Lithium in Europe - Savannah Resources Aren’t Europe’s lithium companies due a re-rating?
9th Feb 2023
How much lithium is there in Europe?
The short answer is not enough.
Roughly 57% of the world's lithium deposits are found in Argentina, Bolivia and Chile, in a well-established area known as the Lithium Triangle. The other major sources of lithium are Australia and China, and then some way down the scale, Zimbabwe.
No European country scores big either in terms of lithium resources or production, although at the present time Portugal is the frontrunner.
The economic tension at play here is obvious.
Europe is one of the great hubs of global automobile manufacturing, and yet its ability to source the fuel of the future remains distinctly in doubt.
When globalisation was running full swing, this might not have been such an issue. But the world changed with the election of Donald Trump, and then even more so with the invasion of Ukraine.
First, tariffs and global trading blocs came back onto the table.
That meant that Chinese product could get cut out of the global supply chain, and equally too that China would compete aggressively for resources and production from non-aligned companies, such as those in South America, or indeed Zimbabwe, where it has a huge influence.
Then, when the Russian army rolled across Donbass, all of a sudden the future supply of all sorts of commodities was called into question, including several of those essential for automobile manufacture, like nickel.
The focus was firmly on local supply chains, and it’s remained there ever since.
That’s why any company with a European lithium asset can often expect banner treatment from the various politicians and regulatory bodies it might encounter, and why investors are clamouring for mining entrepreneurs to present them with the next big thing.
Several moves are already afoot.
In Portugal, Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF) has been pushing on with the Barroso project, which it reckons is capable of producing enough lithium for 500,000 electric vehicle batteries per year. Recently completed studies on reducing the project’s carbon footprint only go towards boosting Savannah’s green credentials even further.
And yet, with the lithium price continuing on strong, even as other commodities fall away, is Savannah’s price hitting new highs? On the contrary, it’s not far off a two year low.
In fact, the shape of Savannah’s share price graph looks uncannily similar to that of fellow-travellers European Lithium, which is listed on the Australian Securities Exchange, but which nevertheless has a long-established development asset in Austria, and European Metals Holdings, which is developing the well-known Cinovec deposit in the Czech Republic.
The pattern is also shown in companies operating outside Europe, like Bradda Head, which is developing assets in North America.
The only listed European lithium companies with different share price patterns are Zinnwald, which is at an earlier stage, and Australia’s Vulcan Energy, which is closer to production, but which also produces other forms of energy.
So what is going on, and is there an opportunity here?
Well, many of these companies are pretty well set fair in their plans to develop established lithium assets. Some are more advanced than others. European Metals is already moving through the definitive feasibility stage, Savannah is preparing for a definitive study, while European Lithium has just completed a definitive study that put a net present value of US$1.5bn on its Wolfsberg project. Zinnwald recently put out a PEA.
Shares in European Metals, European Lithium and Savannah all rocketed when the Ukraine invasion happened, and then gradually share drifted down again. The lithium price, however, has remained elevated since the invasion.
There was an initial leap when the troops crossed the border, and a further leg-up later in the year, although the upward momentum has been much less marked in recent weeks. What’s really been knocked sideways isn’t so much the investment case for lithium – that remains as solid as ever, as the world continues to decarbonise – but rather investor sentiment.
A world that was all ready for a post-Covid recovery was suddenly knocked sideways by President Putin’s manoeuvres, and the subsequent inflation and supply chain issues. In Europe, where the fighting is actually taking place, sentiment hasn’t recovered as much as it has elsewhere.
But unless you are utterly bearish on the war, at some point there will come a time when Europe’s few and precious lithium suppliers actually start to produce. And at that moment, the local customers, the likes of Volkswagen, Seat, Mercedes et al, will be clamouring for product and throwing cash around hand over fist.
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