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Electra Battery Materials Stock: Buy The Discount (NASDAQ:ELBM)


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Electra found cobalt!

Electra (NASDAQ:ELBM) announced today that it had intersected high-grade cobalt in its Idaho mining property. Of the latest drilling holes, five out of six intersected cobalt mineralization, increasing the area where high-grade cobalt is found. The company believes that mineralization extends both to the east and west.

As expected, drill results on the eastern side of the deposit confirm that the mineralized system has considerable growth potential along strike and at depth. Additional drilling to the east of Iron Creek will target zones where the cobalt mineralization may thicken in structural traps.

Dan Pace, Principal Geologist on May 9, 2022 press release

This is great news for the company’s vertically integrated strategy as it increases the likelihood that battery-grade cobalt will be eventually extracted from the Iron Creek project and provide feedstock for the refinery.

Furthermore, this cobalt deposit is suitable for underground mining — as opposed to the landscape-scarring open-pit techniques. This is good for the Electra eco-friendly brand because the mine’s smaller footprint creates less disturbance of natural areas on the surface.

The company intends to keep drilling in the area to keep mapping the deposit. Still, this discovery is contradicted by the day’s decline in share price, which is most likely driven by broad-market selling. This is an opportunity to accumulate at a discount.

Electra no longer a “venture issue”

By listing on the NASDAQ, shares of the company are no longer a “venture issue” as defined by Canadian Continuous Disclosure Obligations (NI 51-102) and the company has filed noticed with the regulatory authorities on May 2.

Confetti raining on company execs

Electra rings the closing bell on the NASDAQ (Electra Better Materials)

Becoming a non-venture issuer tightens reporting requirements, from filing deadlines for the company (for example by decreasing the number of days to file financial reports) to requiring many more disclosures for significant acquisitions, shareholder votes, and executive compensation.

This bureaucratic filing is important because it upgrades to a company class that is more supervised but also more transparent. This improvement of the company’s status makes it possible for a larger pool of institutional investors to buy in.

New analyst coverage

The company’s growing profile attracted a new analyst. Jake Sekelsky of Alliance Global Partners initiated coverage on April 28 with a Buy recommendation and a target price of $14.08. This is above Matthew O’Keefe of Cantor Fitzgerald’s price target of $13.30 who reiterated his Buy rating on April 26.

Insider positions increase

Electra CEO Mell Trent has been steadily increasing his position for years and has continued to add to it this quarter. He now is on record owning over 306,000 shares

Chart of CEO's position in company

Mell Trent’s Position in Electra (Bloomberg)

Electra recently lost its CFO, Ryan Snyder, who was poached by a senior miner. (Recall that Electra poached an executive from Vale recently, too.) While a CFO leaving the company can be a potential signal to also get out fast, this former executive has kept his 21,400 shares since leaving the company. It is also a logical exit point, having brought the company out of the pink sheets and into the NASDAQ and having ensured that the company has cash on hand to nearly complete the refinery. (The cash expansion occurred in 2021Q1 and 2021Q3. The company had CA$ 60.4 million at the end of 2021Q4.)

Electra has a strong business plan and will become a key player in the electric vehicle value chain in North America. I look forward to following the Company’s progress and will remain a long-term shareholder.

Former CFO Ryan Snyder in April 21, 2022, press release

Development steadily progressing

The company now intends to complete a demonstration of bulk processing of ‘black mass’ — shredded, spent batteries — for recycling. It is also negotiating off-take agreements with partners for the lithium, copper, and graphite that are expected to be recovered from used batteries. This demonstration is scheduled for 2022Q3, just prior to the commissioning of the cobalt refinery.

The cobalt refinery is coming along well despite supply challenges and the project is “currently on budget.”

Construction activity at the Refinery continues on schedule. COVID-19 restrictions in certain parts of the world as well as recent global geopolitical events are putting pressure on supply chains and development projects. Electra is closely monitoring and managing these risks with its equipment and services suppliers and thus far the project remains on schedule for commencement of commissioning late this year.

Electra Battery Materials April 21, 2022, press release

Conclusion

The stock is getting dragged down with the broad market today but don’t panic. And if you have the liquidity and risk allocation in your portfolio, use this opportunity to buy at a discount. The fundamentals of the company have mostly improved. Save for an executive departure, the company has found more high-grade cobalt on its Idaho property, it is emerging from the over-the-counter pink sheets to a “non-venture issuer” listed on the NASDAQ, a major global marketplace, and its flagship project is advancing well despite supply chain challenges. If it was a good buy mid-march, it’s an even better buy today. Do +100bps to ten-year Treasurys really change your valuation of the only company in a major chokepoint for the North America EV supply chain?



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