- Driven by fast-expanding demand for lithium ion batteries, lithium has become the new glamour metal with both prices and expected demand soaring.
- While the demand for lithium ion batteries from the consumer electronics space had already stretched the supply chain, the fast-growing market for electric vehicles is adding additional fuel to the demand fire. It is estimated that at a 100% electric vehicle penetration rate supplies of lithium would need to grow by over 3,000%.
- Fortunately, the world has plenty of lithium. It just needs to be mined. Far’s Zoro Mine has produced strong test results indicative of a major lithium deposit.
- Far Resources is operated by a management team with significant experience in both finance and mining operations. We expect the drilling program to continue into the winter of 2018 and we are awaiting further test results.
- In addition to lithium, it also appears the Company’s claim in Manitoba, Canada could also have a significant deposit of tantalum, an element that is being increasingly demanded by the electronics industry in order to facilitate the miniaturization of consumer electronics devices. Recent test results have been very positive with management now indicating further prospecting is a priority.
- Fully reporting and audited, the company appears well-positioned to capitalize on the rapidly changing market dynamics of the lithium supply chain.
Far Resources, Ltd. (OTC:FRRSF)
Over the last 100 years, there has been numerous metals-related boom and bust periods. Whether driven by war, major social upheaval, or groundbreaking technological changes, there have been periodic boom cycles for various metals during these periods. It has happened most often in copper and gold, two metals that modern society and its financial institutions cannot live without. Many have made, and lost, vast fortunes as these and other metals boomed and busted.
There is another metals boom currently underway that shows no signs of abating anytime soon. In fact, we, and many professionals who follow the metals industries, believe this metal is just getting going due to rapid technological and societal changes currently occurring throughout the world.
This boom metal is lithium. It’s a dynamic marketplace that investors should consider following.
Exhibit One – Lithium in its Raw Form
Of course, we are talking about the very light metal, which is shown in its mineral form in Exhibit One, that is used in many industrial applications, in particular, lithium ion batteries, not the controversial pharmaceutical form used to treat brain disorders. Lithium is one of the hottest commodities in today’s metals market and it appears the outlook is even more positive than most analysts believed only a few months ago.
During 2016, adjusted for inflation, lithium prices were up over 13%. This is on top of gains of 22%, 23%, 14%, and 8% for years 2015 back to 2012, respectively.
What’s incredible is that even with these price increases, it appears prices will move higher.
There is a developing supply constraint for lithium as manufacturers of laptops, tablets, smart phones and other consumer electronic devices, are now being forced to compete for supplies with makers of batteries for electric vehicles. Considering that electric car production is expected to increase by more than 40 fold by the year 2030, according to major investment bank Morgan Stanley, it certainly does not appear there will be much of a supply relief situation anytime soon.
Please see Exhibit Two for Bloomberg’s electric vehicle forecast, which is slightly more conservative than the one recently put forth by Morgan Stanley.
Exhibit Two – Annual Global Electric Vehicle Forecast
The sheer size of the growth expected in the lithium market due to production of lithium ion batteries for automobiles deserves some analysis. As is outlined in Exhibit Three, the battery pack in a Tesla Model S, weighs over 1,000 pounds, with 15 pounds of lithium. In comparison, the average cell phone lithium ion battery contains only 30 grams of lithium. While the lithium mining and processing industries have barely been able to keep up with the demands related to laptop computers, tablets, and mobile devices, these companies must now plan to meet the demands for lithium ion batteries to be installed in millions of electrical vehicles. It is little wonder why prices have spiked and that the forecasts call for even higher prices, as electric vehicle production kicks into high gear.
Please see Exhibit Four for a chart of lithium spot prices over the past 15 years.
Exhibit Three – The Tesla Battery Requires 15 Pounds of Lithium
Source: Tesla, Inc
Exhibit Four – Lithium Spot Prices – A Booming Market
We find the information in Exhibit Five, below, to be truly incredible. According to the United States Geographical Society, if 100% electric vehicle penetration were to be achieved, demand for lithium would grow by nearly 3,000%.
Close behind the demand for lithium would be demand for cobalt, which is also needed for production of lithium ion batteries. Both markets are expected to continue to rise over the coming years.
