It's time to examine the merits of another free pump-action mailer. MicroCap Market Place sent me a teaser touting Great American Energy (SRBL) and how it's somehow positioned to benefit from rare earth element demand. I have quite a few doubts about how this company can succeed.
The present Chairman and CEO have zero experience in operating a mine, based on their published bios. Experience in packaging properties for acquisition is not the same thing as turning them into producing mines. These guys aren't even geologists.
Their web pages on lithium and REE are industry projections with no descriptions of their properties. They ignore the likelihood that all projected lithium demand for the foreseeable future can easily be met by existing production from the world's top three producers.
The chief advantage of the option they hold to acquire the Big Smoky Valley lithium project is its proximity to Rockwood's existing Silver Peak lithium mine. Bear in mind this is merely an option, not a working interest or producing mine. Determining the value of this project means Great American Energy must have a firm 43-101 estimate of 2P reserves. The expected life of Rockwood's mine could be a factor in this project; if Rockwood needed to replace declining production then acquiring this Big Smoky Valley project would be a natural fit. Rockwood's interest in such a deal is unlikely given DOE's $28.4M grant support for Chemetall Foote's expansion of the Silver Peak mine. There is little need to bring a new lithium mine into production if the existing mine in the neighborhood is growing on its own. Chemetall Foote is the Rockwood Holdings (ROC) subsidiary operating the Silver Peak mine. We might as well call it Rockwood Lithium.
Great American Energy also has an option to acquire a working interest in an REE project at Bear Creek. They have a preliminary report on the project's geology but it does not appear to be 43-101 compliant. It only covers surface samples and its mention of market values does not suffice as a calculation of project NPV that would complete a preliminary economic assessment. REE prices have collapsed since 2011, just as I predicted in my interview with the Gold Report in December 2011.
Their annual report for April 1, 2013 doesn't shed much light on their progress other than announcing their business change (they used to be named Southern Bella, hence the ticker). They ended 2012 with a whopping $4218 in working capital. That report admits their auditor's going concern doubts and also admits the need for further equity financing. Shareholders can thus expect further dilution. I can't understand why the stock has an $88M market cap given these uncertainties.
Great American Energy owns options to acquire properties rather than the properties themselves. They have a long way to go to raise the capital to buy these properties outright, let alone complete exploration and start production. The company does not not have firm confirmation of deposit quality for either project that would pass regulatory muster. There's sufficient lithium production from existing sources for the industry to ignore new deposits for a long time. The worldwide REE price collapse makes new production of anything other than known high-grade concentrates a very risky proposition. This is why Great American Energy isn't for me.
Full disclosure: No position in SRBL or ROC at this time.
