Beyond the Holy Grail...Beyond the holy grail: Why the EV sector needs every lithium project to succeed.
When mining investors say ( grade is king ), they are referring to the richness of the ore, or the quality of the minerals deposit. Investors, mining companies, and analysts often prioritize projects with higher ore grades because they generally offer better returns on investment.
However, there is a crucial part of that saying that's missing when it comes to being able to judge the sucess of a project, as Nevada Lithium Resources Inc CEO Stephen Rentschler points out. Leading Nevada Lithium and overseeing the ambitious Bonnie Claire project, one of the world's largest lithium resources, Rentschler acknowledges that while other lithium projects may boast higher grades, there are many additional factors to consider. Just one of them would be Bonnie Claire'S location in Nevada which eliminates expropriation risks, adding another layer of complexity to the decision-making process.
Rentschler's words could prove to be prophetic, now with Rio Tinto Ltd aiming to become a significant ltihium producer and Rio's peers BHP Group Ltd and Freeport McMoran Inc likely to follow.
In the second half of this opinion article, continuing part One's use of the Indiana Jones Holy Grail metaphor, Rentschler delves into the intricate world of lithium investments, challenging the conventional approach taken by the critical material purchasing executives of the world's auto and battery makers- the ( new ) portfolio managers. he argues that the obsession with singling out winners may inadvertently heighten the risk of future lithium shortages within the electric vehicle industry and shares his ( hepiphany ) that could lead to win-win scenario.
( My Second Epiphany: a win-win scenario for this new generation of portfolio managers )
In the mining industry, there is an adage, ( grade is king ). But portfolio managers sometimes forget the implied second half of the saying, which is ( all else being equal ). Having evaluated thousands and thousands of projects over my career, I can assure you that everything else is never equal.
I am now the CEO of Nevada Lithium Resources. Our flagship project, Bonnie Claire, is one of the very largest lithium resouces in the world. A number of other lithium projects have higher grades than we do, but we are located in Nevada, where expropriation risk is unheard of. I hope my previous two sentences drive home the complexity ( futility? ) of trying to pick just one or two winners. I 'd bet there are at least two dozen other comparative aspects of projects to evaluate for every investment decision. I repeat, everything else is never equal.
But I submit that the new portfolio managers are bringing on this complexity themselves. It simply isn't necessary to try to pick a winner. The EV indusrty, their industry, needs us all to win. Ironically, by trying to pick a few winners, the EV industry is actually increasing the probability of sustained future lithium shortages. Capital starvation is the number one issue focusing on non-revenue producing companies. You can't get to the 18th step of developing a lithium mine if you didn't have the money for steps 1 to 17.
Over two years ago, I first started discussion whti many lithium end-users. I understood that these new portfolio mangers were focused on selecting the Holy Grail, rather than simply girding themselves to make the initial leap of faith over the cliff. In many cases, I could see the DNA from the world's great mining houses, the BHPs, Rio Tintos, and Freeports running through the blood of many of the car companies.
The influence came from the mining consultants hired to help the new generation of portfolio managers make the correct selections. And that influence explained the focus on certain types of projects, specifically later-stage projects, rather than the adoption of a porfolio managment approach to include companies at all stages of project development. We are starting to see that influence wane
2024 will be the year that the new portfolio managers collectively understand that they really should act like Vangard S&P 500 fund managers, not hedge fund managers. There is no need to pick one winner early on. The global cost of not picking a single winner is very high. It is a much safer bet that the Holy Grail will be somewhere in the sack of chalices you grabbed, rather than the single one in your hand.
As the new generation of portfolio managers becomes more comfortable with the mining industry, the merits of an index-type investment allocation will become even more apparent. The amount of investment needed for 30 small lithium developers to advance from Resource Estimate to Prelimary Economic Assessment, or Preliminary Economic Assessment to Prefeasability Study, is a pittance. Why not spread the money around the chances for industry succes ?
The real money will be needed at a later point in time- at time when considerable de-risking has been achieved. Talk about a win-win scenario for this new generation of portfolio managers ! My advice to you is to allocate your investments broadly at first, and then further invest in companies that can advance their projects. Option offtake, rights of first refusal, and equity ownership are valuable considerations for your investment. Use these tools sooner rather than later, so that the potential for sustained lithium deficits does not become a reality.
I know that my second epiphany arrived earlied than for most. But 2024 will open a lot of eyes. More and more lithium users are understanding the need to invest in earlier-stage lithium developers. These new portfolio managers are having their own epiphany; for the EV industry to work, they will need to invest in projects that won't be successful. And they should willingly take the opportunity to do so, because that will guarantee success for the industry.
All it takes is a leap of faith.
Stephen Rentschler brings over 25 years of extensive experience in institutional investing and shareholder communications to his professional journey. Previously serving as the senior investment analyst and a founding member of the Chilton Global Natural Resources Fund in New-York City, he played a pivotal role in managing the fund, which achieved peak assets exceeding US $ 4 billion. Rentschler is CEO of Nevada Lithium Resources, a mineral exploration and development company focused on advancing its core asset, The Bonnie Claire Lithium project in Nye County, Nevada, boasting a current NI 43-101 inferred mineral resource of 3,407 million tonnes grading 1.013 ppm Li for 18,372 million tonnes of contained lithium carbonate equivalent (LCE)
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