• ASX lithium hit ’23 all guns blazing as Greenbushes’ Tianqi and IGO bid high for minnow Essential Metals
  • ESS owns Dome North in WA, one of less than 15 defined JORC spodumene resources in Australia
  • With the lithium market hitting a peak last year, cashed up majors hunting juniors to grow resources 

2022 was the year of the lithium boom to, just maybe, end all booms.

As the year wound up, chemical and upstream concentrate prices – that had risen more than 1000% from cyclical lows – finally began to plateau and drop in China, while lithium stocks were hammered after investment banks including Goldman Sachs issued bearish price outlooks.

But with electric vehicles sales at an all time high in 2022 and expected to go higher as the market evolves and emissions restrictions kick in, many market watchers think the supply-demand dynamic could be tipped in favour of miners for some time to come.

Even at a projected US$50,000/t for lithium carbonate, producers of the concentrate used to make those chemicals like Australia’s Pilbara Minerals (ASX:PLS), Allkem (ASX:AKE) and IGO (ASX:IGO) will be enjoying solid margins.

In that context one thing miners are certainly keen on is more resources, and one deal has opened the curtain on the 2023 lithium story in a way that suggests the junior end of the sector will play a bigger role than ever this year.

IGO and Tianqi, through their Tianqi Lithium Energy Australia JV (TLEA), have made a $136 million takeover bid for Essential Metals (ASX:ESS). The cash offer, valued at 50c per share and endorsed by ESS’s board, sent the minnow’s stock soaring and came in at a near 45% premium.

The prize is its modest resource at the Dome North deposit near the WA gold mining town of Norseman of 11.2Mt at 1.16% Li2O, a far cry from TLEA’s 51% share in Greenbushes. That mine produces 1Mt of spodumene concentrate a year and contains the world’s largest and highest grade lithium resource.

But the project will provide another development option for TLEA as the JV looks to ramp up lithium hydroxide production at its 24,000tpa Kwinana refinery and reviews a plan to expand to 48,000tpa by adding a second processing train. It could also provide a beachhead to expansion into a new lithium domain in WA’s Goldfields, near Liontown Resources’ (ASX:LTR) Buldania deposit, MinRes (ASX:MIN) and Ganfeng’s Mt Marion lithium mine and the mothballed Bald Hill deposit near Widgiemooltha.

The premium offered in the deal reveals another point. While WA’s hard rock lithium miners produce around half of the world’s lithium raw materials for electric vehicles, spodumene deposits and the pegmatites that host them aren’t all that easy to find.

Dome North, located at the Pioneer Dome lithium project where in a previous life Essential operated the Sinclair caesium mine, is one of less than 15 JORC compliant spodumene resources in Australia.

We caught up with Essential Metals MD Tim Spencer to talk about the TLEA bid, the lithium market and why juniors are now on the radar of the major players.

 

SH: Pioneer Dome is a smaller scale deposit and a little bit further away from where IGO and Tianqi are based down in Greenbushes. Is this a signal that the strategic relevance of those spodumene deposits in WA is really coming to the fore with the supply-demand scenario over the next few years?

“I think so, one of the points I make when I present is the fact that there are only 14 lithium deposits in Australia, even though we provide half the world’s lithium, there’s only 14 deposits that have been defined to a JORC status.

“They’re harder to find than people think. And our deposit, our resource is small relative to its peers, but it’s still an economic deposit.”

 

SH: I remember the time when Pioneer Dome was producing as a caesium mine. When was the decision to pivot to lithium taken and what was the process of reinventing the company?

02:24
“Back in 2016, which was before my time, the company started looking for lithium, because as you as you probably remember, lithium was bubbling away, it was on the radar, and lithium sentiment was improving.

“One of the first drill programs they organised to test a series of pegmatites discovered the caesium deposit.

“So it’s by chance, they weren’t looking for caesium. Pegmatites that contain lithium are categorised as an LCT pegmatite — lithium, caesium, tantalum, it’s very rare that you’ll get a concentration of caesium but we did at Sinclair.

“So what happened was the company effectively from that first drill program looking for lithium found caesium predominantly — there’s lithium in there as well, but predominantly caesium.

“In the background it still conducted low level, early stage lithium exploration, for example, soil geochemistry sample programs.

“(After mining wrapped up) our exploration geos, who are a pretty small team, they went back to exploring for lithium, and one of the first things they did was to follow up a geochem anomaly in the northern area of the project and, lo and behold, discovered a spodumene outcrop and that was in about June ’19.

“And then the first drill program tested that outcrop, plus another one that got found in about August ’19. They were the discovery holes for what’s now the Dome North lithium resource.”

 

SH: Is the sale of the company in your mind coming at the perfect time for the lithium market where we’ve seen the peak and now those producers are looking to add tonnes to their resources?

“It’s an interesting time in the market, I think there’s been a lot of excitement about the thematic and supply-demand forecasts.

“During last year, we saw a couple of heavyweight researchers, analysts put out reports sort of downplaying the upside, or the supply-demand balance or deficit.

“And that’s played out, really towards the end of last year, where all the lithium sector got knocked down between 20 and 30%.

“I strongly believe in the lithium thematic, I think it’s real. I think that perhaps there’s a bit more of a dose of reality coming into play where people are actually considering it within the context of the macroeconomic picture as well.

“From our board’s perspective, we’ve got to judge where the market is now not where we traded six months ago, because the share price today is what people think the company’s worth today.”

SH: We can’t necessarily predict price accurately, I’m not sure anybody would have predicted that we’d get to US$80,000 a tonne last year. Where do you think it’s going in terms of the long term sustainability of the lithium industry?

“I think that low risk jurisdiction deposits of lithium are first prize for downstream because of ESG requirements, sovereign risk, getting projects into production, and reliability of supply.

“They’re all important factors so it puts Australia at the forefront. I think new provinces are opening up globally where lithium deposits are being found, particularly in South America, parts of Africa and of course, Canada.

“I’m no research analyst, I don’t want to give a view on supply and demand, how it plays out. But I think history tells us that they tend to get matched up. There’s no such thing as deficit or surplus, because everything gets matched and the price adjusts accordingly.”

 

SH: You touched on earlier that there’s not as many spodumene deposits in Australia and WA as people think. How difficult is it actually to find a deposit like Dome North. What are the prospects going to be for a company like IGO and Tianqi to grow it versus what you’d have to do to get it in production?

“I can’t really comment on behalf of TLEA, but no doubt expertise and money goes a long way.

“So big well-funded companies with lots of very good geologists will have a better chance of being more aggressive and comprehensive than a smaller company like ourselves.

“That should raise the bar if it’s there, they might find it. But lithium deposits in general, if they’re not outcropping, they’re just a lot harder to find from a geoscience point of view.

“Geochemistry doesn’t work as well, geophysics doesn’t work as well in comparison to say for example, you’re looking for a base metal deposit or a gold project. I’m not a geo, so I’d take that with a grain of salt but that’s my experience.”

 

SH: Companies like Essential would you say they’re squarely on the radar of those bigger players now?

“I think all companies that have a lithium deposit would be of interest to other participants in the market because of the fact there’s only 14 resources, and obviously most of them are tied up with big companies who aren’t going to sell them. So junior players that do, have a good position to be in.”

 

 

Essential Metals (ASX:ESS) and IGO (ASX:IGO) share prices today:

 

 

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