Lithium 2.0 is one way of describing the revival underway at the small end of a sector which is helping Australia play a leading role in the global energy transition – a thematic every investor should be following, or risk being left behind.
A year ago, lithium was more of a graveyard for investors rather than an opportunity with many of the early movers in the first wave wiped out when prices crashed in 2018.
The reason for expensive flops such as Alliance Minerals and its Bald Hill mine in WA, and the Pilgangoora project of Altura Mining (ASX: AJM), also in WA, is as simple as a 75% fall in the lithium price over the three years to last November.
Times change and so do mineral prices. Lithium today is up 125% on last year’s low point.
Driving the revival is the same fundamental force as Lithium 1.0 – demand for clean energy, but this time with far greater government and institutional investor support as well as a rapid expansion in the battery storage of electricity.
The top end of the Australian lithium sector has a number of prominent players with two of the more interesting being IGO Limited (ASX: IGO) which is undergoing its own transition into a pure battery metals stock, and Mineral Resources (ASX: MIN) which also has a mixed bag of assets, including iron ore.
Important as they are in Lithium 2.0, IGO and Mineral Resources have stock market values of around $5.5 billion and $8 billion respectively, pricing themselves out of the small cap sector.
The middle ground features survivors from the crash which have been recapitalised as well as achieving growth through corporate activity.
Pilbara Minerals (ASX: PLS), once a minnow, is now a $3.1 billion business having acquired Altura’s assets, while Galaxy (ASX: GXY) and Orocobre (ASX: ORE) are merging to create a business potentially valued at $4 billion.
Lithium stocks on the smaller end of town
For investors looking for entry points into the small end of lithium 2.0, these four companies are worth adding to a research list:
Liontown Resources (ASX: LTR) is fast becoming “one that might get away” because of its 200% share price rise over the past 10-months from $0.14 to $0.45.
The company could soon lose its status as a small cap as it approaches a stock market value of $800 million.
But, with a high-quality asset and high-powered management team Liontown appears destined to replicate the success of Pilbara Minerals through the development of the Kathleen Valley lithium project in WA.
As Bell Potter told clients last week, Kathleen Valley is a “globally significant” resource and one of the few hard rock lithium deposits with uncommitted future production in a tier-one mining jurisdiction – a poke at small companies trying to operate in Africa and parts of South America where resources nationalism is on the rise.
In addition to its lithium assets, Liontown is exposed to highly prospective ground close to the palladium discovery of Chalice Mining (ASX: CHN) with which it shares common directors – a combination which Bell Potter reckons will drive Liontown’s share price up to $0.61.
Although still in the exploration phase, Core Lithium (ASX: CXO) might have a tiger by the tail at its Finniss project near Darwin in the Northern Territory as well as having a close connection to the Chinese lithium processor, Yahua Lithium, which has Tesla as a client.
A number of structures in the Finniss project area have so far revealed a mineral resource of 14.72 million tonnes assaying a respectable 1.32% lithium for a contained 193,300t of lithium oxide.
The company’s resource base is expected to grow as exploration accelerates, starting with a fresh round of drilling during the current top end dry season.
On the market, Core shares took off from a base of $0.04 late last year to hit a peak of $0.40 in January before undertaking a $40 million capital raising which has seen it slip back to around $0.23 – valuing the business at $264 million.
Global Lithium Resources (ASX: GL1) is very much the new kid on the block. Global listed earlier this month with a bang after a $10 million IPO for 50 million of its shares at $0.20 each. On its first day of trade, the company’s shares opened at $0.30 before reaching a high of $0.38 for an almost double-your-money return for stags, before sliding to close around $0.28.
A pure exploration story, Global owns the Marble Bar lithium project 150km inland from Port Hedland in WA with the Archer deposit already shown to contain 10.5Mt of ore grading 1% lithium.
It is from the modest initial resource that Global plans to grow in a region that has abundant mining-related infrastructure and is home to two of Australia’s biggest lithium deposits – the Wodgina project of Mineral Resources and Albemarle, and the Pilgangoora project of Pilbara Minerals.
At its latest share price Global is valued at just $22 million, but can be seen as a well-connected minnow with potential if the lithium price continues to trend up.
Essential Metals (ASX: ESS) is a classic small fry WA goldfields explorer with excellent management connections and a promising mix of gold, nickel and lithium assets.
The company previously traded as Pioneer Resources and mined the exotic element caesium near the goldfields centre of Norseman.
Essential Metals’ lithium assets include the large Pioneer Dome, a structure not far from the Mt Marion, Bald Hill and Buldania lithium deposits.
The North Dome lithium deposit has already been measured at 11.2Mt at 1.12% lithium with more expected after a drilling program in the current quarter.
Essential Metals’ is in the right location, with the right commodities but with a minnow’s share price of $0.091, which values the business at a lowly $18.3 million.