What is it about BMG that has investors so enamoured?
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Little known lithium explorer BMG Resources (ASX:BMG) has suddenly come onto investors’ radars.
While the love affair with battery metals stocks may have run its course, individual stocks with a good story are still getting noticed.
Take Liontown Resources (ASX:LTR) for example – it’s been on a tear since early April and is now up 425 per cent.
Yet it got very little investor attention during the mad scramble to get into lithium stocks.
BMG’s share price, meanwhile, has now run up 140 per cent since the start of February – and it’s all because of lithium in Chile.
Chile, along with Bolivia and Argentina, form what is known as the “lithium triangle”, and together account for over half of the world’s lithium supply.
“Every other company that’s picked up ground there in either Argentina or Chile and kicked off a maiden drilling program has done well – have a look at Lake Resources (ASX: LKE) a year or so back, and Galan Lithium (ASX: GLN) recently,” Gavin Wendt, senior resources analyst and founding director of MineLife, told Stockhead.
“Punters seem to love a new lithium company that’s about to kick off drilling. So I guess BMG is no exception.”
BMG revealed in August last year that it was acquiring a stake in three lithium brine projects in Chile.
Lithium is mined from two main sources — hard rock (hosted in spodumene ore) and brine (lithium-enriched saltwater).
The lithium in South America comes from brines, while in Australia it comes from hard rock deposits.
And Chile has some of the highest quality brines in the world.
“When we talk about Chile, we are talking about very good brines in terms of quality, very low operational cost, but at the same time regulation is quite complicated,” Henrique Ribeiro — editor, Latin America metals for S&P Global Platts – told Stockhead earlier in May.
Chile has labelled its lithium a “strategic resource” and therefore all lithium concessions are controlled by state-owned agency CORFO.
And a large chunk of the best brines are already in the hands of two majors — SQM and Albemarle.
Chile also has the best quality brines for making battery grade lithium carbonate.
Ribeiro said by comparison the projects in Argentina produce mainly technical grade lithium carbonate.
“It’s not that cheap to produce lithium carbonate as a battery grade, which is what really matters to the industry,” he explained.
“It’s a lot easier in Chile because the quality is a lot better, the concentration is a lot higher, evaporation is a lot easier.”
So instead of going on the hunt for new ground, BMG struck a deal with existing Chilean lithium explorer, Lithium Chile SpA, which already had 20,000 hectares of prospective ground in the “lithium triangle”.
“The fundamentals for the lithium sector remain very positive with strong demand growth from battery requirements for electric vehicles, and there is no better entry point than the world’s highest grade, lowest cost brine deposits in Northern Chile,” BMG managing director Bruce McCracken said at the time the JV was announced.
BMG announced today that it had now formalised the joint venture and was preparing to start maiden drilling in June.
But as we saw with the recent lithium run, investors can flee from stocks just as quickly as they get into them.
“Have a look at the subsequent share price performances after maiden drilling, it seems punters can fall out of love very quickly, no matter how good the results are,” Wendt said.