you have a rigorous due diligence process for yourself which includes site visits. Maybe you can tell me about where you’ve been recently?
BL: I had the opportunity to visit the Sterling gold project, which is Northern Empire Resources’ (TSXV:NM) project. It’s just northwest of Las Vegas. I was there a couple of weeks ago, got a tour of the project. The Sterling mine is a past-producing gold mine, Carlin-style gold, and really the heart of the project is … the Sterling project is permitted, but there’s the Crown block, which sits in the north portion of the property, and there’s tremendous potential for adding ounces and resource expansion. I was really impressed with what they are doing, and the 18,000 meters of drilling they have planned for this year, so I’m looking forward to seeing how that goes.
INN: Anything else you’re working on right now that you’d like to mention, or final words for investors?
BL: Ecuador has been on my mind. I think Ecuador definitely has risk, but as Rick Rule mentioned to me, the times when he’s made the most money is in high-risk jurisdictions that are coming off a bottom. For those that remember the Kinross Gold (TSX:K,NYSE:KGC) Fruta del Norte debacle, I believe that marked a bottom in Ecuador, and I think what we we’re seeing right now is a march upwards. I think getting in now gives you tremendous exposure to the mineral potential that Ecuador has. The risk is absolutely there, but I think if you were to put money in now it’s a good time.
INN: Right, and there’s some interest right now, there’s Aurania Resources (TSXV:ARU) I believe, and I’m sure there’s other players in there.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.