This post is a follow up to our previous one titled "Two Stocks Set To Continue Their Massive Runs". We are very bullish on First Helium Inc. (FHELF) (HELI.V) with a $2.00 fair value price and Inomin Mines Inc. (MINE.V) with a $1.40 fair value price. This update will focus purely on MINE after a podcast from mining industry veteran John Kaiser caused downward pressure on the stock on Friday. If you like our picks you can also follow this blog by clicking the follow button on the top of the left hand panel. We have 83 followers so far on here. We are up to 998 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. You can also follow us on Twitter @StockTradePicks.
The Kaiser video on MINE can be seen here, starting at 17:50:
If he is not particularly impressed on the discovery by MINE at its Beaver project, that's fine. He is an experienced blogger and podcaster in the mining sector so he is allowed to share his opinion. But the stock didn't go down 29% on Friday because he wasn't impressed with the discovery. It went down 29% on Friday because he insinuated it was a fraud and spooked retail traders. He called it a pump and dump. He immediately walked that back to say it was a pump and dump hijacked by the market rather than management, because he knows he can get sued for an accusation like that. But he also stated that the market was misled by MINE's press release. So if there is any pump and dump perpetuated by market participants, it leads straight back to management as the source of the pump. He is accusing MINE management of fraud.
Kaiser's hyperbole continued after his pump and dump statement, saying "this will not end well", presumably meaning for buyers of the stock. That we know is an outright lie he doesn't believe. Why? Because he was previously bullish on MINE due to the La Gitana project. At the start of the video he stated he was bullish as recently as this past November. The stock was around a $15 to $20 million market cap at the time of this podcast. If he likes the La Gitana project so much, certainly the company justifies this minuscule market cap even if he assigns no value to Beaver. This type of valuation is bottom basement for companies with any sort of positive near-term prospects. Below $10 million and we are getting into extremely speculative properties or shell territory.
Now let's get into why he called the stock a pump and dump. He took issue with the discovery being labelled a critical minerals discovery, calling it an extremely misleading way of presenting it. He stated the magnesium was typical for this kind of discovery and uneconomic to mine. The cobalt and chromium were of insignificant grades. While he did find value in the nickel, he stated that this would not be battery-grade material. What finally sent him over the edge was the mentioning of the collaboration between Inomin and Dr. Greg Dipple from UBC to assess the carbon sequestering ability of the magnesium, calling it egregious.
Kaiser's definition of critical minerals appears to be in lock-step with the clean energy movement. Rather than using his own definition of it, we should use that of the American Geosciences Institute:
"Critical minerals are mineral resources that are essential to the economy and whose supply may be disrupted. The 'criticality' of a mineral changes with time as supply and society's needs shift. Table salt, for example, was once a critical mineral."
"Canada is primed to capitalize on the rising global demand for critical minerals, driven in large part by their role in the transition to a low-carbon and digitized economy. Essential for renewable energy and clean technology applications (batteries, permanent magnets, solar panels and wind turbines), they are also required inputs for advanced manufacturing supply chains, including defence and security technologies, consumer electronics, agriculture, medical applications and critical infrastructure. Economies that quickly secure a position in shifting supply chains will be well situated for long-term economic growth and prosperity."
Critical minerals are definitely imperative to the clean energy transition. But in the purest definition, critical minerals are those critical for an economy. Energy transition is merely a subset of that economy. Kaiser tossed away the nickel discovery as useless for the battery metal industry, destined for the LME nickel ingot landfill where it will only be good for uses that existed prior to battery metals. Because, you know, ONLY nickel that's being used in batteries is facing demand and pricing pressures </s>.
Nowhere in the press release did MINE refer to clean energy nor did it make any claims that its nickel was good for battery metals. MINE's President John Gomez stated:
"Our initial drilling program demonstrates Beaver's potential for hosting large volumes of nickel, as well as magnesium and chromium - all critical metals."
This statement is factually accurate as to what critical minerals are, as defined by the American Geosciences Institute. All three are on the list of 31 minerals defined as critical by the Government of Canada. There is no fraud or misleading statement. Kaiser's own misunderstanding of the term critical minerals and assuming the subset of battery metals/clean energy is encompassing 100% of this term is the actual problem here. He should issue a retraction and apology for this accusation.
Regarding cobalt and chromium. The company - by its own omission of cobalt in the above statement by Gomez - recognizes that the cobalt in the discovery really isn't significant. Regarding the chromium, Kaiser tried to downplay it by comparing the grades of a chromite-focused mine bought out a decade ago. This is a red herring. Just because a great mine featured chromium that was 100 times the grade in the Ring of Fire doesn't mean that Beaver's chromium at 1% of that grade is worthless. It's not a high grade. But let the market dictate whether that mineral has any recoverable value at the smelter. In a commodities supercycle amid rising prices, Kaiser's off-hand comment as part of a bigger argument to show intentional deceit has no value here.
