SMALL CAP IDEAS: The future of lithium remains uncertain – three things to consider before investing

Lithium prices have fallen sharply in recent months as broader concerns about the state of the global economy persist.

Yes, lithium is the metal of the future. But the future is uncertain at this point: inflation is still looming, the aftershocks of supply chain disruption are still lingering, and war is looming on more than one horizon.

Moreover, certain lofty ambitions, such as net zero, are being chipped away by a harsher pragmatism.

In Britain the elections are due soon, and in the US they will take place in just over twelve months. Yet some trends are here to stay. Net zero, ULEZ and Blade Runners aside, there is little doubt that electric cars remain the vehicle of the future.

Policymakers around the world are loving the idea of ​​electrifying 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 issue of cleaner air in cities.

Regardless of whether electric vehicles are ultimately powered by burning coal or harnessing solar and wind energy, they will all still require lithium.

And whether or not electric vehicles are ultimately powered by burning coal or harnessing 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 appears to be keeping the market there alive.

So don’t count lithium completely yet. In fact, today’s low prices could be the last big opportunity to buy on the dip before the permanent revaluation that will occur when gasoline vehicles are phased out for good.

But getting direct exposure to lithium as a commodity isn’t that easy. Unless you buy his miners.

Because lithium miners are well represented on the UK stock exchanges and as a group are somewhat depressed by wider weaknesses – in the lithium price, in the mining sector and in the global economy in general.

But there are also success stories. Cornish Lithium recently received a huge vote of confidence in the form of a £53.6m funding package from institutional and government investors, which it has subsequently topped up with a further £5.1m from crowdfunding.

The company’s CEO, Jeremy Wrathall, has led the way in reviving the traditional stacking industry in Cornwall, and has been one of the driving forces behind a series of mining conferences in Cornwall.

And it may be that lithium is at the forefront of the mining ‘renaissance’ that the most recent conference ushered in.

Cornish Lithium has brine and bluestone deposits, and other companies have similar types of assets spread across the country, occasionally spilling over into neighboring Devon.

Among the better known are British lithium and Cornish metals. Does crowdfunded Cornish Tin also have lithium? – it just might be possible. Investors focusing on the UK markets may also want to consider a few companies with overseas assets if they are interested in direct exposure to lithium.

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

Furthermore, many of these companies are in or near production, meaning that much of the risk traditionally associated with early-stage mining companies has now been priced out.

So they have a lot to recommend them, both individually and as a group. First, they have all experienced downward pressure on their stock prices due to the weaker lithium price.

And that pressure won’t last forever. Second, while things may look bad in lithium mining right now, things are much worse in other parts of the mining sector.

In any case, the lithium companies have been able to make progress with their projects.

Third – institutions like lithium companies for their ESG connotations. Fourth, this also applies to governments. And governments also value them for the jobs, technology and knowledge they bring.

Finally, how widespread is globalization really? – or will we go back to individual trading blocs as we had at the beginning of the twentieth century. If so, the sources of supply for key raw materials will become increasingly strategic from an economic and political perspective.

Lithium miners with assets outside China’s sphere of influence will most likely receive a significant premium.

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