It requires a considerable amount of detective work to keep tabs on rare earth prices, and what is going on in the tungsten, antimony, graphite and several other metals. It is not just a matter of clicking on the webpage of the London Metal Exchange, as one can do with the base metals, or checking Comex prices for the precious ones. Ditto with lithium, not surprising considering that 80% of world output is produced by just four companies.
In fact, lithium (to extrapolate from a point made this week by Christopher Ecclestone, of which more below) has something in common also with potash. Ecclestone, a frequent and perceptive contributor here on Investor Intel, also has a day job with Hallgarten & Co. He first started to get notice on this site (or, at least, its precursor) several years ago with some sparky and controversial views about rare earths. His then scepticism about some of the REE predictions were borne out by subsequent developments. Now, on the subject of lithium, he says the bid by U.S. chemicals company Rockwood for Australian-based lithium producer Talison was regarded by him as vindication of his long-held stance that the lithium club would eventually “detail one of its members to go out and pick off any upstarts to ensure that undisciplined markets did not ensure from added players in the field” that did not stick to the rules imposed by the leading suppliers. As it was, Rockwood was gazumped by China’s Tianqui with an astonishing bid for Talison of C$848 million. The similarity with potash? I know there was, at least in the case of one company exploring in the U.S., the expectation that Potash Corp would not be pleased to see any new independents, at least in North America; this particular company was progressing its project with half an eye on increasing the amount that Potash Corp would have to offer to take it out. Nothing came of that, but it is an indicator that in the smaller minerals markets there is not the free-for-all that typifies activity in the bigger ones, from gold to nickel to copper.
Ecclestone was making his comments regarding the dominance in the lithium market in a report from Hallgarten on an Australian company, Reed Resources (ASX: RDR). Reed was founded in 2002, when listing a new resources company was a brave thing to do; the market had been in the doldrums for years, and many Australian juniors had fled into the dot-com sector. But it got going largely due to the man behind it (and now chairman), David Reed, who had established his own stockbroking company in Perth in 1963 and went on to do prospecting and founding other exploration companies. He was (and is) a well known figure in Perth mining circles.
Reed Resources is in the process of exiting from gold (already done) and iron ore to focus on specialty metals lithium and titanium. Ecclestone describes the company’s Mt Marion ground in Western Australia as one of Australia’s largest high-grade lithium spodumene occurrences; it is located 40km from the mining city of Kalgoorlie.
Reed Resources is walking into a business sector which is (to coin a phrase) run as a “lithocracy”. The big players include Soquimich and the German company, Chemetall, which is now part of Rockwood. Then there is the Chinese-owned Talison and, operating in Argentina, U.S. agrochemical major FMC. FMC is splitting into two (one of those being a separately listed lithium company) and has already talked about growth through acquisition.
Ecclestone sees Reed’s emergence as a lithium producer being a problem for the major players; it would be even more challenging if Reed had a downstream component that broke with the existing model of the Chinese dominating the mid-stream.
Ecclestone’s conclusion: despite Reed wanting to hold out for a higher price, the big players would be smart to pick off the Australian company early in the piece while it still has a lowish market cap. How low is it? Hard to believe, Reed is worth just A$10 million, its stocks trading Wednesday at A$0.02. Hallgarten’s 12-month price target is $0.17, a 795% gain on the present price.