Eleven months ago, we wrote our first of several bullish pieces on Surge Battery Metals Inc. (NILI.V) (NILIF) back when the stock was trading at $0.10. These bullish calls culminated with a $0.75 fair value target. Continued successful drill results along with strategic financings have resulted in the stock ripping past this $0.75 target, and therefore we have taken our gains. While we wish NILI holders continued luck, we think the easy money has been made after a 650% move from $0.10 to $0.75 and are moving on to better valued lithium plays for now. Between the increased stock price and strategic financings, NILI's market cap has exploded nearly 20 times from $10 million to nearly $200 million. In the drill results announced last week, the company quoted samples as high as 8,000 ppm, but that occurred only over a very short interval. What we were looking for was grade over a material amount of length, and we got it with 4,000 ppm over 42 meters. The issue is that these kind of drill results were part of the expectation of a $0.75 target and $100 million market cap, not nearly double that.
In a bullish environment for lithium where there are no other cheaper places to park your money, NILI's current valuation would be just fine. But this is in an environment where Lithium Americas Corp. (LAC)(LAC.TO) has flatlined over the past year while the two stocks we frequently cited as more expensive comparables to NILI in our previous posts - Nevada Lithium Resources Inc. (NVLH.CN) and Nevada Sunrise Metals Corporation (NEV.V) - have greatly lagged. Turns out that we were correct in NILI offering far superior upside potential to NVLH and NEV at the time. But now the tables have turned and NILI has gone from being valued equal to or lower than these two stocks to being valued 10x and 20x higher, respectively. NILI is now valued similarly to Brunswick Exploration Inc. (BRW.V)(BRWXF), a company widely considered to have the next Patriot Battery Metals Inc. (PMET.V)(PMETF) potential. It's up to each investor which company they value more, but in our view, BRW is likely the superior company to NILI. Based on some of the hype in social media and pretend knowledge from those who have jumped on the NILI bandwagon over the last few weeks, we think it has turned into a "meme" stock trade as opposed to a speculative value opportunity. Traders should tread carefully especially as financings that were conducted at much lower prices come off of their lock.
It's going to be very hard for someone buying NILI at this valuation to make five times or more their money as the stock would have to be valued at $1 billion market cap by then. It may eventually happen but it will take years as opposed to weeks or months. The time to buy NILI was when we first called it at $0.10. You make the big money by buying low and selling high. Not buying after a massive run and hype fest on social media and stock chat boards. That's why we took NILI profits as well as profits from other plays and are buying Harfang Exploration Inc. (HAR.V) (HRFEF). This is an undervalued and relative unknown name in the prolific James Bay area that has encouraging early stage results over at least one kilometer with a strong cash balance. As it is trading at less than 10% of the valuation of BRW and less than 1% of PMET, this is the type of buying opportunity that we saw last October with NILI. We are up to 1,018 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. 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 120 followers so far on here. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.
Last week, HAR announced the following news:
"Harfang Discovers Spodumene (Lithium) in Pegmatite Dykes at Serpent-Radisson Property, Eeyou Istchee James Bay, Québec
MONTREAL, Sept. 13, 2023 (GLOBE NEWSWIRE) -- Harfang Exploration Inc. (“
Harfang
” or the “
Company
”) (TSX-V: HAR) is pleased to announce that its field crew has
discovered several spodumene occurrences in pegmatites in the eastern
part of the Serpent-Radisson Property (the “
Property
”) located in the Eeyou Istchee James Bay region, Québec. This
discovery was made in the initial days of prospecting and, as a result,
Harfang intends to devote most of its efforts for the remaining
prospecting season to the Property which is already known for its gold
and copper potential (
Figures 1 and 2
).
Highlights
- Discovery of several pegmatite dykes with up to 50% spodumene crystals mapped at several localities spread over at least 1 kilometre;
- Boulder field containing only angular spodumene-bearing pegmatite floats of cubic metre dimensions down-ice of the discovery outcrop;
-
The discovery occurred at the early stages of the field program on
the Property and surface work is ongoing until the end of the
prospecting season.
Mr. Ian Campbell, President and CEO, commented: “ We are excited about today’s announcement which represents o ne of the very first discoveries of spodumene-bearing pegmatites since the beginning of the lithium rush in the emerging James Bay district. We are off to a superb start as our team has only been on this Property for a few days following the lifting of the lengthy fire ban and there is a lot of ground to cover. We have felt since last year that the area of this discovery had excellent potential for the discovery of LCT pegmatites based on our initial sampling results combined with the overall favourable geological environment which contains similarities to the major lithium deposits in James Bay. This discovery area also contains several high-grade gold showings as well as the compelling Mista copper target which is drill-ready.”
