LI3 Energy, Inc (OTC:LIEG) is dwindling after a huge stock price run-up that was hardly based on anything material. Traders reacted to the announced progress through the acquisition of the Maricunga project in Chile.
The management visited the site they plan to acquire and stated that the company already began extensive surface sampling program with plans to do a seismic geophysics analysis in January 2011. Currently, the property is calculated to hold approximately 1.2 million metric tons of lithium carbonate and 3.27 million metric tons of potash.
The company has paid a $250 thousand non-refundable deposit and has raised $500 thousand in a private placement to pay the additional costs related to the project. However, its financial position makes it too early to consider the stock as a potential investment as the planned acquisition will require $5.1 million, which the company currently doesn’t have. [BANNER]
The business is laden with debt and has no income from sources other than private investors. Since the company’s ability to repay the borrowed funds depends on the would-be income, there is a good chance of dilution if these private investors have the right to sell their shares anytime.
The company now holds a $23 million market cap, which is clearly a premature valuation, considering LIEG hasn’t purchased anything in the Maricunga project just yet. The share price appears to be heading down already and the trading volume is fading away as well.
The stock is starting to look attractive as a short sell opportunity. There are a couple of support levels from the previous rally of a similar manner at $0.25 and $0.21. If those are broken, the price could return back to 15 cents or lower.