Figure Five – Electric Vehicle Production – A Continued Driver of Lithium Demand
The Lithium Ion Battery Mega-Factory – Changing the Lithium Game Forever
While most investors have heard about Tesla’s $5 billion Giga Factory, designed to double lithium ion battery production capabilities, lesser known are the many other lithium ion battery factories that are being planned by the industry. For example, other facilities that are being planned, or that are already being built, are factories for mega-companies such as LG, Foxconn, BYD and Boston Power. Exhibit Six outlines some of the capacities being built for these major market players.
Second only to the size of the Tesla factory, will likely be Foxconn’s battery factory that is being built in China at an investment of almost $1 billion. The factory will make not only lithium ion batteries for consumer electronic devices – most notably the iPhone – but, will also be a major source of batteries for Chinese electric vehicle production. With China seeking to reduce air pollution, electric vehicle production is a priority with manufacturing levels already rising very rapidly.
Exhibit Six – The New Mega-Factories for Lithium Ion Batteries- Surging Product Will Need Growing Supplies of Lithium
Where Will All This Lithium Come From?
Fortunately, there is an abundance of lithium in the ground, just waiting to be mined. It is estimated that even if the current market for lithium triples, they are is nearly a 200-year supply in the ground that can be supplied to industries to meet this huge and growing demand.
As is outlined in Exhibit Seven, lithium is mined in many places throughout the world, with much of this production is centered in South America, which produces nearly half of the worldwide supply. However, both the United States and Canada have rich deposits that are now beginning to be widely mined and exploited.
Exhibit Seven – Lithium Mining Centers
Source: Mining Monthly
Far Resources, Ltd.
We were attracted to Far Resources, Ltd. which is headquartered in Vancouver, British Columbia, Canada, after the Company recently announced it had received final assay results from drill core samples from its recently completed drilling program. These results are covered below.
Far Resources Ltd. is publicly traded on the Canadian Securities Exchange under the stock symbol FAT and on the US OTC market with the symbol FRRSF. Far Resources characterizes itself as a minerals exploration company with properties in both Canada and the United States. Lithium exploration is out of Manitoba, Canada.
In addition to lithium exploration out of Canada, the Company also has two U.S. located gold and silver mines.
The Winston project is located in the U.S. state of New Mexico in an area with proven gold and silver reserves. The Winston project currently hosts two mines, both of which have had successful production in the past. The Little Granite Mine is a past producing underground silver mine that was pulled out of production in the 1930s. However, recent site visits and collected samples lead management to believe this location can be put back into production relatively easily and can be profitable in the future. The Ivanhoe-Emporia mines are past producers of both gold and silver. The management team and Board of Directors of Far Resources are currently analyzing the costs associated with putting these mines back into service, but for now, we believe the lithium opportunity is the major priority.
Far’s Lithium Zoro lithium property is located in western Manitoba Canada, which has traditionally been extremely mine friendly. Please see Exhibit Eight for its location.
Exhibit Eight – Zoro Lithium Property in Manitoba, Canada
Source: Far Resources, Inc.
The mining industry maintains its position as one of the backbones of the Manitoba, Canada economy and there is a long history of mining rare metals, including nickel, copper, zinc, gold, tantalum, lithium, and even cesium. Resources on which mining companies depend are very well developed with the Manitoba government working on an ongoing basis to promote mining operations in the jurisdiction.
The Zoro 1 claim, which was acquired in May of 2017, covered approximately 52 hectares near Wekusko Lake in the Western Central part of Manitoba. The acquisition was made by accelerating the Company’s original option in exchange for payment of six million common shares and a promissory note for C$100,000 payable in 12 months.
Far Resources recently announced that the other party to the acquisition has agreed to accept payment of the promissory note in common shares, instead of the cash that had originally been contemplated. We view this as very positive for the Company as it will allow it to preserve capital in order to accelerate its drilling programs.
In late September of this year, the Company announced a significant expansion increasing its total lithium property by more than 2,200 hectares adjacent to the Zoro 1 claim. This was accomplished via an options agreement with Striker Resources Limited.
