Peter Strachan: The junior lithium explorers looking for new hunting grounds

Peter Strachan is a capital markets veteran, resources analyst and lover of the oil and gas game. The brains behind the popular weekly StockAnalysis investment letter, which launched in 2003, Peter has worked in capital markets for over 35 years, and is a qualified metallurgist and geologist.

Lithium explorers are expanding horizons beyond established provinces, toward new areas that promise to deliver a new generation of lithium discoveries.

In Canada, early successes in Quebec and northern Ontario Provinces have persuaded companies to look in the neighbouring Province of Manitoba where $12 million market capitalisation Leeuwin Metals (ASX:LM1) aims to replicate the success of others across the border in Ontario.

Market attention has been caught by recent impressive discoveries in Australia’s Pilbara by 12-bagger and now $270 million market capitalisation Wildcat Resources (ASX:WC8) at former Tabba Tabba tantalum mine. This new discovery sits just north of the massive Pilgangoora and Wodgina lithium projects of the $12 billion market cap Pilbara Minerals (ASX:PLS), and the $13 billion diversified miner and gas giant, Mineral Resources (ASX:MIN) respectively.

Further west in the Pilbara, another +10-bagger and now $1.1 billion company, Azure Minerals’ (ASX:AZS) Andover lithium and nickel discoveries, have established the Pilbara, alongside IGO’s 49% owned, massive Greenbushes mine in the southwest of Western Australia, as the dominant growth regions for spodumene concentrate on a global scale.

The 2023 price correction for spodumene concentrate from over US$5,000 to around US$2,440 per tonne, while battery grade lithium carbonate declined from over US$80 to US$23.7 per kg, has taken some of the shine off the market.

However, current Li price levels leave plenty of profit for low-cost producers like Greenbushes, which delivers Li concentrate for less than US$380 per tonne, while the Pilgangoora operations have FOB costs of less than US$640 per tonne.

Where is the lithium going to come from?

As recently as 2010, many electric vehicle and renewable energy sceptics were adamant that there would never be enough lithium found to meet extravagant predictions for demand from the expansion of electric vehicle sales.

Today, we see that any perception of scarcity was largely because very few people had ever looked very hard or far to find lithium, whose carbonate chemical could be purchased for US$5,000 per tonne, while tonnages of 6% lithia concentrates were available at US$350 per tonne!

In fact, at Greenbushes and other mines, lithium bearing pegmatites were seen as a barren nuisance, waste rock issue that had to be removed to gain access to valuable tin or tantalum mineralisation. Now, the spodumene waste rock dump at Greenbushes has become one of the largest and most valuable sources of lithium in the world!

Since 2015, Western Australia’s Pilbara region, to the south of Port Hedland, has gradually transformed from a province, dominated by iron ore mining with a side of gold and the occasional interesting base metals show, to one of the world’s premiere lithium oxide production hubs.

The Pilbara region now ranks alongside the world largest supplier of lithium at Greenbushes in the southwest of Western Australia and the lithium triangle, between Chile, Argentina, and Bolivia.

What started out as gold and possibly tantalum exploration projects at Wodgina and Pilgangoora, have now transformed into globally significant sources of lithia to supply the rapidly expanding lithium-ion battery (LiB) market.

Then, in 2022, newcomer Azure Minerals, which had made its mark with small, high-grade but deep, polymetallic nickel and copper discoveries, returned to one of its original core exploration targets, and has since made what is shaping up to be a globally significant discovery of lithium rich pegmatites, with potential for over 220Mt of high-grade lithium mineralisation in extensive pegmatite swarms.

Alongside Mineral Resources at Wodgina, Pilbara Minerals at Pilgangoora and Azure on the outskirts of Roebourne to the west, the Pilbara region joins Greenbushes and the Southern Goldfields region running down from Southern Cross towards Ravensthorpe in Western Australia, as the main focal points for lithium exploration, development, and production in Australia.

These projects will be joined by the Mount Holland lithium JV between Wesfarmers (ASX:WES) and Sociedad Química y Minera de Chile S.A. (SQM).

Like its Pilbara peers, the Mt Holland project has a large Reserve, estimated at 94.5Mt grading 1.5% Li₂O, ensuring at least a 50-year project life.

New and expanding projects on salt playa lithium lakes in Argentina, Bolivia and Chile will continue to build lithium hydroxide output, with entire region likely to see considerable consolidation over time, political boundaries permitting.

Even though many smaller project developers are now somewhat overshadowed by Australia’s lithium mega-4, over the longer term, ongoing rationalisation of assets should result in very large, robust lithium projects centred around existing Pilbara projects as well as two or three hubs in the southwest of Western Australian goldfields region.

Value adding through a movement downstream to produce battery quality hydroxide product is already underway and will expand as skills and concentrate volumes are expanded.

Juniors to new hunting grounds

Exploration companies have begun to explore new provinces for lithium, spurred on by forecast strong demand for LiBs requiring additional production beyond 2030.

In the Northern Territory, close to Darwin, $340m market cap Core Lithium (ASX:CXO) has commenced underground development at its 30.6Mt Finniss project grading 1.31% Li₂O, which has begun selling direct shipment ore, prior to completing a concentration plant.

Neighbouring $12m market cap explorer Charger Metals’ (ASX: CHR), has the 70% held Bynoe Project within the Litchfield Pegmatite Field, approximately 35km southwest of Darwin, which is surrounded by Core Lithium’s Finniss Lithium Project.

Charger seems like an obvious target for rationalisation with Core, should exploration be successful.

Charger’s work to date has found lithium and tantalum-bearing pegmatites that align with mineralisation already outlined by Core, to the north.

Much of Canada’s initial lithium exploration and development interest focused around the James Bay area of Quebec, where Galaxy, now the $7.4bn Allkem (ASX: AKE), is working towards development of its 110Mt project grading 1.3% Li₂O.

Joining the hunt in Manitoba is tightly held, $12m junior Leeuwin Metals which has just over 40% of its shares held by its board or management with 30.3% and international mining house Glencore with 9.97%.

Leeuwin has established two strings to its bow with its William Lake nickel and Cross Lake lithium projects, both located within Manitoba’s prolific, Thompson Nickel Belt.

Leeuwin’s Cross Lake permits have delivered intercepts including 20.6 metres grading 1.23% lithia from just 29.9 metres depth, which along with other +1% Li₂O intercepts, show great promise.

Shareholders will be keen to see assay results from three outstanding drill holes as they are delivered from the laboratory.

Meanwhile at William Lake, handy nickel intercepts of 3 and up to 22 metres grading between 1% and 3% Ni, show promise for a commercial outcome from early-stage exploration.

With a market cap of just $12 million, Patriot Lithium (ASX:PAT) offers plenty of leverage to success from projects close to the Manitoba border in Ontario, including its Gorman project, along strike from the PAK lithium discovery that has a Resource of 42Mt grading 1.5% Li₂O.

Outcropping pegmatites with supporting lithium rock chip samples are crying out to be drilled!

Across the US border in South Dakata, Patriot holds early-stage exploration interests in its Black Hills permits in an area that has a long history of high-grade lithium extraction when it was mostly used in lubricants and heat resistant ceramics.

The company plans mapping and rock sampling. If this work can replicate assays from previous operations, its directors and shareholders should be well pleased.

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.