Barry FitzGerald: The lithium small cap that also gives you plenty of bling for your buck
Link copied to
There is good reason to think Rio Tinto is better than the average Joe in predicting just where commodity demand and prices are headed.
That’s why what it said about lithium during the week at its marathon capital markets briefing is worth noting.
Rio said that on the back of the accelerating EV uptake, annual lithium demand was headed to 3 million tonnes by 2030.
That compares with the current demand for 350,000 tonnes.
Existing operations and new projects are good for an increase in supply to 1 million tonnes which on Rio’s figures, means the world is staring down the barrel of a 2 million tonne supply gap.
WOW, talk about boom times ahead for the lithium producers, explorers, and developers.
Rio is not a lithium producer (other than some small scale stuff from tailings in the US), but it wants to be at its $US2.3 billion Jadar project in Serbia from 2026, assuming it can put opposition to the project from some locals to rest.
On Rio’s demand expectations out to 2050, the world is going to need another 60 Jadar projects to meet the demand.
It is an almighty challenge for the industry and will require bumper pricing for the key battery material to incentivise the herculean effort required in finding and developing the new mines.
Now it has got to be said that Stockhead readers already know about the lithium boom Rio is pointing to. But Garimpeiro relays Rio’s take on it to soothe concerns in some quarters that the lithium market has already run too hard and too fast.
It could be case of we ain’t seen nothin’ yet.
Again, Stockhead readers invested in lithium stocks like Pilbara (ASX:PLS), Liontown (ASX:LTR), Core (ASX:CXO) and others are well aware that the boom is underway. The dramatic share price performance of the companies this year tells the story.
But not all in the lithium space have run as hard. And the best example of that Garimpeiro can find is Firefinch (ASX:FFX). It is trading at 65c for a market cap of about $600m.
Three recent broker reports set an average share target on the stock of $1.21, with Sprott on the low-side at $1.15, and Canaccord on the high side at $1.30.
Now Firefinch is not your average lithium stock because it is also a fast-growing gold producer, courtesy of its restart of its 80% owned Morila gold mine in Mali.
The West African nation is also home to the company’s Goulamina lithium project, now a joint venture with Chinese lithium heavyweight Ganfeng, with Firefinch to demerge its 50% interest in to a new ASX company (Leo Lithium) in March next year.
Firefinch will be hanging on to 20% of Leo, with the rest of the shares being distributed for free to Firefinch shareholders.
Implicit in the average $1.21 share price target of the brokers mentioned earlier is that Firefinch’s 50% Goulamina stake (45% if the government takes up a 10% stake) is worth more than Morila… much more.
Canaccord summed up the situation nicely when it listed Firefinch as one of its top ASX picks for the current December quarter.
“Firefinch offers a ‘sum-of-the-parts is greater than the whole’ opportunity, in our view, with the current share price only reflecting our value assessment of the Morila gold project, let alone a quality lithium development project at Goulamina in joint venture with one of the world’s leading lithium companies, all in a favourable lithium pricing environment,” Canaccord said.
At what will be the ongoing gold business for Firefinch at Morila, the plan is to ramp up gold production to more than 100,000 ounces in 2022 (Morila produced 7.6 million ounces over 20 years under previous owners), with an annual rate of 160,000 ounces the longer term plan.
As for Goulamina, the joint venture has just announced it is considering a 75% capacity expansion in a planned phase two of its development.
As it is, stage one is already of world class scale at a planned rate of 450,000 tonnes of spodumene concentrate. A final investment decision is due before the end of the year.