‘Garimpeiro’ columnist Barry FitzGerald has covered the resources industry for +35 years.
Barry FitzGerald: Lithium is lifting off but explorers have missed the flight. Let’s go shopping then…
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Here’s a question that answered correctly could well win you the drink voucher at your next pub trivia night.
What has been the best performed ASX sector in the opening months of 2024?
Amazingly to the casual observer of market moves, the answer is the lithium stocks, or more specifically the lithium producers, developers and those proposing to become developers one day from an established resource.
January was ordinary following the near 80% crash in lithium prices in CY2023. The first couple of weeks of February weren’t that flash either. But then things took a sharp turn for the better.
In the last three weeks or so, the (spot) lithium carbonate price has bounced 15% higher to $US15,650/t (mid-week) while the lithium ore of spodumene has climbed 22% higher in its 6% concentrate form to $S1,035/t.
While no one is yet prepared to say the lithium market has bottomed, they are using terms like levelling out. Not sure if there is a difference.
Still, ASX lithium producers, developers and would-be developers have taken off, albeit from the smashed up levels they entered 2024 with after last year’s drubbing.
The following is a roll call on the more notable ASX gainers in the last three weeks in response to the upwards move in lithium market prices:
Pilbara (PLS, 8%), Liontown (LTR, 22%), Global Lithium (GL1, 31%), Patriot (PMT, 21%) and Galan (GLN, 27%).
It those sort of gains which underpins Garimpeiro’s earlier claim that surprise, surprise, the lithium sector is currently the best performed in 2024.
All that is of course of little solace to those investors who held on grimly to their lithium stocks all the way down from the December 2022 highs ($US80,000/t lithium carbonate), to the lows of December 2023.
But the believers out there in the maxim that the best time to be buying commodities and related stocks is in their hour of darkness have made a motza so far in 2024.
Garimpeiro was very specific earlier in noting that the strong share price performance of the last three weeks was limited to the producers, developers and would be developers. The explorers continue to be ignored.
They can still be picked up at a fraction of the prices they fetched early in 2023. The question them now for them is this rally in the lithium market be sustained, resulting in the renewed buying support for lithium stocks trickling down to them?
Garimpeiro reckons that will be the case. And the reason for that can be goes back to mid-February when speculation surfaced that China’s low-grade (lepidolite) lithium mines were in trouble because of the slump in prices.
While the speculation was hosed down, there is no doubt the lepidolite operations were burning cash. Their output covers a big chunk of China’s domestic needs so they needed to be saved.
No surprise then that the Chinese domestic price for lithium has outperformed the imported price. Think of it as the establishment of a floor price for the global industry. So at least it can be said that lithium is likely to be flat to higher for the foreseeable future.
That’s good enough for Garimpeiro to consider wading back in to the sector in his normal stomping ground of the junior explorers. As mentioned earlier, they are trading at a fraction of their 52-week highs and are yet to catch the tailwind of what now looks to be a stabilising to improving lithium market.
With even the most pessimistic lithium market forecasters predicting a severe supply shortage will emerge towards the end of decade, time is on their side.
They do not have to fret about a mine going bust. But they do need to have the lithium market to be moving higher to attract funding for their exploration projects.
Garimpeiro is keeping an eye on three explorers – St George (ASX:SGQ, trading at 2.2c mid-week compared with its 52-week high of 6.6c), NickelSearch (ASX:NIS, trading at 3.2c compared with a 52-week high of 15.5c) and Raiden (ASX:RDN, trading at 2.5c compared with a 52-week high of 8c).
St George, Nickelsearch and Raiden stock share price today
As luck would have it, Garimpeiro’s Stockhead colleagues covered off on the lithium stories at St George and NickelSearch. They are still up on the site and are well worth a read.
As for Raiden, Garimpeiro mentioned it in December when it was a 3.8c stock. The interest in this one is based on its Andover South project in the Pilbara, next door to the Andover lithium (and nickel) discovery of Azure (ASX:AZS) and Mark Creasy in a 60:40 joint venture.
Gina Rinehart and Chile’s SQM have made an agreed $1.7 billion bid for Azure, valuing 100% of the Andover discovery at a cool $2.8 billion.
On Raiden’s ground, a heritage survey is underway so drilling of the defined spodumene-bearing pegmatites is not far off.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
