It's no secret that 2023 has been a challenging year for publicly-listed companies thus far. No index has been hit harder than the small-caps, with individual companies in the sector experiencing losses well above what the "average" declines present. But behind the bearish sentiment are pockets of strength, which are exposing a decoupling from the risk-off mentality and putting in play an opportunity to catch significant upside momentum once the bulls return.
Not surprisingly, the most significant opportunity still lies in renewable energy, battery metals, and EV stocks, where global initiatives to eliminate reliance on fossil fuels present ground-floor investment opportunities into companies committed to expediting that mission's pace. Recharge Resources Ltd. (CSE: RR) (OTC: RECHF) (Frankfurt: SL5) is one of them, which could be a reason why its shares have shown resiliency in the face of global market meltdowns.
Year-to-date, RECHF shares are higher by roughly 45%. What’s more, intraday in February, its shares traded over 81% higher for the year. And after achieving another milestone last week, reclaiming its YTD high of $0.40 - a 25% increase over current levels - is a target well within RECHF’s crosshairs.
Milestones Reached Put Catalysts On Deck
There's plenty to support that proposition. Foremost is the value from the groundwork completed at its Argentina-based Pocitos 1 project. Recharge previously announced receiving approval from that country's Dept of Mines to drill a production diameter well at that location's Salar Lithium Brine Project. That news followed RECHF announcing plans to expedite development at its Georgia Lake and West Lithium projects in Ontario, Canada.
But the most recent update could be the most exciting of the bunch. Last week, TECHF 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.
That's because the additional geophysics data will expedite identifying the lithology characteristics and low resistivity areas usually containing brines. Technically speaking, geologists and sector specialists plan to evaluate captured gas to determine its chemical makeup and origin. In addition, these specialists will work to stabilize the NQ drill rod and conduct a flow test using a 2-inch submersible pump. Notably, the phreatic brine level is at the surface and can be pumped in less than 50 metres. Lithium analysis was conducted upon completion of the hole and again after two weeks, which revealed 161 and 164 ppm of lithium, respectively. Those levels were sufficient for the Ekosolve DLE lithium process to accept a sample for test processing.
Good News Made Better
If data posts as expected, it puts RECHF 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 intends to supply 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.
How much can that deal be worth? A lot. Lithium is recently selling on the spot market at 472,500 yuan per tonne, equal to about $69,252 (US) per tonne at exchange rates published on February 13, 2023. Thus, assuming RECHF delivers the entire 20,000 tonnes as contracted, revenues could eclipse $1.385 billion using 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.
From a speculative viewpoint, RECHF continues to mitigate downside risk. Part of that assessment results from RECHF benefiting from an Argentinian geological team empowering the company to expedite progress toward its goal of establishing a NI 43-101 compliant mineral resource, as well as facilitating a scoping study of the project in collaboration with its Chinese offtake partners and investors for lithium chloride products at the Pocitos1 Project. The best news of all is that whether through a primary supply client or many, RECHF will feed enormous global demand.
Global Need For Lithium And Other Battery Metals
Few argue that renewable clean energy won't be the primary fuel source in the next decade. Surging demand for the ingredients needed to facilitate that change proves that smart companies are trying to stay ahead of the curve to maintain competitive advantages. There's talk of Tesla (NASDAQ: TSLA) and Ford (NYSE: F) either trying to buy total production outputs from suppliers or even taking the next step and 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. And 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.
Undoubtedly, the sum of RECHF's parts indicates it 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 in the face of intense broader market pressures.
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 not only as value drivers, but also as validation that RECHF is doing the right things at the right time to achieve near and long-term exploration goals.
A critical fact to keep in mind is that the property in play sits roughly 10km from the township of Pocitos and is supported by a well-established services infrastructure that notably includes accessibility by road, access to gas, electricity, mobile telephone, and internet services. In addition, previous exploration teams have spent over $1.5 million developing the approximately 800 hectares (1976 acres) site, including surface sampling, trenching, TEM geophysics, and drilling two 400m holes with outstanding brine flow results, justifying planned follow-up drilling.
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 fact 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.
Don't Forget Cobalt
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.
Holding Nice Business Cards
If that happens, the path of least resistance for RECHF shares is likely higher. Even considering the added expense, with many mega-cap companies scrambling for supply, expect capitalization not to be a problem should RECHF prove its reserves. Remember, too, 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 field is competitive, it's an industry rooting for each other, knowing that consolidation in the sector is expected. In other words, business foes can quickly become friendly when accretive dollars are in play.
And that could be a card for RECHF to play at some point. If they can show proven reserves of the markets' needs, this junior miner could soon actualize its mega-cap potential. In fact, filling only "niche" opportunities can still put billion-dollar contracts on the table. Thus, the only small thing about RECHF is its share price.
Other than that, they are perpetuating a mega mission of making their company a vital contributor to a clean energy and battery metals market. And by operating ahead of the curve and exploring proven areas of riches, its share price may not stay small for much longer. In fact, a single score, even unexposed, could send valuations soaring in a matter of minutes, if not seconds.
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