From LCT Pegmatites to the Spodumene Discovery
The current program confirms, for the first time, the presence of major lithium mineralization in pegmatite outcrops and boulders. The lithium mineralization consists of light grey to greenish elongated spodumene crystals ranging from centimetre size up to 1.40 metres in length. The spodumene content is highly variable and reaches up to 50% locally ( Figures 3 to 6 ). Mapping to date has confirmed that several pegmatite dykes contain spodumene at different localities spread over at least 1 kilometre. Harfang has accelerated its efforts to test the extensions of this discovery before the prospecting season ends. Pegmatites in the area contain muscovite with accessory minerals such as tourmaline, garnet, apatite and beryl. The beryl content reaches up to 10% locally in the surrounding pegmatites.
The spodumene-bearing boulder field measures about 10-30 metres in size and is located 30 metres southwest of the discovery outcrop. The floats in the boulder field are angular, have a cubic metre size and are exclusively composed of spodumene-bearing pegmatite ( Figure 6 ). Harfang believes that the boulders have not been transported by the glacier and hence could indicate the presence of Lithium-Cesium-Tantalum pegmatites (“ LCT pegmatites ”) in the underlying bedrock.
Harfang has just started its field campaign on Serpent-Radisson as part of a follow-up on a reconnaissance campaign done in the eastern part of the Property during summer 2022 to evaluate the lithium potential of pegmatites. Grab samples collected during that campaign showed that these intrusive rocks, which contain highly anomalous beryllium (up to 25,000 ppm), lithium (up to 1,420 ppm), cesium (up to 998 ppm), tantalum (up to 173 ppm), niobium (up to 278 ppm) and rubidium (up to 1,095 ppm), fall in the category known as LCT Pegmatites (see news release dated October 5, 2022).
The field crew is still collecting rock samples on the Property. Analytical results will be disclosed as soon as available.
Polymetallic Mineralization in Eastern Serpent-Radisson
Over the years, diverse styles of mineralization have been highlighted by Harfang in the eastern part of the Property ( Figure 2 ). Mista is the most significant showing in the area with up to 0.99% Cu, 0.20 g/t Au and 7.7 g/t Ag over 11.7 metres in width from channel sampling. This showing consists of a quartz-rich arenite/wacke horizon injected by quartz veins mapped at the surface over 350 metres in length and is coincident with an induced polarization chargeability anomaly obtained from an induced polarization survey. That survey suggests that the mineralized horizon could be as long as 700 metres with its strongest chargeability zone, probably related to a higher content in sulphides, hidden under the overburden cover.
Moreover, the area hosts many high-grade gold occurrences discovered by Harfang such as Lawr (189 g/t Au, 200 g/t Ag and 1.7% Pb [grab], and 9.79 g/t Au over 1.25 m [channel]), Anaconda Ouest (117 g/t Au), and Couleuvre (38.40 g/t Au) (see news releases dated October 17, 2019 and December 10, 2019).
The recent lithium discovery coupled with the already known gold, copper and silver occurrences considerably enhances the mineral potential in the eastern part of Serpent-Radisson. This portion of the Property has received limited field work as the previous focus of the Company was oriented toward the western half where most of the exploration work has been conducted since 2020 based on the discovery of gold-rich till and soil and abundant associated gold occurrences in bedrock.
The Eeyou Istchee James Bay region is rapidly emerging as a North American lithium province comparable to some of the largest districts globally based on the occurrence of several deposits and is experiencing an exploration rush. Harfang’s Serpent-Radisson Property consists of 988 claims totalling 50,843 hectares and is located proximal to the La Grande – Opinaca subprovince boundary which is a similar geological setting to the majority of the lithium deposits in James Bay. A recent maiden resource estimate by Patriot Battery Metals (“ Patriot ”) on its CV5 pegmatite (see Patriot's news release dated July 30, 2023) yielded inferred resources of 109.2 Mt at a grade of 1.42% Li 2 O with a cut-off grade of 0.40%, establishing CV5 as the largest lithium pegmatite resource in the Americas.
Qualified Person
The technical information in this news release was prepared and approved by François Huot, professional geologist and Vice President Exploration of Harfang, who is a non-independent qualified person for the technical disclosure as defined by the National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI43-101”).
About Harfang Exploration Inc.
Harfang Exploration Inc. is well financed with approximately $6.2 M in the treasury as of September 1, 2023 and is a technically driven mineral exploration company with the primary mission to discover ore deposits in Québec and Ontario. The Company is managed by an experienced team of industry professionals with a proven track record of success, controls a portfolio of highly prospective projects and has a strong financial position. Harfang is dedicated to best practices through engagement with all stakeholders and commitment to the environment."
