Big investment banks are shouting from the rooftops about something Stockhead readers already know – a second lithium boom has well and truly arrived.

In a research note at the start of the month, Macquarie made the stunning call that the lithium market could “move into a perpetual (supply) deficit from this year.’’

And then there was Credit Suisse saying that the lithium supply glut had ended and that the market was now “tightening as the EV revolution accelerates.’’

“Lithium demand may treble by 2025 from 2020 and lithium supply will needed to stretch to meet demand. We see a sustained rally from here,’’ CS said.

As suggested earlier, Stockhead readers know all that. Simply put, it is why a producer like Pilbara Minerals (ASX:PLS) is up 72% since the start of the (calendar) year, and why a developer like Liontown (ASX:LTR) has gained 152%.

PLS and LTR share price charts

 

The big share price gains across the sector are a welcome recovery from the distressed levels of the last couple of years when lithium was in over supply.

But the gains – and the mob attention the sector once again commands – raises the question of whether there is more to come?

Apparently so, with Macquarie’s upgraded lithium outlook prompting an increase in its share price targets on the producers of 4-13%.

The targets were already well ahead of prevailing market prices meaning that its predicted 12-month total shareholder returns on the producers range from 25% (Orocobre (ASX:ORE)) up to 54% (Mineral Resources (ASX:MIN)).

ORE and MIN share price charts

 

Garimpeiro is happy that the good times have arrived for the producers after the price dramas of the  last couple of years. But as is his want, Garimpeiro reckons the best leverage to the unfolding Mark II lithium boom could well be amongst the explorers.

Now during the tough times of the last couple of years, many junior lithium explorers either parked up their projects to try their hand at gold or base metals exploration, or sold out of the sector all together.

But a surprisingly long list of juniors still have lithium as a focus. And if this current lithium boom pans out as expected  – i.e. a perpetual supply deficit underpinning sharply higher prices to incentivise new supply sources – there will be a lot more making the battery material their focus.

Garimpeiro has had a bit of a look around amongst the lithium juniors, looking for those with a small market cap and the potential for a leveraged response to an upcoming exploration program.

Again, there are lots of them, suggesting that the lithium juniors as a sub-sector promises to be a vibrant one for the foreseeable future.

Amongst their ranks is Essential Metals (ASX:ESS). It traded on Friday at 11c for a market cap of $22 million. At last report, it was holding cash of $5.8m, making its enterprise value (EV) $16.2m.

 

The company’s EV is pretty much covered by two promising gold exploration projects on Kalgoorlie’s doorstep, with some interesting first-pass drill results just reported for the Golden Ridge prospect which sits in a region which hosts a number of good sized gold deposits.

But Garimpeiro’s interest is in the about to start drilling program at Essential’s Pioneer Dome lithium project, 150km from Kalgoorlie.

It already sports an 11.2 million lithium resource grading a handy 1.21% lithium oxide from limited drilling campaigns in 2019/2020.

Essential makes the point in a presentation on the ASX platform that its lithium peers command a value of $US291/t for their lithium resources while on an EV basis, its valuation metric sits back at $US75/t.

The upcoming drilling campaign could close the valuation gap in a hurry, such is the renewed interest in lithium exploration results.

The drilling program is seeking to find extensions to the two main deposits at Pioneer Dome, Cade and Davy.