Stock Promotion - How much is too much? (Nemaska Lithium)

Over a year ago I had a brain storm, with so many devices powered by Lithium batteries, to say nothing of Tesla and the emerging market for EVs, investing in companies engaged in Lithium Mining seemed a pretty good bet.

But last year there wasn't the explosion in interest that I've witnessed over the past several weeks as the buzz about Lithium stocks has gone mainstream.  Last year I researched Lithium Mining companies, discovering that if I wanted to invest in a "pure" Lithium play, that I would have to pick from a number of Juniors.

There were, (and are) major players.  Established mining companies that are dominating the Lithium market place right now.  SQM, FMC and Albemarle are the three major incumbents, but for each one Lithium is but one small component of their mining operations.  While demand and prices for Li are growing exponentially, the impact on these major players is small because of how widely diversified they are.

Wanting to invest in a company that has Lithium first, second and last as their business focus, I had to opt for a Junior Miner, that is to say a company that wasn't yet operational.  After doing my research I settled on two, Lithium Americas and Nemaska, and I think I made good choices.  I blogged about it last year on Seeking Alpha:

http://seekingalpha.com/instablog/15663412-joe_retail/3902216-lithium-americas-and-nemaska-charts-and-insider-buying-have-me-bullish

Based on my research I liked the potential for these two to bring their plans to fruition, to graduate from the status of junior miner to profitable businesses.  Neither one has yet achieved that status, however they are both getting very close.

Lithium Americas has entered into a 50/50 Joint Venture with the aforementioned SQM on the development of their Argentinian mine which was just announced at the end of March 2016.

And Nemaska has garnered significant grant and investments from various levels of government in Canada, and is expected to announce a pre-paid off take agreement with a battery manufacturer within the coming days or weeks.

Both have been impressive in executing their business plans in my opinion.  But something happened recently with Nemaska which led me to sell my shares, that something was promotion.

I want to be perfectly clear on one point here though.  Promotion with development stage companies is to be expected.  Companies go to the public markets in search of capital in order to fund a business plan because, being in the development stage, they are not making money.  Having Investor Relationship firms promote a company is essential in raising the profile of a company in order to attract investors.  Companies can then sell shares to raise money and thus execute on their business plans.

But its a matter of degree in my view.

Nemaska has garnered non-repayable grant money from Canada's federal government from a fund for sustainable development, they've also secured investment from the government of Quebec as well as from the local Cree nation near the proposed mine site.  They are touting themselves as well financed, in fact Dundee Capital Market's analyst David Talbot said in a research paper dated December 15th 2015 that:

"Nemaska is fully funded through to Q2/17, the beginning of construction of the Phase 2 plant and mine site".

I won't bother going into my views on analysts that work for firms which provide Investment Banking services to public companies, needless to say there's already been mountains of digital ink spilled about the potential for conflicts of interest.

I will merely speculate on Nemaska's need to pay promotional outfits for exposure when they're already well financed and also receiving a great deal of exposure from mainstream media outlets. My own opinion is that they don't need to be doing much.

They have analyst coverage from Dundee, Stormcrow and Cormark.  In French language media they've been the subject of numerous stories via such outlets as TVA and Radio Canada and CEO Guy Bourassa has been interviewed on Canada's BNN (Business News Network).

Why would they need more than that?

Well, whether Nemaska needs to do more or not, the fact is they have been doing more and will be doing more going forward.

Back on March 3rd Nemaska's CEO was "interviewed" by "The Ellis Martin Report".  I put interviewed in brackets because, as per the disclosure on this outfit's website:

• The Ellis Martin Report is a radio news magazine broadcasted during market hours in 50 US cities and worldwide via the VoiceAmerica Business Channel.featuring potentially undervalued small-cap or microcap companies from a variety of industry sectors trading on a number of North American and foreign exchanges. Some analyst segments are sponsored and all company interviews and written reports have been compensated by the client companies featured. Invest at your own risk, as you may lose your investment.

I consider it a tad disingenuous to refer to something as an "interview" when the company being profiled paid to be there.  I always chuckle when I hear exchanges like:

Interviewer:  "Thanks so much for taking the time to talk with us today".

CEO:            "It was my pleasure, thank you for the opportunity".

To me that's like thanking an escort for taking the time to visit your hotel room.  For those who wish to hear the interview, it was uploaded to You Tube on March 4th, 2016:

They've also been promoted with "interviews" by InvestorIntel.  On top of paying these outfits, Nemaska is a sponsor for an upcoming Lithium Supply and Markets Conference in Las Vegas in May of this year.

Has all this promotion had an effect?  You bet it has, just look at a 3 month chart.  NMX on the TSX Venture exchange has gone from in and around 40 cents in February to its current levels in the $1 to $1.20 range.

Now, there are those who might suggest that my motivation for writing this blog piece is that....having sold out of Nemaska Lithium, that I am merely looking to justify my decision and to "bash" Nemaska so that I don't end up kicking myself if it were to climb substantially from its current PPS around $1.15

You might be surprised to know that I consider it very possible, and in point of fact likely, that NMX will trade higher.  "SO WHY DID YOU SELL THEN"!?!?!  I hear you asking.....

First I will explain why I consider it possible and in fact likely that NMX will trade higher.  Dilution is coming, in fact it already happened with more on the way.  As of March 31st of 2016 issued shares were listed at 207,475,385 and as of April 15th 2016 that number grew to 216,823,915 as per stockwatch.com for an increase of over 9,000,000 shares.

And if you go to Canadian Insider you will see that options in the millions have been granted this month alone.  (Canadian Insider Nemaska).

A market requires buyers and sellers, that is obvious.  And when its retail investors doing the buying because of something they heard on a paid interview or because of what some analyst has written, nothing in my opinion gets them more excited than seeing the PPS for a stock they're watching climbing.  "This must be good, look at the price...it keeps going higher, I better get in".

As for why I sold, take note of the Title for this blog.  Avoid the bag.  Nemaska is still a speculative investment, they are not projected to have a fully operating mine until sometime in 2018, and between now and then lots can happen, including the selling of a lot more shares.  I did very well with it, and if I left some money on the table by selling too soon, that's okay.  I believe it was JP Morgan who answered the question:  "How did you get so rich"?  With the answer, "I always got out too soon".

I'm still invested in Lithium America's and will explain why with my next blog posting.  For those who are looking at LAC and want a spoiler about what I'm going to write, I am expecting to see support for that stock firming up around the 65 to 70 cent area CDN based on my opinion of the emerging chart pattern.

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This blog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Avoidthebag.com is not a registered broker or investment adviser.  Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment adviser.