Not surprisingly, the most significant investment opportunities still lie in renewable energy, battery metals, and EV stocks, with global initiatives to eliminate reliance on fossil fuels presenting ground-floor investment opportunities in companies committed to expediting that mission. Also not surprising is that Recharge Resources Ltd. (CSE: RR) (OTC: RECHF) (Frankfurt: SL5) stock is moving higher in tandem and has, more often than not this year, shown an ability to decouple from weak broader markets.
RECHF shares are higher by 76% YTD, closing at $0.44 on Monday, a level not seen since October 2022. The better news, at least for long-sided investors, is that RECHF closed near its intraday high, with momentum signaling a continuation of the bullish trend. Last week, media coverage provided reasons for the company's recent trading strength; a closer look reveals its growth has far less to do with being a "momo" stock play than it does with the work RECHF completed in 2022 to set up what is expected to be a transformative 2023.
Preparing To Exploit Value From Pocitios 1
It's a bullish presumption. However, there's plenty of tangible evidence supporting that sentiment. Foremost is that the groundwork completed at its Argentina-based Pocitos 1 project puts RECHF closer than ever to unearthing mineral deposits to serve unprecedented demand. That results from Recharge announcing it received approval from that country's Dept of Mines to drill a production diameter well at its Salar Lithium Brine Project. That update added tangible value, but there’s still more to like. Before that news, the RECHF bulls were treated to the company announcing plans to expedite development at its Georgia Lake and West Lithium projects in Ontario, Canada.
While that one-two punch was reason enough to inspire investors' interest, additional value drivers are in play. Last month, RECHF announced engaging with Quantec Geoscience Argentina SA to provide a Controlled-Source Magnetotellurics audio-telleric geophysical survey to delineate the lithology and potential aquifers on its 800 ha property down to a depth of 500m at the flagship Pocitos 1 Lithium Brine Project in Salta, Argentina. That work is expected to start no later than April of 2023. Notably, the data revealed from this new milestone could become a near-term catalyst.
Still, while the double dose of excellent news inspired a rallying cry, its update last Friday provided a knockout, or perhaps better described as a knock-up punch based on its shares reaction. The announcement was from AIS Resources Limited (TSX.V: AIS, OTCQB: AISSF), who congratulated Recharge Resources on signing an option agreement with Spey Resources Corp. whereby RECHF can acquire up to a 100% undivided interest in the Pocitos 2 Project.
AIS retains a 7.5% royalty of the FOB price of lithium carbonate or other lithium compounds sold on Pocitos 1 & 2 pursuant to AIS' underlying Option Agreement with Spey Resources. That means that if the Pocitos 1 and 2 options are exercised, AIS will receive $1,000,000 and $732,000, respectively, on or before June 30, 2023. Both Pocitos 1 and 2 have been optioned by Recharge from Spey. That's a big deal and a potentially huge value driver for RECHF because acquiring the Pocitos 2 Option can significantly increase the size of its potential resource holdings.
Remember, proven reserves, even underground, can be marked as assets in the metals, exploration, and mining sectors. And as later-stage exploration work continues this year at its 2023 Pocitos drilling program, proving reserves can mean a valuation windfall for RECHF and AIS.
On The Cusp Of A Transformation
Not to be lost in a heavy dose of recent news is that RECHF is in motion. If data posts as expected from its in-process exploration, RECHF will be significantly closer to building an up-to-20,000-tonne lithium extraction Ekosolve plant at the Pocitos 1 project. But the better news is that once completed, RECHF has supply agreements in place, committing to sell up to 20,000 tonnes of lithium chloride/carbonate per year to Richlink Capital Pty. Ltd. The battery materials supply agreement was announced after executing a joint letter of intent.
That deal can be worth a lot despite a bearish trend for the asset, which posted spot market prices last week at 325,500 yuan per tonne, equal to about $47,123 (US) per tonne at exchange rates published on March 3, 2023. Thus, assuming RECHF delivers the entire 20,000 tonnes as contracted, revenues could eclipse $942 million at current exchange rates. That could happen faster than many expect, considering that the company now has three existing drill holes in place, this new drilling, and a CSAMT audio-telluric geophysical survey to contribute to an NI 43-101 mineral resource estimate.
Speculatively speaking, those activities help to mitigate downside risk. Attribute some of that assessment from RECHF benefiting from an Argentinian geological team empowering the company to expedite progress toward establishing a NI 43-101 compliant mineral resource. They are also helping to facilitate, even expediting, a scoping study of the project in collaboration with its Chinese offtake partners and investors for lithium chloride products at the Pocitos1 Project. The inherent value is that whether through a primary supply client or many, the work getting done intends to position RECHF to feed substantial global demand.
Lithium Will Not Lose Its Luster
Don't expect that demand to lessen. In fact, last week, Elon Musk told his investors that his company is moving forward to build a lithium refinery on the Texas Gulf Coast to gain more control over the supply chain for EV batteries. And Tesla (NASDAQ: TSLA) isn't the only company working proactively to secure the assets needed to maintain production; Ford (NYSE: F), General Motors (NYSE: GM), and several other EV manufacturers are trying to secure as much lithium as possible. Some are trying to buy total production outputs from suppliers or even considering purchasing entire projects to support EV initiatives. Of course, they aren't the only industry needing what RECHF intends to supply.
