Tungsten producer Premier African Minerals (PREM:AIM) says it may spin off its Zulu lithium project as a separately-listed business.
The company has initiated a review of the project with a new drilling programme and appointment of natural resources entrepreneur David Lenigas who has been tasked with trying to find strategic investors and/or joint venture partners.
The news sends Premier African Minerals’ share price up 32.5% to 0.497p.
Numerous miners have been chasing new lithium prospects this year in a bid to ride the lithium bandwagon, or dusting off existing projects that have sat in the background.
The commodity is a key component for lithium-ion batteries required to power electric vehicles, aerospace applications, laptops and smartphones. Demand is forecast to keep rising.
There is certainly merit to the lithium story in terms of demand but it is important not to get too caught up in the hype.
Premier African Minerals’ announcement to bring Zulu to life doesn’t come as a surprise given growing investor interest in lithium. Just look at how IronRidge Resources’ (IRR:AIM) share price has burst to life following its decision to add lithium and gold to an ever-growing portfolio of commodities - you could argue it now has a bit of everything, so can push to the forefront whichever one is in fashion.
IronRidge floated on AIM in February 2015 to develop iron ore projects. It couldn’t have floated at a worse time as the iron ore price was in freefall. IronRidge then shifted to a nickel/copper prospect, found some bauxite and then gold and is now snapping up lithium prospects in West Africa.
Seasoned investors may recall African Eagle Resources which went down a similar path 10 years ago, having a bit of everything here and there - but it paid the price for a lack of focus when the entire business eventually crumbled away.
Kodal Minerals (KOD:AIM) is another example of a miner undertaking a scattergun approach to its career. It floated at the end of 2013 with a phosphorus and iron project in Norway, quickly shifted to copper, jumped on the gold bandwagon earlier this year and more recently picked up some lithium projects.
Other AIM-quoted stocks with exposure to lithium include Bacanora Minerals (BCN:AIM), European Metals (EMH:AIM), Savannah Resources (SAV:AIM) and Kennedy Ventures (KENV:AIM).
The flurry of activity in lithium projects is not restricted to the UK stock market. Australia is also seeing the same pattern with miners rushing to pick up anything with the word lithium in its name.
The race seems reminiscent of previous rallies to own rare earth minerals, graphite and uranium projects over the past decade, none of which really resulted in any significant value creation for shareholders.
If you are going to invest in a miner chasing the lithium story, it is important to understand the various types of prospects.
There are three types of lithium deposits in the world. Hard rock deposits dominated the scene until the early 1980s when the rise of portable electronics increased lithium demand so miners had to look for alternative sources.
This led to the development of brine deposits that produced potash with a lithium byproduct, now accounting for 65% of the world’s lithium carbonate output. As demand continued to grow, supply became constrained so clay deposits were explored.
Bacanora has proved it is possible to recover lithium from the clays to make lithium sulphate. A conventional processing technique will produce lithium carbonate which is the battery-grade product.
‘If you look at the cost profiles, the brines tend to be cheaper upfront because they use a lot of evaporation to recover the lithium. But their timetable is very long. When you pump brine, it takes about two years to produce a lithium carbonate,’ explained Bacanora’s CEO Peter Secker in an interview with Shares last year.
‘The average cost of the brine is $2,500 per tonne. The hard rocks require more energy to blast, crush and grind. Their cost profile tends to be around $3,500-$4,500 per tonne.
‘The clays fit in the middle. You don’t have as much energy upfront, but you do at the back end to process. The hard rocks and the clays are the same; taking about a week to process. So you are producing much quicker, and your working capital requirements are much lower.’
