Lithium prices hit record as China shores up supplies

Plus, Strandline set for first cashflow at WA mineral sands project, marked-down AuTECO labelled ‘one of the most exciting junior gold explorers on the ASX’ and Cameco sell-off a bonus for Boss and Paladin.

The lithium sector continues to astound. Our friends in China have just got back to work after their “Golden Week” holiday to push prices for the battery precursors of lithium hydroxide/carbonate to record levels.

The nudge higher comes against a backdrop of commodity forecasters at the big investment banks increasingly predicting prices are set for a downturn. It is an easy call when prices are at record levels.

But in the here and now, it can be said that China, as the world’s dominant end-user, reckons supplies to feed its rapidly expanding battery capacity are tight enough to warrant yet another price rise to ensure their raw material requirements are met.

It is great news for Western Australia’s spodumene concentrate producers which have slowly but surely been capturing a bigger share of the record prices for hydroxide/carbonate for their 6% lithium product.

Having said that, there was noticeable weakness in the lithium stocks on Thursday after a Morgan Stanley report highlighted lower volumes/prices contained in trade data out of Chile, the world’s biggest hydroxide/carbonate producer.

But there are plenty of reasons not to take one month of trade data too seriously. And besides, Morgan Stanley said it expects supplies to remain tight for the rest of the year ahead of trending lower in 2023.

Others have been thinking the same, which is why the stellar share price rise of lithium stocks so far in 2022 has levelled off. But there is still room for more outperformance in the sector, particularly those sitting in the dark zone between simply being an explorer, and those with projects where the development credentials have been proven.

Essential Metals (ESS) comes to mind after the recent resource upgrade of its Pioneer Dome project in WA.

With the upgrade containing a higher-confidence indicated component, Essential moves out of the dark zone and begins to travel through the scoping study stage by year end, and then the definitive feasibility study stage by the end of 2023 – both of which are re-rating events.

That came through in a research note on the stock by Evolution Capital this week which settled on a risked $1.20 price target on the stock. Essential closed on Thursday at 50c.

Strandline:

It won’t impact the national accounts much but it is everything to Strandline (STA) – looming first shipments from its Coburn minerals sands project, 250km north of the export port of Geraldton in WA’s Gascoyne region.

First cash-flow is something to get excited about. So it is understandable that Strandline has been providing regular updates on the project.

The latest update was that the wet concentration plant is now being commissioned which will be followed by the first shipment of concentrates, which at current prices in a 10,000t ship, will be worth about $10m a pop at current bumper prices.

The construction focus now swings to completing the minerals separation plant (MSP) that will value-add to Coburn’s production.

Given the inflation and skills/materials shortages being experienced in the WA mining sector, completing the project without a capital overrun will be some feat. On that score, Strandline said the project remains in line with the overall capex budget.

The stock was last mentioned here on June 10 when it was trading at 35c, and again on August 25 when it was 42c. It got as high as 55c in mid-September before being caught up in the general market funk to retreat to 41c this week.

Three major re-rating triggers are close at hand – the first shipment, completion of the MSP, and confirmation that project capex does end up being in line with the overall budget.

AuTECO:

Gold explorers have got to be most unloved of stocks in the mining sector. The US dollar gold price has obviously not been helping and there is a fear that many will have to undergo massive dilution from distressed capital raisings to keep the doors open.

But among the gloom, there remain bright spots. The preference is for juniors with a big and increasing resource under their belt while also being well funded for the foreseeable future.

Perth-based Ontario gold explorer AuTECO (AUT) reminded everyone this week that it ticked those boxes.

Holding about $17 million at last count, the company is trading at 4c for a market cap of $83 million. If its existing 2.23 million-ounce resource base at a sweet 7.8g/t at its Pickle Crow project was sitting in the backblocks of WA, its market cap would be a multiple of where it is now.

It is a growth story too, with sampling of outcropping veins at a prospect some 6km from the existing resource returning assays of up to 569g/t. The prospect will tested by the drill bit in the winter drill program.

AuTECO reckons it is on to a province play, with the historic Pickle Crow (1.5 million ounces between 1935-1966 at 16.1g/t) at the centre.

Shaw and Partners’ head of research Andrew Hines is a fan. He has a 21c share price target on the stock.

“Pickle Crow is shaping up as multi-million ounce gold province. We find it remarkable that AuTECO is now trading at less than half its value prior to the last resource upgrade (in December) and with ongoing exciting exploration results,” Hines said.

“In our view, AuTECO is one of the most exciting junior gold explorers on the ASX.”

Cameco kicker for Oz uranium stocks:

Canadian uranium giant Cameco (CCO) was belted in its home market for its $2.2 billion participation in a deal to acquire Westinghouse Electric, a powerhouse in the business of nuclear power equipment and services.

Cameco stock dived 16% on the downstream move, even if its involvement says loud and clear that nuclear power is not the dying business some would hope. In fact, it is a growing business, particularly in the small reactor segment that Westinghouse dominates.

Still, Cameco’s punishment for going downstream has to be seen as good news for the leading ASX uranium stocks.

Investors wanting pure upstream exposure to the nuclear fuel could now increasingly look to stocks like Paladin (PDN) and Boss Energy (BOE). Interesting to note then that they put on 1.3% and 2.4% respectively in the wake of the Cameco sell-off.