This analysis will conclude the assignment from Andrew to examine both Lithium X Energy Corp. (LIX TSXV) and Nemaska Lithium Inc. (NMX TSXV). Last time the case for LIX which has staked out land in the United States and Argentina was presented.
Lithium has been the rare bright spot in an otherwise dull landscape for mining. The rally in the sector is a consequence of the anticipation of increased demand for lithium arising from the scaling up of electric car production and battery storage for home and industry. The excitement around the story has been fuelling the rise in the price of stocks in junior exploration companies with deposits and development plans.
NMX has a hard rock deposit of lithium in Quebec which according to the company is one of the largest in the world with impressive grade. In addition there are plans to build a processing plant in Shawinigan.
The company has a market capitalization of $262.36 million while the stock has average daily volume over the last three months of 1,603,930 shares. These metrics would make NMX a speculative investment.
A probe of the charts will form the framework of my analysis
The three-year chart depicts a stock that built a base from January through July of 2015 where it started a move that took it to a 52-week high of $1.27 in May of 2016. The golden cross that formed in August of 2015 when the shares broke above $0.20 signalled investors that they could expect more from this stock.
In March of 2016 the MACD and the RSI generated buy signals as the shares moved off of $0.40 and in two months ran like a champion to the 52-week high. Sweet!
The six-month chart illustrates the base building near $1.10 that has been the dominant trend through April and May of 2016. At this time there are no indications that investors are inclined to get off of this ride.
Lithium mining is the hot sector right now and is riding a speculative frenzy. Keep in mind that MNX is still some distance away from bringing product to market which introduces a level of execution risk. Speculative investments demand constant supervision to ensure that you capture profits when they are available.
You may recall how the rare earth metals stocks ran hard and then fell hard. The trend is your friend until it ends.
Next time I will take another run at Valeant Pharmaceuticals International Inc. (VRX TSX) for Jim.
Make it a profitable day and happy capitalism!