Thus far, the Company’s drilling programs have produced some very respectable results. In April of this year, Far announced interceptions of wide intervals of spodumene mineralization. Spodumene is typically the lithium-containing mineral that is sought during site testing. Evidence is spodumene means the presence of lithium.
There is also been very positive news relative to the Company’s drilling program and rock chip assays. As is outlined in Exhibits Nine and Ten, the results strongly suggest the presence of significant lithium mineralization.
Exhibit Nine – Far Resources Rock Chip Assay Results
Exhibit Ten – Far Resources Zoro Drilling Programs Statistics
While there is much talk about the demand for lithium, and to a lesser extent cobalt, both of which are being increasingly sought out due to the many other forces we outlined above, the demand for a lesser-known element is also starting to grow. That element is Tantalum, which is vital to the miniaturization of personal electronic devices. This element has unique characteristics that make it perfect for creating electronic capacitors that have an extremely high capacitance, packed into a very small package. These ultra-small capacitors are increasingly being demanded by electronic device manufacturers that are under increased pressure to make devices smaller. Simply put – No Tantalum – no miniaturization.
The mining of tantalum has been especially controversial as much of it is mined in conflict zones in Africa, as are shown in Exhibit Eleven. Many manufacturers of electronic devices are actively seeking more “politically correct” sources for this vital element.
So controversial is the mining of tantalum, that there are special provisions written into the Doff-Frank Wall Street Reform and Consumer Protection Act, signed into U.S. law in July of 2010. Under the provisions of this Act, U.S. companies are required to divulge their use of tantalum, and for other conflict minerals, and the country of origin. Ever social conscience technology companies and manufacturers are very hesitant to report sourcing such materials from these conflict zones.
For this reason, we believe, tantalum could be a second important play for Far Resources. The Company has recently announced tantalum potential at the Zorro lithium property. This potential is based on the review of its assay database of 310 drill core samples and multiple rocket chip samples. The test results showed an elevated level of tantalum on the property, leading management to believe there is potential for significant tantalum mineralization. Based on these results, the Company has indicated it has dispatched two prospecting teams to continue exploration in areas that could be promising.
Even though the price of metal tantalum has retreated rather significantly over the past few years – it currently sells for approximately $128,000 per metric ton – we believe there is still a significant opportunity for the Company.
We believe there is certainly a viable market for tantalum for any producer that can source from a non-conflict zone – such as the Manitoba, Canada location where Far’s main property is located.
Exhibit Eleven – “Conflict Minerals” – Increasingly Undesirable – New Sources Needed – Maybe It’s a New Market for Far Resources
Source: US AID
Conflict Minerals – The Tech Industry’s Shame – A landmark law regarding conflict minerals was passed in 2010 by US Congress and requires U.S.-listed companies to determine if their products contain one or more of four minerals – tin, tantalum, tungsten and gold – sourced from Congo or one of its nine neighboring countries. Section 1502 of the US Dodd Frank Act, better known as the conflict minerals provision, is the first piece of legislation aimed at breaking the links between eastern Congo’s lucrative minerals trade and abusive armed groups. It requires U.S. listed companies who believe they source from the region to carry out checks on their supply chains, known as due diligence, to determine whether their minerals purchases have benefited abusive armed groups. Companies must then report publicly to the US regulator, the Security and Exchange Commission (SEC), on the measures they’ve taken.
As of October 31, 2017, Far Resources had approximately 91 million shares outstanding. With shares recently trading at approximately US$0.70, this places the total market capitalization at approximately US$64 million.
There are approximately 3.7 million warrants outstanding and an additional 5.1 million options. This provides a fully diluted share count of approximately 100 million shares. Therefore, on a fully diluted basis, the total market value of the Company is approximately US$70 million. We view as being very reasonable considering the lithium and other opportunities in front of this Company.
There have also been some recent financial transactions, as recently reported by the Company, including the issuance of approximately three million options with strike prices between $.54 and $.99, and the issuance of a rather minimal a number of common shares.
The management team and the Board of Directors of Far Resources are stacked with professionals with both financial and mining experiences.
Below are the bios for the members of this highly experienced team of managers and directors.