Consumer goods, defense companies like Lockheed Martin (NYSE: LMT), and industrials need what this small-cap exploration company is in business to deliver. It’s often said that value is at its best when on the ground floor, which makes sense given that risk is still attached to the company. But, taken as a whole and accounting for the infrastructure already turning the gears of progress, there are still tremendous values to be had in under-the-radar exploration companies on the cusp of transformation.
RECHF makes that list. Supporting the case beyond what has been noted, the company is transparent, has an expert management team, and is accelerating the pace of its projects at locations where vast reserves have been unearthed historically. Few expect that will change during RECHF's mission, which could be why its stock is performing exceptionally well despite intense broader market pressures. The company's stock is even rallying in the face of a lithium spot market correction.
That trend should continue, noting that jurisdiction regulators are helping, not hindering, the speed at which RECHF can operate. The continued approvals to explore its Argentina projects should therefore be considered as value drivers and validation that RECHF is doing the right things at the right time to achieve near and long-term exploration goals.
Know this, too: there's still more to like on the valuation front.
Georgia Lake And West Lithium Projects
Recharge Resources is also advancing promising Georgia Lake and West lithium projects, located approximately 160 km northeast of Thunder Bay, Ontario, within the Thunder Bay Mining Division. Parts of these properties border Rock Tech projects, which recently announced its expectation to finalize a more than $670 million high-quality lithium supply deal with Mercedes-Benz AG.
That deal leads RECHF to remain optimistic its locations can offer the same production promises. Known is the fact that the Rock Tech Lithium, Georgia Lake project hosts several spodumene-bearing pegmatites, with Lithium mineralization discovered in 1955 and subsequently explored by several historic owners exposing the properties as an NI 43-101 Mineral Resource. That was reported in Rock Tech's Preliminary Economic Assessment filed in March 2021.
While past performance isn't the most accurate indicator in many industries, it is within the mining and exploration sector. Remember, mineral deposits are not stingy where they settle, meaning that bordering a property indicated to have potentially massive reserves is indeed bullish to neighboring prospects. Thus, the recent spike in RECHF stock is not surprising.
Actually, those gains could be the precursor of more to come. Rock Tech expects to deliver up to 10,000 tonnes of high-quality lithium hydroxide per year to Mercedes-Benz AG starting in 2026. That's indeed excellent news for Rock Tech. Moreover, it also gives good reason for RECHF to trade higher in sympathy, noting that Rock Tech anticipates that the planned delivery of that product won't deplete its capable inventory, indicating a substantial amount of lithium is expected to be mined.
More directly, bordering a company preparing to supply more than half a trillion dollars in lithium to a global business giant puts Recharge Resources in the right place at the right time. In fact, few argue against the statement that in the mining business, location is everything when it comes to mining for metals and mineral riches. And based on Rock Tech's deal, RECHF is sitting on a potential lithium windfall.
Cobalt Another Recharge Consideration
Yes, there's another potentially massive value driver in play. Recharge Resources has announced capitalizing on other market opportunities by adding a third asset to its business pipeline potential: cobalt.
Cobalt is also a critical metal needed for EV battery production. However, more valuable to RECHF's opportunity to attract client interest is that virtually no cobalt production is happening in North America. It is debatable whether that's due to its fractional use compared to other necessary battery metals. What isn't, however, is that cobalt's need is no less critical than other battery metals.
That demand adds another appreciable revenue-generating shot on goal to the business plan. Moreover, as one of only a handful of North American suppliers, it's possible that RECHF could earn a sizable market share, whether alone or through partnerships, especially after reporting that it's already in the early stages of proving its cobalt resources. If those reserve estimates are verified, it's feasible for RECHF to become one of the first North American cobalt resources brought into commercial production.
Ideally Positioned For A Transformative 2023
In other words, RECHF is ideally positioned for a potentially transformative 2023, which could result from just proving assets under the ground. Moreover, they have multiple shots on that goal, with at least three ingredients that a global shift to electrification can't do without. With many mega-cap companies scrambling for supply, those short-selling Recharge thinking raising capital would only come with vulture-capitalist terms may want to rethink that proposition. Money to companies in the right places and advancing the right projects would likely come easily.
Additionally, investors paying attention to only the senior mining companies may miss extraordinary ground-floor investment opportunities in the exploration stage companies. Remember, the large-cap miners can't fill the entire demand. Junior miners and exploration companies like RECHF are vital to the supply chain.
Thus, while the sector can seem competitive, the behind-the-scenes look may better indicate that it's an industry rooting for each other, knowing that consolidation in the sector is not only an expectation but a means for companies to get bigger and more valuable faster.
And that's a consideration that benefits all sector players and helps expose low-priced opportunities worth evaluating. Appraising Recharge Resources as the sum of its parts, they have earned a place on that list.
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