Atlantic Lithium (LON: ALL) is one of those shares that justify the AIM market in London, or the similar parts of the TSE and Vancouver exchanges. There needs to be somewhere that junior (ie, not yet producing) miners can go get the necessary capital. Someone, somewhere, has to pay for the exploration and proving work that leads to a finally viable mine. Well, might lead to a mine which is where the risk comes in. There’re an awful lot of hills out there that aren’t worth mining and someone has to spend the money to find that out.
Junior miners and the portfolio approach
The whole junior mining game is about having a portfolio, some of them will succeed. It’s very like venture capital. We all know there will be abject failures, the successes might even be rare – but when they happen they’ll be large and pay for the rest. That’s the plan anyway and we’ve talked about Atlantic Lithium before. They’ve found a decent lithium deposit, they’ve got the licences, they’ve got finance, they’re set to go really. That the lithium price has soared some ten times since they set out to go looking is also nice.
However, nothing is ever quite that simple. There was a short selling report a month or so back. Blue Orca went short Piedmont Lithium, who are that financial backer to Atlantic. Well, OK – but the claim was that bribery had been used to secure the licences for that Atlantic deposit in Ghana. This crashed the ALL price by about 50% and it’s been slowly recovering (with a jump at the end of last week) since. One part of the recovery is that Atlantic has stoutly denied the claims and of course that’s that. But it’s also true that everyone in the industry is wandering around with more than just a raised eyebrow. Sorry, people are complaining about this? There just are parts of the world where, umm, securing a permission is not quite as simple as making the application and hoping shall we say.
Mines have to be, well, where the minerals are
Which is the problem with mines and minerals. They are where they are, they’re geographically fixed. So, the laws and customs around a mine are going to be the laws and customs of that place. That’s just how it works. Of course, it can be taken too far – one mine out in the ‘Stans sent the son of the local police chief to Stanford to ensure security. That was a bit much. On the other hand there’s been a long running thing with Walmart and planning permission in Mexico. Payments were made, everyone agrees. But were they made to gain the permissions? Or to speed up the delivery of the permissions which would be granted anyway? The second is legal, the first is not (under US law that is). That is, it’s not all as entirely cut and dried as some might think.
Now, as it happens, we like Atlantic Lithium as a share but that’s not really our point. We’re also entirely and wholly unaware of anything at all that has been done wrong. Whatever we might think about the general background of doing business in Ghana.
Some exchanges are specifically set up for such miners
The Australian, Toronto (especially that part that used to be Vancouver) and AIM exchanges are home to a lot of these junior miners. High risk exploration companies some of which do indeed come good. As long as we all understand what we’re doing – taking part in high-risk exploration, obviously – then that’s fine and it can be a fun and profitable area. Worth noting that it’s a field to trade, not one to buy and forget about in the pension. But OK.
Except much of this does take part in places in the world with slightly different business manners. This adds another and specific risk for us. Yes, that those business manners might be used against us, as happened to Yukos shareholders. But it’s also easy enough for a short seller to make an allegation which is going to crash the price. A miner in West Africa is obviously always vulnerable to an allegation that there’s something a bit, well, West African going on. Not that far away, in Nigeria, an allegation that Chinese miners are subsidising the militias. Or as that story can also be cast, the people dependent upon a hole in the ground are paying off the people with guns surrounding their hole in the ground. Whether we think it’s a terrible thing to do or not depends upon how we angle the story really.
Allegations are simply another risk
This isn’t – really, it’s not – a warning about Atlantic Lithium. Instead, it’s to use that as an example. Mining is high risk until the mine actually opens. Some mining, by its very nature, takes place in legally and morally dubious geographies. Therefore, all such miners are vulnerable to a short selling report – whether there’s anything there to complain about or not. On a way, just another thing to add to the risks to be worried about.
