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Erik Wetterling – Spotting Inefficient Markets In Junior Mining Stocks Reviewing Sunk Costs Versus Valuations

Shad Marquitz
September 22, 2022

Erik Wetterling, Founder and Editor of The Hedgeless Horseman website, joins us to review the advantage of considering the advanced explorers or developers overall sunk costs in relation to their current valuations to spot inefficient markets.  We dive into the topic considering all the sunk costs in project(s) with regards to capital deployed, time, personnel, specialized knowledge, and derisking.  This  encompasses all the early groundwork, trenching, drilling, geophysical surveys, permitting, expansion and infill drilling, resource estimates, metallurgical work, engineering studies, economic studies, permitting, and any infrastructure or development on site.

 

In this  low sentiment environment in the junior mining sector there are plenty of examples of how the current market caps of companies do not reflect all the money that has been put into the projects, with many trading at 30% of those sunk costs (or 70% off of the capital that would be needed to get that project to where it is today, not even accounting for the increases in inflation).    One recent example highlighted is where Lion One Metals (LIO) (LOMLF) is trading, on the back of investors upset at a recent financing, that highlights the huge disconnect between where the company is valued today, versus the over a decade of monetary capital, time, and intellectual capital spent on developing the Company’s Tuvatu Gold Project to where it is today.

 

 

Click here to visit Erik’s site.

Discussion
19 Comments
    Sep 22, 2022 22:29 PM

    Although silver could be putting in a short term double top here I think it’s more likely heading higher. If it finishes the week (tomorrow) above 20, I bet it will test 21 next week and give us some good looking monthly and quarterly price bars.
    Today’s close was the best in 8 sessions and the second best this month. Volume and other indicators are bullish…
    https://stockcharts.com/h-sc/ui?s=%24SILVER&p=D&yr=1&mn=4&dy=0&id=p71659410777&a=500462915

    Reply
    Joe
    Sep 22, 2022 22:36 PM

    Lion One is just an example of how junior miners are money holes and retail investors are nothing more than whipping boys for the big financiers and management.
    Most of these companies only exist to development new mines for the big players to buyout later for next to nothing when the capital runs dry and every retail investor has been fleeced.

    Reply
      Sep 22, 2022 22:48 PM

      Joe, this looks like something you’ve read elsewhere. Quote your sources, don’t plagiarise.

      Reply
      Sep 22, 2022 22:14 PM

      As for Lion One, they’ve continued to hit big on exploration and expansion, and have a near-term pathway to production as a developer, and like any stock or equity, not just the precious metals stocks, it totally depends on where one got positioned.

      LIO was a sub $1 stock in late 2019, then surged over $2 by Feb 2020, then dropped back under a $1 in March during the Pandemic Crash, then rallied up over $2.66 in July of 2020, then gradually pulled back down under $1 by May/June of this year, and then in a few days rallied up over $1.66 on great drill news. Now it closed today at $.685 and I was buying today near those levels, and yesterday on swan dive it took. I see it is highly likely that this stock can double or triple from here with a little positive sentiment in the sector, as they still have all the gold in the ground they did when they were valued over $2 higher, and actually have much more gold now, have hit the high grade shoots in the alkaline system, they now own the rights to the whole 7km caldera in Fiji, and they are now much closer to going into early smaller-scale production, with the option to increase production over time.

      ___________________________________________________________________________________________

      If anyone would like the actual facts on Lion One instead just hyperbole on money holes and whipping boys, then here is their Corporate Presentation:

      https://liononemetals.com/wp-content/uploads/2022/08/LIO-Corporate-IR-Deck-September-2022-2.pdf

      Reply
        Sep 22, 2022 22:17 PM

        (LIO) (LOMLF) Lion One Reports 19.60m at 21.16 G/t Au Including 16.20m at 25.28 G/t Au in Drillhole TUDDH-608, Expanding the TUG-141 High-Grade Zone at Tuvatu, Fiji

        15 Sep 2022

        https://ceo.ca/@newsfile/lion-one-reports-1960m-at-2116-gt-au-including-1620m

        Reply
          Sep 22, 2022 22:18 PM

          (LIO) (LOMLF) Lion One Confirms High-Grade Gold Feeder Zone at Tuvatu, Fiji with TUDDH-601 Returning 54.9m of 12.22 g/t Au Including 20.10m of 23.03 g/t Au

          15 Aug 2022

          https://ceo.ca/@newsfile/lion-one-confirms-high-grade-gold-feeder-zone-at-tuvatu

          Reply
            Sep 22, 2022 22:22 PM

            This may be stating the obvious, (but since clearly some investors seem confused about the quality of the work Lion One has been doing), there are not many gold junior explorers, developers, or producers that are putting out drill holes with 54.9 meters of 12.22 g/t Gold, or 20.10 meters of 23.03 g/t Gold.

            Those are undisputable bonanza grades by anyone’s measure.

            Sep 23, 2022 23:47 AM

            Lion One down to 65 now.

            Sep 23, 2022 23:12 AM

            Yep, gold pulling back down below $1673-$1675 support again has pressured PM equities today.

            It is easy to see the market inefficiencies with LIO trading so far below the bought deal price of $0.77, so I may pick up just a few more shares at $0.65 as the value arbitrage grows. We’ve not seen this good of a deal on shares in many years and they’ve found far more gold in the ground since that time, and now own all 7kms of the volcanic caldera. Quite the risk/reward setup for sure.

    Sep 22, 2022 22:55 PM

    Sounds like two honest guys talking. What could be better and more refreshing.

    Reply
      Sep 22, 2022 22:30 PM

      Thanks for that feeback Lakedweller2. Most of Erik & I’s interview are just 2 friends honestly talking about investing in junior mining stocks, and they are always a blast to record and edit.

      Reply
    BDC
    Sep 23, 2022 23:58 AM

    Lion One has little, if any, downside (other than going out of business). It nearly bottomed exactly at the BackBox 27.3% expansion (.4951). As noted, 38.2% (.4229) is possible. Daily chart: https://postimg.cc/9wqTmgBr

    Reply
      BDC
      Sep 23, 2022 23:01 AM

      Additional support. Monthly chart: https://postimg.cc/BtRdQ8Cz

      Reply
      BDC
      Sep 23, 2022 23:41 AM

      MaxSat(7) low at the open. First level holding so far.

      Reply
      Sep 23, 2022 23:30 AM

      Thanks BDC. Yes, the downside is limited in LIO from where it has plunged down to at this point, and it is getting more and more intriguing as more retail traders capitulate and have now driven it far below the bought deal price of $0.77 in their financing announced earlier this week. It is interesting how it was trading more than double that level (up to $1.66) and almost 2 1/2 times higher than where it was today at $0.65 just 2 months ago on the stellar drill intercepts.

      These are the kinds of wild swings in valuations to sit up and pay attention to, because while most retail traders are angry and whining and gnashing their teeth about how unfair the latest financing is, they’ve now had such an emotional reaction that it’s created a great spot for accumulation of LIO shares in my opinion. Did all the gold they found just suddenly disappear? (nope) Did all the great drill results proving their thesis just evaporate (nope). Did the company really become 60% less valuable in 2 months because of simply raising $12.5 million and diluting just a fraction of that amount? (nope) You gotta love it!

      Reply
    Sep 23, 2022 23:08 PM

    Can Lion One get into production without another dilutive financing? There is no doubt a major would want it, but at what price? Production cost overruns have a way of devaluing stocks such as pure gold.

    Reply

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