Lithium boom: is this time different?

“Stronger for longer” was a snappy slogan in past mining booms that never lived up to its promise because the boom always ended sooner than expected, and while that might be the case with the latest surge in lithium, there is a chance that this phase could be the real thing.

One reason for believing in the sustainability of the latest recovery in lithium is that the market for the battery metal is much deeper than the two previous periods of strong price moves because there is a flood of electric vehicles rolling off production lines.

Another driver is the “third time lucky factor” and while that might sound flippant what it means is that lithium is coming of age and morphing into a commodity of importance similar to iron ore, copper, or oil.

Rather than a two-year “boom-to-bust” cycle like 2016-to-2018, and 2020-to-2022 the current lithium up-leg could last much longer given the involvement of major mining companies which had previously shunned the metal.

BHP (ASX: BHP), so far, is the obvious outlier in the lithium sector, refusing to join despite the obvious enthusiasm of arch-rival Rio Tinto (ASX: RIO), the keen interest being shown by the serial trend pickers at Wesfarmers, and most recently, the “discovery” of lithium by the oil industry.

Oil industry discovers lithium as new energy source

It was a decision by the world’s biggest private sector oil company, Exxon Mobil, to launch a search for lithium in the southern US State of Arkansas which confirmed recognition by “big oil” that lithium and other new-energy minerals are significant competitor to old energy, no matter the view of BHP.

The US$100 million invested by Exxon Mobil in an exploration project is small beer for a business valued at US$424 billion but it is important because it’s not the only evidence of the oil industry “discovering” lithium.

Two other examples of oil mixing with lithium can be found in:

• Worley (ASX: WOR), a big Australian engineering company with global reach and a reputation as an oil and gas specialist, creating a new ventures division focussed on sustainable projects with one of the first being a US lithium development and,
• Peter Coleman, a former chief executive at Australia’s biggest oil and gas company, taking the chairman’s role at Allkem (ASX: AKE) which is merging with US based Livent to become the world’s third biggest producer of lithium.

When the latest lithium signals from the commodity sector are totalled a picture emerges of an industry which has become more than a five-minute wonder.

The active involvement of major lithium buyers is another signal that this time it really might be different with the up-leg lasting more than two years.

Australia to benefit

And then there’s the new-found interest in lithium from two of Australia’s richest people, the iron ore miners Andrew Forrest and Gina Rinehart.

Forrest’s renewable energy business, Fortescue Future Industries, is reported to be looking for takeover opportunities in lithium after seven fruitless years exploring while Rinehart has held talks with India’s Prime Minister, Narendra Modi, over opportunities in connecting Australian lithium with Indian industry.

For investors this next phase of the development of Australia’s lithium industry falls into three distinct markets – established producers, emerging producers in the project development phase, and speculative explorers.

Larger lithium stocks

At the top end of the food chain are stocks such as Pilbara Minerals (ASX: PLS), Allkem (ASX: AKE), IGO (ASX: IGO) and Mineral Resources (ASX: MIN), Liontown Resources (ASX: LTR), Sayona Mining (ASX: SYA) and Core Lithium (ASX: CXO) all with stock market values measured in the billions and long ceased to be classified as small caps.

But what the bigger lithium stocks have, because they are in production (or close to it) is potential appeal to the mega-majors such as Rio Tinto and BHP if they decide that lithium is a business in which they must participate.

Mid-tier explorers and emerging producers are attractive because lithium is one of the few metals with a rising price as concerns grow about the strength of the world’s three major economic regions, China, the US and Europe.

The challenge for investors is a classic case of sorting the wheat from the chaff because lithium has become a very crowded market which makes it especially hard to find small companies with growth potential.

Smaller lithium companies to watch

Stocks which caught my eye during and after a mining conference in Queensland last week include:

• Delta Lithium (ASX: DLI), the return vehicle for David Flanagan who first made his name as the man behind Atlas Iron which blossomed and faded with the iron ore price. This time around Flanagan is re-applying his unique management style to lithium which can be summed up as “speed to market” or, given his 10-rig drilling program consuming $1.1 million a week it might also be call “don’t die wondering”. On the market Delta is up 21c (44%) at 68c over the past month
• Green Technology Metals (ASX: GT1), a well-connected Australian lithium explorer active in Canada, a country which has already produced a number of big winners such as Patriot Battery Metals (PMT), once small explorer now a mid-tier star valued at $2 billion. Green Technology at $144 million has a long way to go to catch up but Canada is perfectly located to sell lithium to the US car industry. Over the past month it has risen by 13c (20% to 76c.
• Battery Age Minerals (ASX: BM8), a genuine small cap with big ambitions in the Canadian province of Ontario where it is exploring at Falcon Lake in a tenement which first revealed lithium potential as far back as 1956, a time when there was minimal lithium demand. Managed by executives recruited from Pilbara Minerals Battery Age is an early-stage explorer valued at just $26 million but it will not take much news flow to boost that lowly start, and
• Essential Metals (ASX: ESS), a takeover target earlier this year and now 19.5% owned by Mineral Resources which likes the look of Essential’s Pioneer Dome project in WA. The stock performed strongly earlier this year as takeover speculation stirred interest before slipping back to around 42c. The lithium revival gas lifted Essential back to 48c and a market value of $127 million.

Other small lithium stocks to look at include: Critical Resources (ASX: CRR), Galan Lithium (ASX: GLN), ioneer (ASX: INR), Power Minerals (ASX: PNN), Trek Metals (ASX: TKM), Pan Asia Metals (ASX: PAM), Recharge Metals (ASX: REC) and Piedmont Lithium (ASX: PLL).