With news that Liberty Star Uranium & Metals Corp. (OTCBB: LBSR) had signed agreements for a non-brokered financing arrangement of up to US$10,000,000 with Fairhills Capital Offshore Ltd. shares in the development stage company climbed as high as 0.038 on Wednesday, a three-month high, before closing the day at 0.033 on trading volume that exceeded 9.5 million. Things have been a bit slower for LBSR on Thursday as shares have dropped around the 0.030 level while volume has fallen considerably, sitting around the 2.3 million mark around midday.
Details of the financing agreement were outlined in an 8-K filed by LBSR which stated:
The financing allows but does not require us to issue and sell up to the number of shares of common stock having an aggregate purchase price of $10,000,000 to Fairhills Capital. Subject to the terms and conditions of the financing agreement and a registration rights agreement, we may, in our sole discretion, deliver a notice to Fairhills Capital which states the dollar amount which we intend to sell to Fairhills Capital on a certain date. The amount that we shall be entitled to sell to Fairhills Capital shall be equal to two hundred percent (200%) of the average daily volume (U.S. market only) of the common stock for the ten (10) trading days prior to the applicable notice date. Our common stock will be valued at a 27.5% discount from the weighted average trading price of our stock for the five (5) trading days before Fairhills Capital receives our notice of sale. The shares that we sell to Fairhills Capital must be registered stock, among other conditions of investment.
According to Jim Briscoe, CEO of LBSR, “The financing agreement with Fairhills allows us to obtain the kind of capital required to move Liberty Star to a new phase of exploration activity. We are not compelled to take down any specific amount of money; that decision is entirely at our discretion. The terms of the Agreement are such that we may continue to pursue financial arrangements and partnerships with other entities. We intend to see our exploration plans through, including geochemistry, ZTEM and core drilling, at Hay Mountain and other Tombstone caldera targets, commencing as soon as we can start draw-downs.”
LBSR’s intention to “see our exploration plans through” is an interesting statement to say the least; were shareholders to expect other intentions? As detailed in their most recent quarterly filing LBSR has a pair of projects in Arizona as well as a pair of projects in Alaska and the company has yet to identify any ore reserves to date. Of particular interest to shareholders is the company’s North Pipes Super Project located in Northern Arizona. LBSR has said they plan to ascertain whether the North Pipes Super Project claims possess commercially viable deposits of uranium.
What makes this project so interesting is that it is essentially LBSR’s only shot at discovering commercially viable uranium deposits thanks in large part to a recently confirmed moratorium on new uranium mining claims over approximately 1 million acres of federal land in northern Arizona will be instated for the next 20 years. While existing claims and mines can continue as before, providing some relief for LBSR shareholders, the reality is if they’re not successful in this endeavor they are out of luck.
While LBSR was highly critical of the decision made by the Department of Interior regarding this moratorium Briscoe did his best to spin the news for investors saying, “Because of the law of supply and demand this action by the Obama administration may make our claims more valuable than they were before because our claims will be some of the only land in the area that can be explored and be brought into production if discoveries of ore are made.”
Obviously the recent news of the financing agreement with Fairhills Capital Offshore Ltd. will come in handy as it relates to this exploration but even if they are able to identify uranium deposits at the North Pipes Super Project they would still have to spend a considerable amount of money on further drilling and engineering studies to determine whether there is a commercially viable deposit. Not only will this take a substantial amount of money but also time, meaning shareholders could simply be waiting to hear that the project isn’t economically viable.
Aside from their North Pipes Super Project LBSR also has their Tombstone Porphyry-Precious Metals Project located in Arizona. Little work has been done at this project but LBSR has stated “we plan to ascertain whether the Tombstone claims possess commercially viable deposits of copper, molybdenum, gold, silver, lead and zinc.”
Planning appears to be the theme for LBSR as they have also stated their intentions to explore their Big Chunk Super Project and Bonanza Hills Project located in Southwestern Alaska to determine if they possess, among other things, commercially viable deposits of gold and silver.
LBSR has yet to generate any revenue and they are operating in a considerable hole at the moment which makes them a significant risk for investors. Having claims is wonderful but if those claims can’t be explored and if they don’t produce favorable results then there is no value for shareholders.