5 important questions investors should ask before taking the plunge on a lithium stock
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A year ago, most companies wouldn’t touch a lithium projects with a 40-foot pole.
Now, with prices, demand and sentiment surging to unprecedented levels, it seems like everyone on the ASX is scrambling for exposure.
How do investors sort the good stocks from the maybe not-so-good?
Chris Evans has more lithium experience than most. As former Altura chief operating officer, Evans was in charge of developing the Pilgangoora project – now owned by Pilbara Minerals (ASX:PLS) — from scoping study through to production.
He was then hired by Birman (now Firefinch (ASX:FFX)) as managing director where he completed a DFS – the most advanced of all project studies – on the Goulamina lithium project in Mali.
Now he’s doing it all again with soon-to-be-listed explorer Winsome Resources (expected code: WR1), a spinout from gold stock MetalsTech (ASX:MTC).
The pending IPO aims to raise around $18m to advance Winsome’s three lithium projects – Cancet, Adina and Sirmac-Clappier – in the prime jurisdiction of Quebec.
Winsome expects to list around mid-November.
Evans gives us five key questions investors should ask before taking the plunge on a lithium play.
“There are few projects out there that talk about clay, direct lithium extraction, and geothermal extraction – these are all unproven technologies at a commercial scale,” Evans says.
“Not to say there isn’t a great amount of potential in these new technologies, but I just see there being a higher element of risk.
“We saw that back in 2016 — even bringing a relatively simple hard rock project into production is technically quite difficult when there is no corporate body of knowledge in the industry.
“Now we have that corporate body of knowledge for hard rock, and we have that for standard brines projects.”
“Another would be an experienced team along with that proven technology,” Evans says.
“That should reduce the risk of getting into production.”
“Although there is a push to develop projects in North America, in many parts of Northern America there is very much this NIMBY – not in my backyard – attitude,” Evans says.
“Different jurisdictions have different benefits and some are valued higher than others by the market, depending on what is happening in the world at the time or in the lithium industry.
“Investors should consider the pros and cons of the jurisdiction both now and what they will look like in the future.”
At Cancet, the most advanced of our projects, one of the drill holes right from surface hit 17m at 3.7% lithium oxide,” Evans says.
“Really high grade, and it is coarse grained.
“It very much reminds me of the Bald Hill project that Tawana developed, although we don’t appear to have the huge strip ratios that they had.
“Because it is coarse grained, we have done some metallurgical testing and it is very amenable to dense media separation.
“Given it is on the surface, high grade, and coarse grained we could potentially bring it into operation with relatively low capex and relatively quickly.”
“From 2025, Europe requires all batteries to be labelled with their carbon footprint,” Evans says.
“The carbon footprint of battery production, all the way back to raw materials, is going to be very important.
“That’s the other thing that makes Quebec attractive – 99.8% of all power in the province is hydro. We have a hydro Quebec powerline passing through our tenements.”