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Q&A: As EV sales accelerate, one of nickel’s leading men is swerving into lithium
Mining
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- Incoming Cygnus Gold managing director David Southam says strong demand for battery metals from the EV sector could run for decades
- Southam stepped down from his post as boss of nickel miner Mincor Resources a couple months ago
- The former gold junior has collected 40km of strike in Quebec’s spodumene rich James Bay region
When David Southam stepped down as the boss of re-emerging nickel miner Mincor Resources (ASX:MCR) one month after the $900 million company produced first concentrate from its reborn Kambalda nickel operations, it came as a shock to many.
His re-emergence may have caught many off guard as well.
Southam, who spent several years before his appointment at Mincor in 2019 as an executive at fellow nickel producer Western Areas, was announced as the future managing director of Cygnus Gold (ASX:CY5) this week.
That name seems likely to change given the junior explorer, originally founded to explore for gold in WA’s Wheatbelt region a few years ago, has changed tack, becoming one of the newest lithium juniors on the ASX.
Its flagship asset is the Pontax project, where Cygnus has cobbled together a collection of ground in Quebec’s prolific James Bay region featuring 40km of strike with historic rock chip samples grading up to 2.8% Li2O and historic drill results of up to 2.6% Li2O.
Major lithium resources bound Cygnus’ ground on all sides, with $9 billion cappedAllkem’s (ASX:AKE) James Bay (40Mt at 1.4% Li2O) and Nemaska Lithium’s Whabouchi (56Mt at 1.4% Li2O) nearby, and TSX-listed Critical Elements’ feasibility stage Rose deposit (34Mt at 0.9% Li2O) just 12km away.
That is not to say anything of Ken Brinsden’s Patriot Battery Metals’ promising Corvette discovery or Sayona Mining’s (ASX:SYA) emerging Abitibi hub also in the mining friendly Canadian territory.
Stepping into a company which counts Bellevue Gold (ASX:BGL) managing director Steve Parsons as one of its biggest shareholders and fellow BGL funders Ray Shorrocks and Mike Naylor on its board, Southam will become a non-executive director at Cygnus in November before taking the MD’s role in February.
Before then it plans to complete a maiden 10,000m drill program at Pontax looking for lithium rich spodumene.
With EV sales skyrocketing, it’s a hot commodity right now. Spot prices of the lithium feedstock, according to Fastmarkets, hit US$7350/t this week, up from under US$500/t just two years ago.
We caught up with Southam to talk Cygnus, his belief in the electrification thematic and why he is more plugged in to the lithium market than you may think.
Cygnus Gold (ASX:CY5) share price today:
It’s a shift for you in terms of the commodity that you’re focused on. You’ve been in nickel for so long, what attracted you to lithium?
“It’s actually not as big a shift as you might think. I was a non-executive director of Kidman Resources, which was one of the first major lithium discoveries in Western Australia and so I was there for the growth of the Mt Holland deposit with SQM, as a director.
“Obviously, a number of years ago, Wesfarmers took out and acquired Kidman Resources.
‘A year and a half ago, you think where Pilbara Minerals was, it was a few hundred million dollar market cap, now it’s $15 billion’
“So it’s actually a little bit familiar even though definitely the last 11 years has been nickel dominant from an executive perspective.
“It just backs in my view on the electrification of the world, and I think also North America, they are playing a little bit of catch up in terms of these critical minerals.
“There’s a lot of encouragement for North American supply so the Pontax lithium project is in a very good mining jurisdiction, it’s close to infrastructure, and it’s not on a lake.”
Over the last couple of years, since you were involved in selling that Mount Holland project with Kidman, the lithium industry has just boomed.
“It’s completely changed, but it was interesting when we sold Mt Holland, for two years, lithium was in the doldrums.
“It was absolutely in the doldrums. We always thought that Wesfarmers would be a logical buyer, because if there was a dip in the market, they had the balance sheet strength to be able to withstand it, because it’s just a small piece within a very large conglomerate.
