Bcn mentioned in wh article14 Jan 2019 08:19
Lithium
Time to look again
The lithium sector was one of the worst performers in 2018. This was against a background of a collapse in diesel vehicle sales in the UK and Europe and continued growth in Electric Vehicle (EV) demand.
After a strong rally at the start of 2018, the sector then fell sharply after a major US broker forecast oversupply in the mid-2020s and also after the Chinese spot lithium carbonate price fell below US$10,000/t. This was due to changes in the Chinese subsidy regime.
With the spot Chinese lithium carbonate price bouncing a little, it went up modestly every day last week to above $10,000/t and further progress being reported in the EV sector worldwide, we think it is time to look again at the lithium sector and in particular Savannah Resources* (SAV) – Reiterated BUY.
The Sunday Telegraph and separately the Canadian Broadcasting Corp. appear to agree with this view and both carried positive sector commentary over the weekend. In addition more positive noise about EV’s is expected from the Detroit Auto Show, which opens today in the USA. Lithium shares in New York were subdued on Friday, but most of the Australian lithium plays are up a little this morning.
Savannah remains a credible London listed lithium play, with its Mina do Barroso spodumene hard rock lithium project in Portugal strategically located to serve the evolving European Union automotive EV battery market. Competitors for attention include Bacanora Lithium (BCN) who continues to struggle to finance their novel lithium clay Sonora project in Mexico and Kodal Minerals (KOD), who continue to advance their spodumene hard rock lithium project in Mali in West Africa.
For those that looked at lithium this time last year, missed the boat when the sector roared away and then heaved a sigh of relief when the sector reversed on the forecasts of oversupply, we think it is time to look again.
Demand for lithium continues to rise, EVs are taking off and the rise in vanadium price means that lithium is a strong competitor for large energy storage, which will help integrate alternative energy (wind and solar) into the electric grid going forward. At the same time, supply has not increased as rapidly as expected, as brine production forecasts for Chile has been downgraded owing to political issues over water allocations, licences and royalties. Furthermore, political and financial turmoil in Argentina has made it a less attractive place in which to invest, while the threat of global oversupply has impacted price projections going forward, thus delaying many projects that have yet to be funded.
The development of a spodumene project offers low risks against this backdrop of uncertainty. Even at lower prices, spodumene projects in general require lower capital expenditure, but offer faster payback and higher returns against comparable brine and other novel lithium projects.
In 2019, Savannah should have good news flow from Mina do Barroso. These announcem
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