Lithium Bull Market: Pure Energy Minerals Has Substance Over Hype

This is a contribution from an independent analyst and is opinion only and NOT investment advice.

Small companies involved with the exploration of Lithium Ion are in the midst of a voracious bull market.  The question is whether this is real and which companies are more fluff than substance.  The market is carrying higher almost all of the players in the sector that this analyst can identify, but prudence suggests not all of these small miners will be successful.  After all, if it was so easy to mine for economically viable Lithium then many companies would have already done so.  Pure Energy Minerals perhaps stands out from the crowd in that it already can speak to actual accomplishments and literal progress as opposed to announcements about plans.  Most importantly, after taking a severe beating following disappointing news the stock appears to be sending a signal that the long term uptrend is getting back into high gear.

In September of 2015 Pure Energy Minerals and Tesla inked a five year supply agreement.  That sounds like great news but it isn’t worth squat if the company doesn’t deliver actual Lithium.  Earlier in the year the company announced very positive results from the drilling conducted at a couple of wells in the north of its Clayton Valley South project.  This is the portion of the project where expectations were higher on a relative basis for the project that MIGHT have up to 816,000 MT of Lithium Ion according to company data.  In May of 2016 the company announced disappointing results from a well located in the south end of the project.  The results did not state that well could not extract any Lithium just that it might be a lot more difficult given the water issues in that particular location.  The market crushed the stock sending it plunging below its 10 week and 40 week moving averages on heavy volume.

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This slamming took place as the expiration date for more than 8 million in warrants was approaching in June of 2016.  The warrants hung over the stock somewhat like a black cloud because folks could indeed buy the stock from the firm and immediately sell it on the open market.  The warrants also raise cash for this tiny, debt free company.  Either way we are now past that potential supply of stock swamping the market and the shares have rocketed higher since early May.  Upcoming filings should tell us how many warrants exercised and how much cash was raised.  So, what now?

As of July 1, 2016 the stock just finished a week where it closed both above the 10 week and 40 week moving averages for the first time in several weeks.  This is quite clear using a weekly chart and U.S. ticker HMGLF.  Eleven weeks ago on the weekly the stock formed a “Shooting Star” where on at that time record weekly volume it closed way down at the bottom of a large weekly range which is very bearish.  Sure enough after that we saw the looming warrant issue and the release of disappointing news.  The last two weeks have seen volume pick up from the prior couple of weeks and the stock closing well in the upper half of its weekly range in back to back weeks.

Is this stock being accumulated for a resumption of the uptrend we have seen since 2014?  Time will tell.  These small speculative plays can get absolutely crushed or end up as huge home runs.  The world needs more Lithium Ion and will need more and more over the coming decades.  Planet Earth has this Lithium but only a relatively small amount is reasonably available for extraction over the next 12-36 months.  It is a race to become one of the miners that can fill this gap.  This is a problem and whomever solves it will be rewarded greatly.

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