Lithium – The Lost Year?
It is easy to say that Cobalt stole lithium’s limelight and that the illumination is yet to return to the grey metal from the blue one. However a better analogy would be to say that the Lithium sub-space dropped the baton in the relay race and has been too lazy to pick it up again.
I shall take this opportunity to review where we are now in the so-called Lithium “Supercycle”.
Which Version to Believe?
I think it might be helpful to think of Lithium in terms of product cycles in the Tech industry. Let’s look back to 2010-11. That period was clearly the Lithium 1.0 version. It had a clearly defined beginning and end. The end was when Rare Earths came along and stole Lithium’s clothing leaving the nascent subspace with nary a figleaf to cover itself.
Out of this first version we have the legacy of producers and near producers such as Galaxy, Orocobre, Neometals, Talison (since acquired) with Nemaska (moving closer to production) and RB Energy’s Canada Lithium mine likely to reactivate. Other blasts from the past include Lithium Americas (which had merged with Western Lithium) and is moving forward with an Argentine salar, International Lithium (which is also a player in Argentina) and the Rincon project of Sentient funds in Argentina (which was owned by Admiralty Resources back in the first go around) is moving glacially towards production.
The period beginning in mid-2015 and stretching to the 3rd quarter of 2016 was what we tentatively call Lithium 2.0. This spawned an upsurge of repurposing of unwanted listed vehicles into Lithium plays that was reminiscent (maybe ominously) of the Rare Earth boom. Some (mainly on the ASX) achieved stellar market capitalizations but most ended up doing micro-financings which have resulted in micro-exploration programs.
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The old model is raise funds, drill, resource, PEA, PFS etc. But if you are only raising a few hundred thousand dollars in the first instance then you are not able to do an adequate campaign and thus never advance to the latter phases. This is where most of the Lithium 2.0 group find themselves currently with nothing more than some rock samples to show for nearly two years of Lithium “boom”.
A Study in Futility?
The starting gun for the Lithium 2.0 was partly the recovery in Lithium prices but also the announcement that Tesla had signed an offtake agreement with Bacanora Minerals on its Sonora project in Mexico. We had not even heard of this project at the time that it was pushed into the spotlight. Curiously the project had a PEA though, which put it ahead of the rest of the Lithium 2.0 crowd. However we were unimpressed with the “deal” with Tesla which read something like ”we might buy some of your product if we feel like it and you might sell us some if you feel like it” and price to be paid for the output was vague indeed. It had all the hallmarks of Samuel Goldwyn’s classic observation that a “verbal contract isn’t worth the paper it’s written on”.
The stock soared but the company did not do a financing instead basking in Tesla’s reflected glory. Despite not having an alternate source of Lithium supply, Tesla walked away after a while and the stock has been drifting about listlessly ever since. Who even talks of this story anymore, except as an object (abject?) lesson in how not to do it?
Thus far 2017 has been a bit of a wasteland. Even a sound stock like Neometals with loads of money on hand and a rather sweet deal with the Chinese wallows quite significantly off its highs. If that is what happens to a class act then the punishment meted out to those lower down the food chain has been even more brutal with most of the Lithium 2.0 genus being 60%-80% off their highs. With prices off so much and many of the piggy-banks in the space running low (and with very little work done) there is not much prospect of resource statements on most of the deposits, let alone the advanced project assessment (PEA/PFS) that might turn some of the wannabes into gunnabes. Already some in the space are casting their eyes around for the next big thing, whether it’s a “diversification” into cobalt or a move into other battery metals (as Alix Resources is doing with Vanadium).
This begs the question as to whether there will be a Lithium V2.1 in 2018 or whether a period of prolonged quiescence will have many players drift away and we shall have to await a Lithium V3.0 in 2020 or thereabouts to satisfy frustrated demand for the metal as the EV applications expand.
If 2017 is a lost year then is Lithium 2.0 also a lost generation? Should we draw a line under the flood of new players that arrived in the last years and start again? Lithium prospects improve by the day with various European governments (e.g. France and the U.K.) calling time on the internal combustion engine and envisioning a compulsory EV future. This speeds the transition to EV’s by at least a decade despite both governments choosing dates in the distant future for this finishing line for the gasoline driven era. This virtually puts paid to fears that Lithium itself will retreat on price. There is just too much upcoming demand and too many parties wanting to secure access to it.
However the ever better demand outlook for Lithium is like a tide that lifts no boats as Lithium 2.0 players have not delivered anything in the way of concrete plans to production. This makes us suspect that the new producers of the 2020s are names we have not even heard of yet.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>