KEITH C. ANDERSON – PRESIDENT, CEO AND DIRECTOR
Mr. Anderson is a former Vice-President and registered representative with Canaccord Capital Corp. (now Canaccord Genuity Corp.) and has been involved in the securities industry, primarily in the resource sector, for more than 25 years. Since retiring from Canaccord Capital Corp. in May, 2006, Mr. Anderson has been involved in real estate development on the Sunshine Coast of British Columbia. In August, 2009 Mr. Anderson took over as President of the Company and is primarily responsible for the day to day management.
LINDSAY R. BOTTOMER, P.GEO. – DIRECTOR
Lindsay Bottomer is a professional geologist with over 42 years’ experience in world-wide mineral exploration and development, including the Snip, Eskay Creek and Goldstream projects in BC and more recently the Oyu Tolgoi copper-gold project in Mongolia and the Ann Mason copper project in Nevada. He has served as an officer and/or director of over 20 listed exploration companies, including Richfield Resources until its takeover by New Gold, and most recently was VP Business Development for Entrée Gold.
Mr. Bottomer holds a Bachelor of Science (Honours) degree in geology from the University of Queensland and a Master of Applied Science degree from McGill University. Mr. Bottomer is a member of the Association of Professional Engineers and Geoscientists of British Columbia and a Fellow of the Australian Institute of Mining and Metallurgy. He is also a past President of the British Columbia and Yukon Chamber of Mines and served for six years, from 2002 to 2008, as an elected councillor on the Association of Professional Engineers and Geoscientists of British Columbia.
SHASTRI RAMNATH – DIRECTOR
Ms. Ramnath is a Professional Geoscientist with over 17 years of global experience within the exploration and mining industry. Ms. Ramnath holds a B.Sc. in Geology from the University of Manitoba, a M.Sc. in Exploration Geology from Rhodes University (South Africa), and an Executive MBA from Athabasca University.
CYRUS DRIVER, CA – CHIEF FINANCIAL OFFICER AND DIRECTOR
Mr. Driver is a Chartered Accountant with more than 30 years’ experience in the financial reporting and auditing of publicly traded companies. He is a former partner with Davidson & Company LLP, Chartered Accountants. Mr. Driver has also acted as a director and/or held senior management positions with various publicly listed companies and is currently a director and/or officer of, among other companies, Nevada Exploration Inc., Orko Silver Corp. and Aldrin Resources Corp., all listed for trading on the TSX Venture Exchange.
FRANK ANDERSON – DIRECTOR
Mr. Anderson has been providing management and consulting services to publicly traded companies for over 30 years, with an emphasis on junior resource companies. During his career, he served as president and director of a number of junior public companies, including L.G.R. Resources Ltd., Consolidated Agarwal Resources Ltd., and Pacific Talc Ltd., a junior resource company involved in the exploration of talc. Since June 2000, Mr. Anderson has been semiretired, providing management and consulting services to private and public companies on a part-time basis only.
JEREMY ROSS – DIRECTOR
Mr. Ross has more than seventeen years in corporate development and marketing for small cap to mid-tier mining and, oil and gas companies. With a comprehensive network of institutional and retail relationships, Mr. Ross has planned and implemented numerous marketing campaigns. He was the Corporate Development Consultant for Fission Energy and played a key role in growing investor awareness up until its major sale of assets to Denison Mines. In 2013, Mr. Ross was appointed to the Board of Directors of Fission Uranium and was appointed to the Fission 3.0 board of directors following Fission Uranium’s acquisition of Alpha Minerals.
Recent Financial Statements
The management team of Far Resources has done a commendable job in keeping its investors updated relative to activities at the Company and financial performance. The Company is current in all of its Canadian filings with the most recent set of interim financial statements and reports filed on November 29, 2017.
While the Company is still in the exploration stage, and thus not producing revenues, we find the balance sheet to be reasonable as are the expense levels. The most recent financials are provided below in Exhibits Twelve, Thirteen and Fourteen.
Exhibit Twelve – Far Resources Ltd. Cash Flow Statement Period Ending September 30, 2017
Exhibit Thirteen – Far Resources Ltd. Statement of Operations Months Ending September 30, 2017
Exhibit Fourteen – Far Resources Ltd. Statement of Financial Position on September 30, 2017
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