There’s still everything to play for in the lithium sector, according to Kiran Morzaria of Cadence Minerals Plc(LON:KDNC).
He’s better placed to form a view than most, as Cadence is a long-standing key shareholder in two of the London market’s most successful lithium companies, European Metals Holdings (LON:EMH) and Bacanora Minerals (LON:BCN).
Cadence’s return on its stake in European Metals is in the order of 160%, as at the end of January 2017, while the return on the whole portfolio is in the order of 70%.
So this is a company that’s active in the lithium space, and which has been since before lithium really began to move. And it’s also a company that’s willing to keep its money invested in the expectation of more gain.
“The long-term contract prices for battery grade lithium carbonate are running at around US$12,000 per tonne” says Morzaria.
“We really can’t see that abating given the forecasted demand over the next 10 years. We see a six-fold increase in demand and not enough supply coming on – there’s still undiscovered country out there.”
As such, Cadence is assessing new opportunities all the time. Quality propositions like the Sonora project of Bacanora or the Cinovec project of European Metals are thin on the ground though, and despite a small portfolio of earlier stage assets, these two remain at the heart of the Cadence proposition.
But there’s upside to be had here too, and not just because of the bullish outlook for lithium.
“Both Bacanora and European Metals are still undervalued compared to their peers in Australia and Canada,” says Morzaria.
In a way that’s surprising, given that they are the only two listed lithium entities in London of any substantial size.
On the other hand, as with some other commodities, there may be a perception that the bigger action is to be had on other markets, where there is representation for the so-called “Lithium triangle projects” and other brine projects.
But both Sonora and Cinovec look well-positioned to produce product as part of a global supply chain that is already falling into place.
Off-take agreements are already in place for Sonora, with product destined for a major Japanese and a major Chinese customer, both of whom have put up money to secure their positions.
Meanwhile Cinovec, which according to Morzaria’s estimate is running around a year behind the Sonora development timetable, is nuzzled right up close to the car manufacturers of southern Germany.
So, if Cinovec has the advantage of a tin credit, Sonora has the edge timewise.
“With Sonora, they have completed their feasibility study” says Morzaria. “People can see surety and the real risk is now financial. The technical risk has been taken out.”
At European Metals, where Morzaria is also a director, a bankable study is just getting underway.
That may stem the news flow somewhat, but on the other hand, EMH has consistently delivered value all through the exploration and development process, and it would perhaps be foolhardy to doubt that it will deliver even more value when it comes to an economic wrapper for Cinovec.
We shall see.
In the meantime, Cadence has recently taken an interest in some hard rock lithium projects in Argentina, and Morzaria is hopeful that the company will be able to deliver a maiden resource there within 12 months.
This transaction was different to Cadence’s previous investments, as it allows the company to acquire up to 100% of the private exploration company.
“The Argentine investment represented a strategic shift for Cadence,” says Morzaria.
“The structure of the deal allows us to take an active management approach, while minimising financial exposure. We can utilise our experience, technical background and contacts within the lithium sector and apply it to the exploration and development of an asset which has the potential to deliver quicker and cheaper development timelines.”
So the Cadence investment portfolio runs all along the development pipeline, with Sonora closest to production.
“Within a year Bacanora will have financed and started construction of its Sonora mine,” says Morzaria.
And if the lithium market continues strong in the face of rising demand from electric vehicles and other battery consumption, then Cadence will be uniquely placed to benefit.