Lithium Exploration Group (LEXG): What's Beyond the Hype?

Far be it for me to be the one to say a rising stock isn't a good one. On the other hand, if there's not actually a good reason for the stock to be rising, then the 'rising' part of the description is bound to be short-lived. With that as the backdrop, you may want to be leery of the enormous (around 10,000%) runup in Lithium Exploration Group Inc. (OTC:LEXG) shares since mid-March.

Yes, we all get that the company mines lithium, and we all get that lithium is going to be critically important in the upcoming battery-powered world. Even better, preliminary geological testing at its newest property - in Alberta - holds a massive amount of promise.

The question is, does the amount of lithium that Lithium Exploration Group can actually extract there merit the now-$466 million market cap?

Before you answer yes, there are a few things you may want to know about the company.... like the fact that it's been (allegedly) digging for various minerals since late 2006, but has yet to find any that it can turn into a profit. Indeed, the company hasn't generated a penny in revenue since late 2006 when it started out under the name 'Mariposa Resources'.

Five years, and not a thing to show for it.

The argument "this time is different" is readily applied, and this time may well be different. After five years of hearing the same hopeful song from Lithium Exploration Group though, this reporter doesn't see what's so different now than then.

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This is from a December 31, 2007 filing...."The Company has been in the exploration stage since its formation in May 31, 2006 and has not yet realized any revenue from its planned operations. It is primarily engaged in the acquisition, exploration and development of mining properties. Mineral property acquisition and exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property, are capitalized."

This is from a June 30, 2009 filing... " In July 2006, we executed a Mineral Claim Purchase Agreement (the "Agreement"), with Gold Explorations LLC, an unrelated third party that holds title to the property.  Under the terms of the Agreement, we had the right to explore for gold on 400 acres..... On June 25, 2009, we cancelled our agreement and returned responsibility of the claims back to Gold Explorations LLC."

In the same filing...."On September 25, 2009, the Company entered into an agreement with Beeston Enterprises Ltd. ("Beeston") under which the Company was granted an option to acquire an undivided 50% interest in eight mineral claims located in the Clinton Mining District of British Columbia, Canada (the "Claims"), ....The Company can earn an undivided 50% interest in the Claims by carrying out a $50,000 (CAD) exploration and development program on the Claims on or before September 25, 2010, plus an additional $200,000 (CAD) exploration and development program on the Claims on or before September 25, 2011."

And that was immediately followed by...." We recently decided to redirect our business focus towards identifying and pursuing options regarding the development of a new business plan and direction.  We are currently looking for ventures of merit for corporate participation as a means of enhancing stockholder value....."

And then Lithium Exploration said this in a December 31, 2010 filing..." Prior to June 25, 2009, the Company had the right to conduct exploration work on 20 mineral mining claims in Esmeralda County, Nevada, U.S.A. On July 31, 2009, the Company acquired an option to enter into a joint venture for the management and ownership of the Jack Creek Project, a mining project located in Elko County, Nevada. On September 25, 2009, the joint venture was terminated and the Company entered into an agreement with Beeston Enterprises Ltd., under which the Company was granted an option to acquire an undivided 50% interest in eight mineral claims located in the Clinton Mining District of British Columbia, Canada. On December 16, 2010, the Company entered into an Assignment Agreement to acquire an undivided 100% right, title and interest in and to certain mineral permits located in the Province of Alberta, Canada (see Note 5). To date, the Company's activities have been limited to its formation, the raising of equity capital and its mining exploration work program."

See the pattern? The Alberta dig may well end up yielding million if not hundreds of millions of dollars worth of lithium. Given the companies track record of abandoned projects though, to ask it "Why is this time different?" isn't an unfair question.

So what, pray tell, is driving LEXG upward now? One cringes to even suggest it, but this may well be a case where the hype has taken on a life of its own....one of those rare cases where the idea becomes bigger than the reality. It doesn't hurt that it's been pretty well pumped by a small cap stock promoter, though the rally effort started several days before that campaign did. Perhaps word got out that the campaign was looming.

As for the future, a rising stock is a good one (regardless of the reason) as long as it's still making gains. And, a stock in motion tends to stay in motion - until it doesn't.

The tough part about trading such a hot stock like this one is that the size of the potential pullback is directly proportional to the size of the gain before it. It's a fun ride on the way up for some, but at what point does it run out of buyers/bagholders? At some point, either questions have to be answered, or the stock's got to give. Enjoy what's left of the ride in the meantime.
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