There's a new promoter on the street and chances are if you met him, you would give him the benefit of the doubt. That's one of several reasons why I am suspending disbelief and have become slightly excited about his debut deal.
Royce Resources, a shell company that trades on the TSX Venture under the symbol ROY, is entering the Clayton Valley lithium play in Nevada and has attracted a dynamic young CEO to run things.
The young CEO is Brian Paes-Braga, 27, a former Investment Advisor with Jordan Capital Markets. His business partner needs no introduction: it’s Canadian business mogul Frank Giustra, the 58-year-old financier of countless natural resources deals and philanthropic partner of former President Bill Clinton.
Royce is acquiring an option to earn a 100% interest in the NSP Lithium Claims Group, covering 1,544 acres north of and adjacent to the lithium production facility of Albemarle Corporation (NYSE:ALB), North America’s only producer.
The project is being optioned from Clayton Valley Lithium Inc., a company run by Clive Ashworth and John Rud. The two prospectors have been active in the area for almost a decade through their company, GeoXplor Corp.
Ashworth and Rud were involved in a recent and ongoing success in the area. GeoXplor optioned the Clayton Valley South property to Pure Energy Minerals in early 2014 and helped operate Pure’s exploration campaign, which resulted in an inferred resource of 816,000 tons of lithium carbonate equivalent with upside potential. Pure also recently signed a Memorandum of Understanding with Elon Musk’s Tesla, and has enjoyed stellar stock price performance of late, climbing from 20 cents in June to over $1 in September, before falling back to the low 60-cent range. The company has been among the most active traders on the TSX Venture exchange this summer.
Pure Energy has about 47 million shares outstanding and another approximately 30 million well-in-the-money warrants. After the warrants get exercised, Pure will have 77,240,674 million shares out. That means the company’s market cap will be about $48 million based on today’s 62-cent share price.
There are 7 publically acknowledged aquifers on Albemarle’s producing property in Clayton Valley, and incoming Royce CEO Brian Paes-Braga hopes success will extend to Royce’s property. The young entrepreneur was convinced to do the deal after visiting Clayton Valley this summer and observing the two production wells at the boundary of the NSP property.
The author has fond memories of Paes-Braga going back to childhood. Brian’s father, Ruy Paes-Braga, spent over 25 years as General Manager of the Four Seasons Hotel in Vancouver, a popular hangout among the Vancouver finance crowd. The elder Paes-Braga taught Brian a sense of hard work and customer service that sets him apart from many other young capital markets professionals today.
Brian was very enterprising from a young age. As a teenager, he landed jobs at McDonalds and Starbucks and saved up to eventually buy an apartment in his early teens. He traded real estate well as Vancouver’s market soared, and organized parties to make extra money, saving everything he could. Astoundingly, he became a self made millionaire in his early 20s.
In 2009, Paes-Braga landed a job with Jordan Capital Markets in Vancouver, working closely with the firm’s co-founder Stewart Vorberg. Over the next five years, Paes-Braga was actively involved in financing early-stage mining, energy and technology companies under the mentorship of Vorberg. Coincidentally, Vorberg also gave Frank Giustra his first job in the mining investment business, hiring Giustra as his partner in 1980 at Yorkton Securities.
“They each had to earn their stripes,” said Vorberg, a broker since 1960. “They both had that tenacity, the ambition, and more importantly, the intelligence to make something happen in their lives.”
As a broker, Paes-Braga quickly earned a reputation as a client-focused professional. In late 2013, he landed one of the largest commissions in Jordan’s history when he was able to help an entrepreneur client sell his private business. It was Brian’s last ticket with the firm. He spent a year with exempt market dealer Intrynsyc Capital, investing and capital raising in more early-stage startups, before striking out on his own in early 2015.
Paes-Braga is launching his first mining deal at a time when the precious and base metals sectors struggle to breathe. He’s tapping into the revolution taking place in energy storage and vehicle electrification, and the insatiable demand these companies will have for raw materials like lithium.
Analyst Chris Berry thinks there might be a bubble building in the commodity. Lithium is one of the few metals to see price increases in 2015, and he’s not surprised to see the space attract new entrants. Albemarle, already one of the largest producers, has announced plans to dramatically expand production to meet future demand. FMC Corp raised the prices of its lithium products by 15% as of October 1. And Tesla has yet to secure supply for its Gigafactory, scheduled to open in Nevada next year.
The lithium market is actually quite small, with roughly $1 billion in revenues last year and about 180,000 tonnes of lithium carbonate equivalent capacity annually, according to Berry. Berry said not to underestimate the importance of lithium to the burgeoning electric vehicle and energy storage businesses, and his colleague Simon Moores, managing director at Benchmark Minerals Intelligence, agrees with him.
"The battery industry is enacting not just expansions of lithium ion capacity, but increase that are an order of magnitude bigger than today's capacity,” commented Moores. “The battery sector are building these megafactories now, it is not just the Tesla Gigafactory but also LG Chem, Samsung, Panasonic, BYD, ATL, Boston Power to name a few.”
“No one is yet truly analyzing where the lithium, graphite or cobalt will come from to supply this new wave of demand that is coming. We believe these niche minerals are not yet equipped to handle significant increases in demand. Lithium's price rise this year is just the warning sign, we believe if significant new supply isn't brought into the sector in the next 3 years, the supply crunch could become a crisis.”
As for Frank Giustra, he’s the largest shareholder of the shell-company, Royce, as well as a fan of Paes-Braga. In an email exchange Monday, Giustra cautioned that Royce is still an exploration-stage play, but he thinks the property has good potential. Giustra is also a massive fan of his Tesla automobile, and believes electric cars will drive the lithium market in years to come.
Giustra’s track record in the natural resources business includes some spectacular successes. Back in 2005, he launched UrAsia Energy to acquire producing uranium assets in Kazakhstan. The company quickly raised $504 million and two years later was involved with a merger worth $5 billion. Giustra has played a significant role in the creation of countless mining and energy startups in addition to founding Lionsgate Films, the most successful new film studio of the past 50 years.
At closing, Royce Resources will have 22.329 million shares outstanding and approximately $1.6 million in cash, following a $900,000 financing at 15 cents with no warrants which the author is buying. The balance, Royce already had in its till. The company’s market capitalization will be about $3.35 million following the financing.
Royce is a very early-stage company that doesn’t even have a website yet. Paes Braga says to expect news releases regarding team, plans and media over the coming months. A name change may also be in the works.
The stock will trade after the deal closes, expected by October 30, 2015.
The author is very biased with regards to Royce, being friends with some of the key people involved and long the stock (until he’s not - without notice). Penny stocks are extremely risky and not suitable for most investors. This publication may contain errors and is not a recommendation to buy or sell any security. Always do your own due diligence and consult a licensed investment advisor prior to making any trading decisions.