‘Incredible lithium price spike’ on way as new chemical capacity drives demand, says Brinsden

There is no getting away from the fact that the on-going high-stakes corporate machinations in the lithium space are occurring against a backdrop of the plunge in lithium prices.

Obviously, the key players in the recent step up in corporate moves are looking beyond the current lithium price weakness towards the second half of the decade when most agree a serious supply deficit is likely.

Still, there is no doubt that the fall in prices from the spectacular highs of last December (spodumene has more than halved to $US3,100/t and lithium carbonate has cratered from $US81,000/t to $US23,000/t) has knocked the stuffing out of lithium equity values for the time being.

But fear not, no less than Australia’s Mr Lithium – Ken Brinsden – reckons another bout of “incredible price spikes” is in the works.

The former Pilbara Minerals (ASX: PLS) boss who took a two-week sabbatical last year before jumping into the non-executive chairman role at Patriot Battery Metals (ASX: PMT), delivered the soothing message for rattled lithium sector investors during the week.

“It has probably been a bit of a confusing time for shareholders in the lithium scene because we’ve seen lithium prices come off extreme highs, and as a result, equities being impacted on a commensurate basis,” Brinsden told the South-West Connect Showcase conference in Busselton.

He said China had done an amazing job building the downstream (chemical conversion, batteries) lithium battery supply chain in the past 10 years, but it did not match that up to the requirement for lithium raw materials.

“What they didn’t do was get the mining capacity right. And that is why you have seen pretty incredible spikes in the price of the raw materials,” Brinsden said.

“But the truth is that from now, exactly the same thing is happening in the western world.

“Masses of chemical capacity is going to be built in the western world, or is already under construction, including in North America and Australia. But the same mistake is being made.

“There is a lot more chemical capacity being built than there is underlying raw material capacity. My take is that we will get similar effects emerge as to what happened in the last decade.

“There will be incredible price spikes in the raw materials because it is the raw materials that are going to be short in the world – not the chemical capacity, not the battery making capacity, and not the EV making capacity.”

Brinsden did not address the corporate machinations in the lithium space, headlined in recent days by Gina Rinehart thwarting Albemarle’s $6.6 billion bid for Liontown (ASX: LTR) by buying a 19.9% blocking stake.

Between making the Liontown bid and then walking away, Albemarle picked up a 4.9% stake in Patriot. While Patriot views the stake as plugging its world-class Corvette discovery in Quebec into the North American growth in conversion capacity which Albemarle is planning, it is also seen by many to mean Patriot is effectively in play.

But here is the rub. Rinehart is also believed to be on the Patriot register. So Albemarle could well face a Liontown situation all over again, if in fact it has designs on acquiring the $C1.4 billion Patriot, a likely producer at Corvette from 2028.

Brinsden’s former employer, Pilbara Minerals, is also believed to have built a presence on the Patriot share register. The same is said about Chris Ellison’s Mineral Resources (ASX: MIN). Then there is the chatter about Rinehart and MinRes having stakes in Pilbara Minerals.

So it seems safe to assume that Albemarle’s failed tilt at Liontown is not the end of the Australian lithium war. It is only building up a head of steam.

Greenvale

Before Brinsden spent seven years building and then nursing Pilbara Minerals’ Pilgangoora lithium mine through its difficult early years, veteran geologist Neil Biddle led the company.

It is believed that Biddle was the first person to mention the world spodumene on an Eastern States roadshow when talking about the Pilgangoora discovery.

Lithium was unheard of as an investment class at the time, which is not all that long ago actually.

Anyway, Biddle’s early adoption of lithium as an opportunity for the then-junior Pilbara Minerals – it’s now worth $12.2 billion – was not a one-off event.

He is a serial opportunist, something that is playing out at his Greenvale Energy, currently trading at 8c for a market cap of $32 million.

Greenvale’s main go is a torbanite project in Queensland that could be the import-replacement answer for Australia’s bitumen needs. Who would have thought?

The project is still being worked up but potentially at least, it could be a nice earner for a company with Greenvale’s modest market cap.

Not content to be investigating torbanite alone, Biddle has now added helium and (natural) hydrogen to the Greenvale story by picking up a 75% interest in an advanced project in the Amadeus Basin in central Australia from AIM-listed Mosman Oil & Gas.

The project comes with a big prospective resource base. Natural hydrogen has the greenest of green credentials compared with the energy intensive alternatives while helium is in a class of its own because of its particular attributes, and its myriad growing high-end uses.

The initial focus by Greenvale will be on seismic work on the gas accumulations, followed by drilling. End users will be watching given the current dominance – in an under supplied market – of Middle East and Russian helium supplies.

Gold

The Aussie gold stocks have had one of their better weeks of the year in response to the scary situation in the Middle East.

The pop in the gold price to six-week highs might normally be expected to give gold equities a real push along. Afterall, the Aussie gold price of more than $A3,000/oz means fat margins for all in the goldfields, mostly anyway.

But the lift in Aussie gold stocks has been measured. While the Middle East drama has been a positive for gold, the upside is being checked by the counter-balancing effect of 5%-type interest rates.

So where to from here in the gold price is anyone’s guess.

Investing in gold stocks with re-rating potential on the back of strong newsflow is the preferred method for investors who acknowledge that trying to predict gold’s next move is a mug’s game.

Spartan Resources (ASX: SPR) is an example of where the strategy has worked well. It was last mentioned here in July when it was an 18c stock and the gold price was pretty much where it is now.

Spartan closed on Thursday at 43.5c as investors continued to warm to its ongoing success with the drill bit at its Dalgaranga gold project in the Murchison.

It is the one that was put on care and maintenance last year but with a plan to return it to production next year as a high-grade producer from its Never Never discovery next to the mill, and the other high-grade shoots its drilling has been turning up.

Canaccord has a 60c price target on the stock.