Tuesday 31 October 2023

Why I am Bullish On Edison Lithium

Edison Lithium Corp. (EDDY.V) (EDDYF) is a stock that I have known for a while. When having a look at the management team, you'll see several familiar names if you are a Manganese X Energy Corp. (MNXXF) (MN.V) shareholder like I am. Both stocks have been pounded into the dirt - unfairly in my opinion - along with many other juniors across the mining and other industries in this horrible multi-year bear market. 

EDDY recently closed a private placement at $0.12. I would have been interested in participating but unfortunately in order to buy something, I have to sell something else at equally disgustingly low prices. I wouldn't have been able to do that in an amount that would have made the effort of going through a PP worthwhile. Unlike my MN position, my position in EDDY is small, so I wanted a way to accumulate a larger interest in the stock. Lucky for me, EDDY is in an interesting position where its business model is going to require some education of the market. I signed a deal to help with this process, where I get paid to write blogs about this stock and general industry developments. The most important part of this compensation that I insisted upon were stock options. I am bullish on EDDY and want to accumulate a position where I stand to benefit significantly when this stock goes up. Eventually the market is going to turn and the bullish supercycle talk on electric vehicles materials is going to be all the rage again. EDDY is in a unique position to benefit from that. The management team has made the smart decision to educate the market and provide content while the market is in the dumps. When the market eventually turns around and people are more receptive to the story, there will be lots of content available. Rather than reactively trying to promote the stock.

People say that compensated blogs will be biased. Well, anyone who writes an article, blog or comment about a stock they own will be biased, regardless of whether they were compensated or not. And if they DON'T own any position, there will be people who complain that they are talking up a stock without putting any money where their mouth is. It's an unwinnable situation to try to please everyone. Anyone can look at my past writeups and know that I try to capture as many of caveats, risks and potential downsides as I can along with talking about the upside potential.

With EDDY, based on its position and market cap, I don't see a lot of downside left. Outside of the normal risks you see with all explorers (the price of metals, government permits, environmental issues, ability to raise serious capital for not just drilling but building a mine, etc.), there's not a lot to say. Other than defeated shareholders potentially selling on any spike to lessen their current paper loss or the $0.12 financing holders potentially selling for profits or to exercise warrants at $0.20 once the hold is up in four months. Management could conceivably end up sitting on their hands and using up the cash resources until the next round of dilution, but that's a long way from happening. The recent raise adds over $400,000 to company coffers. The balance sheet as of June 30th shows $1 million in a GIC and another nearly $700,000 in cash with essentially no liabilities. So the company has around $2 million in cash that should last a while, depending on how aggressively it plans to drill or purchase other properties. 

Prior to the financing, there was approximately 14.5 million shares and 4 million warrants which have a strike of over $1.00. After the financing closed, there is now a total of 18.5 million shares and 8 million warrants. At $0.20, people are paying a $4 million valuation for $2 million in cash and three valuable components. Those three components are:

1. A cobalt property in Ontario.

2. Multiple lithium properties in Argentina.

3. A prospective sodium chloride play. 

The company is planning to spin out the cobalt property in Ontario into a separate company, similar to what Manganese X did with Graphano Energy Ltd. (GEL.V). Despite both MN and GEL tanking like a rock since then, I believe that this was mainly due to market forces. The spinout was a good move and I'd like to see it again with EDDY. 

I recently wrote an article on Seeking Alpha about the deal between Stellantis and Argentina Lithium & Energy Corp. (LIT.V). I'm very bullish on lithium projects in the area as the valuation that Stellantis threw at this company clearly shows a major disconnect between market pricing of lithium stocks in the area and what actual decision makers like a multi-billion dollar car manufacturer are willing to pay. On EDDY's website, the company boasts a metric that shows it is trading at a level that is far below what its property size implies when comparing to peers. 

But my bullishness on the company isn't based on the cobalt spinout nor the lithium properties. It's primarily on the smart moves the company is making in securing sodium chloride assets and its willingness to be a thought leader in the electric vehicle industry with respect to the sodium-ion battery. The company recently created the website sodiumbatteryhub.com. This website is an AI-assisted aggregation of commentary around the upside, necessity and utility of a Na-ion battery for the EV industry. 

My mile high level analysis of the EV industry to this point was that the focus up until now was mainly on range. How far could an EV go before it needed a charge, because they were far behind ICE vehicles in this aspect. Now we are beginning to see an increase concern around cost. Cost of the EV themselves, cost to replace a battery and cost of recycling the thing once it has reached end-of-life. As sodium chloride is more plentiful and cheaper than lithium, a battery based on this chemistry is being explored. Range will be sacrificed, but that's not a problem to me.

In my opinion, the entire EV industry and forced conversion from ICE is a government-mandated fantasy sham. We don't have nearly the amount of lithium to make it happen. We don't have the amount of copper nor graphite nor *insert critical metal here* to make it happen. We don't have the capacity on power grids to make it happen. In order for the mass adoption of EVs to be possible, it'll have to be all hands on deck for a myriad of entrepreneurs thinking up of creative solutions to the problem. EDDY is just one company. It can't solve all the issues, but it can contribute to solving one of the issues. 

While I'll be part of the education process on the benefits of an Na-ion battery compared to Li-on, it honestly doesn't matter to me. We need BOTH, desperately. If Na-ion batteries have limited range that means cheaper and smaller vehicles appropriate for urban driving, well, there is a lot of that type of driving taking place today. Stop and go city traffic driving is least efficient and therefore most pollutive source of driving. 

Most small cap exploration companies are reactive. You see that often enough when "XYZ Gold" changes its name to "XYZ Lithium" in order to participate in a hyped sector. EDDY itself has been guilty of that in the past. But what EDDY is doing differently this time around is that it's getting ahead of the curve and trying to be a thought leader, instead of a reactive bandwagon jumper. It's out there trying to educate people about the Na-ion battery and stake properties before it becomes the trendy and expensive thing to do. I've never seen a small cap explorer operate like this. I'm morally aligned to this way of doing business, and that's ultimately why I am choosing to be long this stock.

Disclosure: I am long EDDY stock. I have been compensated to write about EDDY in the form of cash and options.

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