how much lower, page-71

simonhhh,

Indeed I have heard of contrarian trading. It is the art of shorting the stock market in late 2007, and then cleaning up, and saying "lol, how easy was that!" or buyinh March 2008 and saying "lol, p*ss easy!".

It is also, sadly, what I appear to be doing with respect to Galaxy and the HotCopper community; I sell, everyone's struggling to get their trucks into reverse gear already.

The thing is this. lets take kacy as an example: I've debated Li stocks with kacy since 2006-07 on ADY, etc, etc. kacy is wedded to the idea of the lithium revolution. kacy is part of a cadre of lithium tragics who have a fundamental argument (which i vaguely agree with) that lithium demand will go crazy due to carbon taxes, peak oil, hybrids, what have you.

This is trading on macroeconomic and societal demographics. Its like investing in aged care LPT's because of the Baby Boomers; its a great long-term portfolio play. But you need a portfolio because not every horse wins the race.

What tends to happen is lithium, for example, becomes a demographic play. Then it becomes a religion; you need faith to stick around the 5+ years to see a Li mine up and running; ADY failed, ORE is still yet to get off the ground, GXY is digging and mining but where's the profit? Reed Resources, ye gods, don't even get me started.

So now there's a cadre of Lithium tragics grimly committed to a demograpic play to be in on the ground floor of the lithium revolution, but its a long time coming. When faced with some hurdles, you dismiss them because they don't fit with the worldview of eventual lithium demand; there is a focus on the potential and the positives.

Enter the contrarian. What is the contrarian in this equation? Are you saying I should be anti-lithium, that I should believe in a lithium oversupply and glut, a crash in prices? Its on the cards, if these brines get off the ground.

Should I be contrarian on the end-uses? Lithium battery powered cars are still in the concept stage; the Tesla is a novelty bespoke manufacturer; hybrids are still using nickel. The batteries aren't completely sorted.

Or should I be contrarian on GXY itself, as I have been? It means selling, if we believe the consensus view is long on GXY. Or are you saying I should buy when everyone is selling when there are potentially very good fundamental reasons to sell.

But you say that everything has an intrinsic value; this is true. The lithium in the ground has a value, it has a value-add when concentrated to spodumene and further to carbonate and further to batteries themselves.

However, the extrinsic value of the lithium is crystallised in the solvency and sustainability of those who own the rights to extract it from the ground. Admiralty Resources had intrinsically US$12Bn of lithium at Salar del Rincon; the extrinsic value of Admiralty was at one time based upon a market perception of its technical and managerial expertise in converting that intrinsic value to real shareholder wealth.

If the argument is to buy based on the intrinsic value of the company and not the mineralisation, then we are down to arguing business models, management expertise, and financial risk, aren't we?

As I've demonstrated, there are huge risks in this smashed-crab approach to vertical integration. Until they are addressed, the intrinsic value of GXY can be measured by: (cash in bank + financing will of investors) divided by (cost per month to run a mine + cost per month to build carbonate plant)

if that equation comes out at 12 months or less, I reckon there's no intrinsic value in holding the shares.