“Whereas Kidman would maybe have struggled, and that sort of played out.
“A year and a half ago, you think where Pilbara Minerals was, it was a few hundred million dollar market cap, now it’s $15 billion.
“So it’s changed really quickly. You see these waves in commodities sometimes, but I think now, with lithium especially, it’s virtually in every battery style.
“You need economic supply from first world countries that have strong ESG credentials and those other things that investors and manufacturers are looking for. It has all those has all those elements, Cygnus, although it’s very early stage.”
You mentioned North America and how it’s playing a bit of catch up. Why do you think North American might be a better destination for a lithium junior than WA at the moment?
“I don’t necessarily think it’s a better jurisdiction because you’re really only just talking your book.
“I just think from an exploration perspective, when you compare it to the Pilbara where Pilbara Minerals are and other regions where there are lithium deposits, it’s just way underexplored.
“You’ve got other examples like Patriot (Battery) Metals in Quebec, which has quickly grown with some unbelievable lithium intersections and it just shows with some sustained money put into high quality exploration you can still discover deposits.
“So I think it’s similar to Western Australia, just as prospective but underexplored versus Western Australia.
What was it about Pontax or Cygnus specifically that drew you in?
“There’s no one specific thing, you always look for a number of things and for me, I start off with people.
“The people, the major shareholders that are in there, from individuals to companies, have a history of generating shareholder value, that’s one.
“Two is the early stage nature and the ability to get involved early. To me it’s always an exciting time.
“The ground and being in Quebec, which is really encouraging exploration and production of lithium to be a lithium powerhouse in Canada, is another reason.
“It’s got lithium spodumene intersections of high grade already in the area and for me, having been around resources for 30 years, it’s got those critical elements where there’s a fairly simple strategy that you can put together to build this company up in a relatively quick time.
‘There could even be a time I foresee where car manufacturers may actually own mines themselves to secure supply’
“That’s reliant on the drill bit, because Cygnus will be drilling next month. I actually just went into the office this morning just to meet the people and sit down for half an hour with one of our new recruits who was running exploration for SQM here in Western Australia, and he has taken me through the targeting. It doesn’t take long to get excited.”
Speaking of the people one of the big shareholders, there is Steve Parsons, and the original people who put Bellevue into Draig, they’re all there.
“And Mike Bohm, who I’ve worked with before at Mincor and at Ramelius.
“So there’s some familiarity there and Mike Naylor and Steve Parsons … they’ve got history in other companies where they’ve also built and created shareholder wealth. So it’s like a racehorse, you always back a horse with good form.”
Going back to the longer term outlook with lithium, you say you’re a big believer in the electrification thematic. How long can that sustain strong markets for battery metals?
“I think I read an article the other day, and Australia is such a tiny market and so you can’t really judge Australia for what’s happening around the globe, but I think one of the Tesla models was the third highest selling car in Australia.
“Isn’t that a quantum shift? Because before that it was just SUVs, HiLuxes and Land Cruisers and now you’ve got a Tesla popping in there.
“And with some of the models that Hyundai and others are coming out with, the electrification is on and it’s on big time in the US and Canada, so I see this market going for decades.
“There will always be news flow of a new type of battery, et cetera. But I know through history when vehicle manufacturers invest billions of dollars in infrastructure for a certain type of engine, and this is an electric engine, it’s very difficult to turn around that ship, once you’ve sunk that capital, and they’re obviously sinking a lot of capital.
“There could even be a time I foresee where car manufacturers may actually own mines themselves to secure supply.
“They’ve come so far upstream now already, who’s to say that they’re not now going to take equity in mines? Liontown did an amazing job of securing not just offtake with Ford, but debt finance on amazing terms. So you’ve now got a car manufacturer lending a mining company its project finance funds.”
You wouldn’t have seen that before.
“If you’d have said that five years ago, you’d have been told you were crazy.
“But that just shows you that the vehicle manufacturers were probably slow off the blocks; I saw that when I was at Kidman, but geez now they are running at full pace.”