Finally, we get to the magnesium. This seems to be the main source of Kaiser's pump and dump claims and where he conflates the terms critical minerals and clean energy. The closest thing the company makes to a clean energy claim was in the section near the end mentioning the collaboration with UBC. The company sent in the samples to Dr. Dipple for analysis and mentioned that mines with magnesium have the potential to be carbon neutral or negative due to its carbon sequestering ability.
Yes, this section does have typical TSX Venture penny stock language which pushes the most positive view possible, but it's clear that the company sent in its samples to find out IF its magnesium has this ability, not that it definitely or likely will. Kaiser mentioned that 98% of samples sent in from this type of discovery have minimal carbon sequestering ability. Well, that means that 2% of them do, and of the 98% that don't, there is still SOME minimal capturing ability. Even if it's not enough for carbon neutral operations, it's a good idea for the company to get an idea of the carbon footprint for environmental assessment and PEA purposes. Sending the sample in and mentioning doing so in the press release had legitimate business merits. It wasn't purely for a stock pump.
As for the term collaboration, everybody knows that this is typical penny stock terminology for some kind of paid relationship when it comes to partnering with universities. Whether that's through cash, or sometimes the researchers doing the work get stock or stock options and are brought on as advisors - and the company clearly mentions this alongside the collaboration news. Researchers don't work for free. Kaiser seemed to be really annoyed at this "egregious" presentation of the facts and decided to make a mountain out of a molehill.
As for the presentation of the magnesium itself. As Kaiser pointed out - magnesium isn't exactly in short supply nor is it expensive. But he's not the only one to know this. Despite the company putting the magnesium grades first in the headline, the nickel is what is the primary attraction here. Kaiser called the magnesium a typical "background" mineral discovery. That should be obvious by looking at the nearly straight-line identical grade of 22-23% across holes 2 through 5 all the way through.
In summary, the company was minorly promotional in its presentation of the magnesium and its "collaboration" aka paid service to the UBC. It was completely accurate in calling this a critical minerals discovery and the nickel resource discovery is fairly presented. It never made claims that the cobalt discovery was significant and whether the chromium grading at 0.33% is significant is a matter of opinion but not fraud when it is presented accurately. Kaiser also ignored the silver and copper in the first hole. This justifies additional value to the discovery but doesn't play into the fraud narrative so it was ignored.
Why did Kaiser present the discovery in the way he did? Well, that's anyone's guess but ours is that he sold as the stock moved up and is pissed off about it and wants back in at a lower level. He's also a shill for the brokers financing deals and we heard that here at the end of the podcast segment, basically implying that the company should be so lucky to fill a private placement at any price on this "pump" in order to fund the Mexican project. Maybe management is waiting for $1.00 or more because it knows the value it has? But cratering the stock price and trying to force management's hand on a secondary at a lower price really helps out the brokers.
The stock options issued at $0.375 is another sign that the company is genuinely excited about this discovery. If management thought this was a pump and dump, it would have waited a few weeks to issue those options as the stock would have significantly peeled back and TSX rules would let them set a lower price than $0.375. On the flip side, if management thought the discovery justified a much higher stock price, it would work quickly to get those stock options issued as soon as possible. Why? Because it's better to issue them at $0.375 then wait two weeks and maybe have to issue them at $1.00. We saw which direction management took.
Here would be a fair way Kaiser could have presented the MINE discovery without all the opinions and accusations of misleading the market:
"Hello, I am John Kaiser and you are asking me about MINE's recent discovery on the Beaver property. The preliminary results on the nickel suggests potential for a large sized, low grade find of 0.1% to 0.2%. I don't believe this nickel will be at the purity needed for batteries. The nickel is the primary source of value here. I don't find the chromium and cobalt to be of useful grades. Finally, the magnesium discovered is pretty typical for this type of rock formation and impossible to mine at this time. Magnesium is primarily sourced from brine. I think the stock is at a fair price given the market cap of $15 to $20 million. I would attribute that value to the La Gitana project in Mexico, while attributing minimal value to Beaver. Because the stock was so underpriced in the first place, shareholders will probably do fine here, but don't expect too much more upside from Beaver."
This type of statement would have gotten the point across that he doesn't like the discovery, without claiming fraudulent or underhanded activities performed by management. It wouldn't have been a bullish statement, but it also wouldn't have caused the stock to crater. Kaiser intentionally caused the stock to drop on claims of MINE misleading the market based on his own misunderstanding of the term critical minerals and his opinion - even if it's an educated opinion - that the magnesium and chromium didn't merit mention as significant. This is wrong and Kaiser, as a professional with a reputation, should be ashamed of himself.
Disclosure: We are long HELI.V, MINE.V