HAR initially spiked from $0.17 to as high as $0.23, but as since pulled back to $0.17, representing an irresistible buying opportunity. This is a carbon copy of the price action we say on NILI back on October 21 of last year as frustrated day traders exited at a loss:
Even John Kaiser, famous mining podcaster well before YouTube stock bros, has had bullish words for this discovery:
"Although some James Bay juniors have to cool their heels over the next four weeks, others will be very busy with ongoing prospecting of their properties. One of these, whose CEO Ian Campbell claims that his company's properties fall outside areas First Nations have "reserved" for moose hunting, announced on September 13, 2023 that Harfang Exploration Inc had identified outcropping LCT-type pegmatite with a broad range of spodumene crystal sizes associated with a similar boulder field on its Serpent project. Ironically, Serpent was the focus of Harfang's exploration during the past few years based on a gold in till anomaly whose apron highlighted an area in the western part of the property. Drilling failed to yield a commercial scale explanation for the gold anomaly and in late 2021 CEO Francois Goulet chose to retire, which set the stage for a merger between Harfang and another junior with an adjacent property whose CEO Ian Campbell inherited Goulet's job. Goulet in turn went to work for Brunswick which had secured options on land once owned by Andre Gaumond's Virginia Mines and for whom Goulet worked as a junior geologist. Gaumond is the "godfather" of Harfang so it has been a somewhat difficult journey for somebody who was an exploration pioneer in the James Bay region seeking to establish its credibility as a source of precious and base metal mines, only to realize that those annoying pegmatites within the greenstone belts, whose outcropping mosquito and bush free ridges he strictly forbade junior geologists such as his protege Francois Goulet to waste time and money sampling, are in fact the world class foundation of the James Bay district.
Campbell was familiar with LCT type pegmatites because he had worked on the Big Whopper pegmatite the late Don Bubar's Avalon discovered in western Ontario in 1996. Once he got his head around the Lithium Mania 2.0 concept he used geology and lake bottom-sediment data to identify several other lithium prospects in the James Bay region he staked for Harfang. But the Serpent property had generated its own reports of pegmatites in the field, so when the forest fire closures ended he sent his boots to this ground first, and, lo and behold, the pegmatite dyke system is extensive, shoots via XRF as LCT type, and has large visible spodumene crystals. Just to make everybody feel stupid, the pegmatite system is located in the southeastern part of the property, far away from the Serpent gold target and the inlier claim owned by the Campbell company Harfang absorbed in 2022 in order to control the entire footprint of the gold system. It is too soon to determine what the average grade of the Serpent pegmatite system will be, or what sort of tonnage footprint it represents, but the market responded positively to it, sending the price from a $0.15-$0.16 range to as high as $0.23 before closing the week at $0.185 where Harfang's Serpent project has an implied value of only $12 million. Given that Harfang has $5 million working capital, multi-project exposure to James Bay, a top notch management team and backers, and now evidence of LCT type pegmatite outcrop on one its 100% owned projects, with boots heading to other projects in the next 6 weeks not impacted by the moose hunt restriction, why is the valuation so cheap?
In the case of Harfang it is possible that the selling is by grumpy gold bugs programmatically required to exit anything to do with climate change and energy transition policies. This sort of ideologically driven stock supply should be red meat for the Gamestop crowd; the enemy of the future is selling stock because the company may have a major lithium discovery in the James Bay region! Canadian companies, however, tend to have a different explanation for inexplicable selling activity, and that is the flow-through concept.
Canada has a system designed to encourage investment in exploration, where money spent by a junior can be written off against ordinary income by the investor who provided the money, often with a multiplier as is the case with Quebec, with the caveat that the cost base for the equity position becomes zero, so that whatever you sell the flow-thru stock at, all of it is subject to Canadian capital gains tax. Capital gains tax in Canada, however, has no long or short term distinction and has a favorable fixed rate rather than the progressively increasing rate applied to income. This allows all sorts of complicated strategies, though the expected outcome of them all is to postpone tax consequences into the future. This injects into the Canadian resource junior market a perverse investment dynamic that has little to do with fundamental outcome expectations. Harfang has done flow-through financings, so it is at risk of liquidation by shareholder who have neither knowledge about nor interest in Harfang's gold potential, let alone its relatively new lithium potential. Again, this is an opportunity for the Gamestop "Dumb Money", buying stock that the financial engineers are dumping as worthless."
Funny enough Kaiser expects HAR to be the beneficiary of a GameStop-like meme stock run when that's what is appearing to be buoying NILI at the moment. While blaming flow-thru sellers for the pullback and cheap buying opportunity since the news was released. With 61 million shares outstanding, HAR has a $10 million market cap with $6 million cash in the bank and an active exploration program. This is the type of situation we like buying into as the hype of further potential discoveries coupled with the small float and low valuation can make HAR a big runner.
Disclosure: We are long HAR.V
