SMALL CAP IDEAS: The future of lithium remains uncertain

The price of lithium has fallen sharply in recent months as concerns remain about the state of the global economy.

Yes, lithium is the metal of the future. But the future is currently uncertain: Inflation still lurks, the aftershocks of supply chain disruption are still here, and war looms on more than one horizon.

Furthermore, certain lofty aspirations such as net zero are being undermined by tougher pragmatism.

Elections must be held soon in the UK, and in the US they will be held in just over 12 months. Nevertheless, some trends remain. Net Zero, ULEZ and Blade Runners aside, there is little doubt that electric cars remain the vehicle of the future.

Policymakers around the world love the idea of ​​electrifying vehicle fleets. Even in China, where the increasing use of coal-fired power plants shows that global warming is not the most important consideration, there is the problem of cleaner air in cities.

Whether or not electric vehicles are ultimately powered by burning coal or using solar and wind energy, they all still require lithium.

And whether or not electric vehicles are ultimately powered by burning coal or using solar and wind energy, they will all still require lithium.

China already has more electric vehicles than anywhere else, and a combination of subsidies, soft coercion, price competition and genuine consumer satisfaction should keep the market there buoyant.

So don’t count lithium out completely yet. In fact, current low prices may well represent the last major downturn buying opportunity before the permanent revaluation that will occur with the eventual phase-out of gasoline vehicles.

But it is not so easy to get direct access to the raw material lithium. Unless you buy the miners.

This is because lithium mining companies are well represented on UK stock exchanges and as a group have been somewhat weighed down by major weaknesses – in the price of lithium, in the mining sector and in the global economy in general.

But there are also success stories. Cornish Lithium recently received a major vote of confidence in the form of a £53.6m funding package from institutional and government investors, which was then topped up by a further £5.1m through crowdfunding.

The company’s chief executive, Jeremy Wrathall, has spearheaded the revival of Cornwall’s traditional staple industry and has been a driving force behind a number of mining conferences in Cornwall.

And it could be that lithium is at the forefront of the mining “renaissance” announced at the recent conference.

Cornish Lithium has brine and hard rock deposits, and other companies have similar types of assets scattered throughout the county, occasionally crossing into neighboring Devon.

The better known include British Lithium and Cornish Metals. Does the crowdfunded Cornish Tin also contain lithium? – it could be easy. Investors focused on UK markets should also consider some companies with assets overseas if they are interested in gaining direct exposure to lithium.

In the US, Bradda Head (2.5p) has numerous projects, in Europe, European Metals Holdings (33.5p) is well positioned in Central Europe, while Savannah Resources (3.4p) has a large project to the west in Portugal . And in Africa, Kodal Minerals (0.45p), Atlantic Lithium (24.8p) and Andrada Mining (5.8p) have significant assets.

Additionally, many of these companies are either in production or close to it, meaning that much of the risk traditionally associated with early-stage mining companies has now been priced out.

So you can highly recommend them both individually and as a group. First, they have all suffered downward pressure on their share prices due to weaker lithium prices.

And this pressure won’t last forever. Second, even though things are looking bad in lithium mining right now, things are much worse in other parts of the mining sector.

At least the companies in the lithium sector were able to make progress with their projects.

Third – Institutions like lithium companies because of their ESG connotations. Fourth – this also applies to governments. And governments also value them for the jobs, technology and know-how they bring with them.

And finally: How established is globalization really? – or do we return to individual trading blocs like we had at the beginning of the 20th century? If this is the case, sources of supply for key raw materials will become increasingly strategic from an economic and political perspective.

Lithium mining companies with assets outside of China’s sphere of influence will most likely command a significant premium.

To read more small cap news click here: www.proactiveinvestors.co.uk

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