Monday 15 April 2024

Edison Lithium: This has to be the Bottom as the Company Expands its Sodium Claims

Back in October, I stated why I was bullish on Edison Lithium Corp. (EDDY.V) (EDDYF). So far that call hasn't worked out as the stock has nearly halved from $0.20 to $0.11. At a $2 million market cap, this HAS to be the bottom. Its working capital is $1.5 million as of December 31, and this doesn't even take into consideration the $5 million U.S. to be received should the deal to sell the company's interest in its Argentinian subsidiary close. At current exchange rates and shares outstanding, the deal alone is $0.36 per share of pure cash in EDDY's pockets. EDDY recently granted an extension to the buyer to March 31, 2024 for the completion of its due diligence and delivery of a Purchase and Sale Agreement. There has been no word of an update from the company, so the market is currently assigning a very low probability that it goes through. However, when speaking with management, I've been told that things like this move slowly in Argentina due to bureaucratic processes, and they remain optimistic that the deal will move forward.

EDDY is also making progress on its cobalt property spinout. So while the market values both the spinout and sale at next to nothing, people can buy up shares for essentially a free lotto ticket. Then sit and wait. That's part of the problem right now. Retail Canadian investors don't have the ability to lock up their money for an extended period of time, even if the risk-reward is good. They are jumping from one hot stock to another, trying to flip some gains. We see that with the recent mini-revival in the cannabis industry.  But just like how in 2017 the cannabis industry gains flowed to the wider TSXV market, that may eventually happen in 2024. EDDY is at least positioned to give the market some red meat and take a chunk of those momentum dollars. If the deal in Argentina does close, I assume the resulting bump in valuation will bring in a lot of day and momentum traders who will see it trending, read the news, and come to the same estimate I just did above.

While the timing of the spinout and potential acquisition are somewhat out of EDDY's control, at least the company isn't sitting on its hands. It announced today an asset purchase agreement with Globex for Alkaline Disposition A-4593 in Whiteshore Lake. This awkwardly named asset builds on EDDY's salt portfolio in SK, as the company is bullish on its prospects for significant brine deposits. The total cost of this property will be $200,000 in cash, $50,000 in EDDY shares (around 450,000 shares at market prices) and a 2% royalty on gross revenue. So it's not a bank breaker, especially within the context of the potential $5 million U.S. Argentinian sale. 

The company has also been gathering extensive further evidence in support of sodium batteries at its content aggregation website Early stage exploration companies like EDDY can move like snails. That's just the nature of the business as it takes years to develop a mine. Increased speculation, volatility and stock prices of mineral companies generally come when the price of the underlying metal is hot. We are seeing a bit of that in the gold sector right now. EDDY is not just sitting on its hands like so many TSXV peers, but actually trying to get mining investors excited about the prospects of sodium batteries. I appreciate the effort along with the spinout and asset sale. EDDY is doing what it can to enhance shareholder value while not spending a lot of money to do so. Hopefully it continues to uniquely position itself to take advantage of an increase in hype of sodium batteries.

I wrote an article on Seeking Alpha called "For The Electric Vehicle Industry, The Future Is Sodium". This outlines my bullishness on the sodium battery and why I think EDDY is smartly positioning itself as a thought leader. Unfortunately, the stock price is not reflective of that and the general market either doesn't know or doesn't care yet about this story. However, I do see some signs of life. Atlas Salt Inc. (SALT.V) has bounced about 40% from its lows made three months ago. While SALT is not positioning itself as a sodium battery play, it will still be an important bellwether stock for which to judge EDDY. 

I recently talked with someone who is a member of a general public (not an active stock market investor nor battery geek) who mentioned news stories about lithium batteries being expensive to replace once they die in an EV and issues about fire hazards and asked me for my opinion on sodium batteries as I mentioned it before to them.  To me this is a good sign. Average people are getting weary of the EV industry and lithium batteries. Following politics, I know that leaders get voted out, rather than getting voting in. That's human nature. If there is an apathy or cynicism developing around incumbent lithium batteries like there is for Justin Trudeau, then there is an opportunity for something to fill the void. Pierre Poilievre hasn't had to do much or try very hard for his current level of popularity. Sodium batteries have the opportunity to become the Poilievre of the EV industry. And EDDY will be positioned to take advantage of it. 

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