Originally posted by Jarama
Interesting, I've done the opposite.
I had a wide net when MTC was at highs, but as it got cheaper I couldn't resist liquidating other plays to add here.
Not because I decided to live dangerously, but because it in fact felt safer trying to make money paying a very cheap price for a future producer with long term value and 12 projects worth of shots to take than it did even buying much larger stocks. I know I sound crazy using the word 'safe' but the Nokia chairman described this state well:
An example of this 'worst case' mapping is this:
Despite being adjacent to multiple massive world class deposits, having high grade surface sampling and prospective magnetic targets let's say all 10+ of MTC's undrilled projects intercept nothing but Canadian maple syrup.
In this scenario Cancet is the last hope, but the 2km long strike extension is a massive Lemon instead of Lithium.
Worse still, the current drill intercepts somehow were the only good hits and the rest of the initial strike is cactus, with maybe only more potential very deep.
As a result the 15-25MT exploration target from the initial drilling is somehow absolutely off and MTC ends up with only a dismal 2MT of that target.
What would happen to the company and my money? This:
(Given Cancet's extremely shallow depth, extremely high grades, adjacent powerlines/road, world's cheapest power costs etc. I have no doubt they could be as if not more profitable with a tiny deposit like this).
This above company is on a $30M market cap, i.e. 4-5x MTC's current market cap. Obviously drilling costs at all the world's unluckiest hypothetical failures would counter much of the gains up to the $30M (assuming Cancet was last drilled but clearly it's one of the first to be developed).
As far as this 'literally everything goes wrong' scenario on a nanocap, I wouldn't be very upset with how much my shares are worth and the company's future potential from that point.
Then there's the scenario where 3, 5 or even 7 of the projects hold economic deposits. I don't think I have to explain what happens to MTC or its shareholders when that happens:
I personally consider it likely 4 or more projects of the 12 will be very profitable based on my own interpretation of the geology, and my own studies of comparable feasibility studies/producer financials. But of course people can apply their own probabilities to each individual project, and work out your own confidence level.
My decision to get into explorers is mostly due to my personal prediction of impending weakness of the Australian economy, and not seeing a way to win on current producers in any industry in the current momentum-driven market both here and overseas.
Buy a quality earner, make dismal returns:
Buy the momentum, and risk being caught out as historically it has never been sustainable:
And the collapse in momentum as is typical from these levels doesn't mean your solid earning low P/E stock is going to suddenly rise in value either.
Lose-lose scenario.
...My alternative was to buy an explorer where big money will be made getting to profitable production regardless of what P/E gets applied.
The biggest risk as always is in proving deposits, but IMO MTC has 3 company's worth of projects not only owned but also being actively worked on at the same time right now so I personally see it as 'diversifying' in 3 similar companies for a ridiculous $2.2M market cap each, but way better due to shared admin costs. Considering Cancet has enough drilling for me to consider it a confirmed future producer, I can't consider putting my money in a company with 10x this '1/3rd' market cap for another explorer with only 3 or 4 projects, or 50x this '1/3rd' market cap for one with a single project with a JORC.
This is definitely not me offering financial advice on how to structure a portfolio as everyone's situation is different, but in my opinion money is not truly safe anywhere but in your pocket in the current market so IMO if I'm going to risk it may as well be for the biscuit.
I should add this just to demonstrate the 'worst ever case' scenario is not a cherry picked example of a comparative company value for small deposits. This is to demonstrate that even many levels of failure to reach the 15-25MT exploration target at Cancet still underpins a valuation much higher than current levels.
This is also not considering the headwind in market cap everyone will receive when Lithium/Cobalt plays are popular again.
(20min delay)