SMALL CAP IDEAS: European lithium explorers

Europe is crying out for lithium to fuel its burgeoning electric car industry, and there just doesn’t seem to be enough.

At least it’s not local. And in this era of supply chain uncertainty, that’s a real problem.

As it stands, about 57 percent of the world’s lithium deposits are found on the three-way border between Argentina, Bolivia and Chile, in an area known as the Lithium Triangle.

Other important sources are Australia and China, and then somewhat lower down the scale, Zimbabwe.

Competition for supply from these areas is fierce, not least from China, which has significant influence in South America and Sub-Saharan Africa.

Meanwhile, the recent Inflation Reduction Act in the US has created huge subsidies for green energy, including lithium.

All this has left Europeans reeling, and very much in catch-up mode.

There is currently no major lithium production in Europe, although Portugal currently outperforms the rest in terms of a developed resource base.

Other countries with known deposits include France, the Czech Republic, Germany and the UK.

Some deposits in these countries are more advanced than others, but most importantly, regardless of the merits and stage of development of specific projects, Europe is still crying out for more.

Any company that can perform in that kind of economic and political environment is likely to receive very favorable treatment at various bureaucratic levels, regardless of the job and know-how benefits such projects bring.

Still, the market has been slow to recognize the opportunities presented here, and the share prices of several companies already operating in this area may still have a long way to go.

in Portugal, Savannah Resources (2.65p) has been busy with the Barroso project, which it believes could produce enough lithium for 500,000 electric vehicle batteries per year.

Recently completed studies into reducing the project’s carbon footprint only further bolster Savannah’s green credentials.

in the Czech Republic, European metals (39p) is already in the final feasibility phase with its Cinovec project, perfectly poised to supply the German automotive industry across the border.

Zinnwald lithium (7.8p) is further behind both companies, but recently released a preliminary economic assessment for its German project.

However, shares in all of these companies have suffered from the broader investor malaise that has tarnished the market since the fallout from the invasion of Ukraine began to fade.

That’s despite lithium’s continued strong price as more electric vehicles hit the road and the market continues to grow.

Meanwhile, our own lithium industry in the UK continues to progress by leaps and bounds. The British lithium sector is still relatively small by international standards. But it’s come a long way in a short time.

Companies such as Cornish Lithium, British Lithium and Cornish metals have been pioneering work in this area in recent years and are just now starting to put mining in the British Isles back on the industry map.

To be sure, the UK government has sat up and taken note of it, and every courtesy and encouragement is due at both local and national levels, even if the country does not yet have its own Ministry of Mines like other countries.

However, what will really change the game, both in the UK and on the mainland, is meaningful production.

After all, with the price of lithium so strong, it’s likely to provide an economic boost on several levels once UK and European lithium companies actually start selling material.

There will be local jobs, employment, the payment of taxes and royalties, and the boost all of that will provide to local and national economies.

And then there is the contribution to the strategic supply chain that supports European car manufacturers. No wonder more and more companies are entering the lithium space.

It could be that the early bird catches the worm, with established companies such as European Metals and Cornish Lithium ultimately benefiting the most.

But this looks set to be a long-term growth story, likely to span many decades, and there will likely be plenty of room for new entrants as well.