Garimpeiro is a natural born chicken, so he stood aside from the ASX lithium space in the last couple of months while lithium prices went in search of a bottom.

He reckons the bottom has arrived. Pilbara (ASX:PLS) said as much in its market update in its quarterly report during the week.

While it expects spodumene prices to continue to soften in the June quarter while lithium chemical prices stabilise (they are up in recent days), there is the potential for prices to strengthen in the December half as “restocking of inventory levels in China occurs across the supply chain.’’

That’s good enough for Garimpeiro, particularly as it matches up with what the investment banks and commodity watchers have been saying in the last week or so.

It is the spodumene price that is the important for the WA lithium scene. If prices were to hold and possibly improve from the current $US4,500-$6,300/t for 6% lithia material, then the good times will roll on.

That comes through in Pilbara having added $457m to its cash pile in the March quarter – it now stands at $2.68 billion – after booking sales in the period at an average of $US4,840/t for 5.3% material.

So if prices are pulling up after diving from $US8,000/t peak of last November, the lithium producers will continue to print money. Afterall, their operating costs are generally less than $US1,000/t ($632/t in the case of Pilbara for the March quarter).

Garimpeiro reckons that in the last couple of months, the sell-off in lithium stocks has been overdone, and that the bottoming in prices will see a return of buying support for a sector that will continue to enjoy fat margins for years to come.

As always, Garimpeiro’s preference is to find value amongst the explorers for their leverage to the overall lithium thematic.

His focus this time is on those with near-term news events capable of juicing up the return of buying support now underway thanks to the bottoming of spodumene/lithium chemicals prices.

Think of them as potential double bangers. When it comes to near-term news events, a maiden resource estimate is always something to look forward to.
 

Let’s get Critical

Garimpeiro has settled on two this week – the often-mentioned Patriot Battery Metals (CN:PMET, ASX:PMT) and another Canadian-focussed one, Critical Resources (ASX:CRR).
 

Patriot (CN:PMET, ASX:PMT): This is the one the former Pilbara boss Ken Brinsden joined shortly after leaving Pilbara because he sensed its Corvette discovery in the James Bay region of Quebec had the makings of being a world-class find.

We’re about to find out as Patriot has said it plans to release a maiden resource estimate for the CV-5 pegmatite swarm in late June.

Garimpeiro notes that National Bank of Canada’s equities desk has just initiated coverage of the head Canadian-listed stock (PMET) with a price target of $C17 which equates to $1.90 in the Australian market.

PMET last traded at $C12.49 on Thursday in Canada, so the implied upside to the price targets is some 36%, or 31% for PMT on the ASX which traded on Friday at $1.45 – some 7.3% higher on the day as investors heeded the call that lithium prices might well have bottomed.

The bank said PMET is on track to deliver a maiden inferred resource of a world-class deposit, potentially at the indicated resource level, to support a subsequent feasibility study.

“Based on drilling to date on the CV-5 trend, we calculate a potential inferred resource of 90Mt grading 1.35% lithia,’’ the bank said.

Brinsden will tell you that the maiden resource estimate will be very much the start of the story at Corvette. Discoveries like Corvette’s are rare things, with the takeover spotlight expected to swing firmly on to Patriot once its world class status is confirmed.

Critical Resources (ASX:CRR): Critical is making a name for itself in neighbouring Ontario at its Mavis Lake project. The project was picked up some 15 months ago and Critical has said a maiden resource estimate is “imminent.’’

It too will be just the start of the story at the project which has been returning thick and good grade mineralisation in shallow positions. The resource won’t be the scale of that coming from Corvette.

But it doesn’t have to be to be meaningful to Critical’s valuation. It last traded at 4.2c for a market cap of $65m.

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.

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