Atlantic Lithium (LON: ALL) was up 7% on an announcement of a resource upgrade at their West African project, Eyowaa. The “mineral resource estimate” is up 47% as a result of their drilling programme.
Atlantic Lithium is looking for lithium in the West African country of Ghana. The mineralisation is spodumene which is the other major source of lithium, alongside brines. Mining and separation techniques are well known and have been used for decades. Risk, therefore, comes in three parts, ability, volume, and the general market.
The ability is that of the company to actually execute the project. That’s somewhere between an unknowable and something that can be judged upon reputation. The general market is, well, what do we all think the lithium market is going to be like? Given the rise of electric vehicles, we know that it’s going to be much larger than it is. Prices are expected to rise substantially. That’s what happens when demand rises more and faster than supply can keep up with. As with any metal of moneral, it’s possible that supply will overexpand but that’s not expected for years yet, even if it ever does happen – the flexibility of supply takes too long for that to happen anytime soon.
This leaves the question of how much is actually there in any deposit as the last valuation factor. The announcement is that the resource estimate for Atlantic Lithium has grown by 47%. What this actually means is that they have drilled and tested more of the surrounding rock. The results show that the formation containing the lithium is larger than was previously thought.
This is not yet a mineral reserve because that requires more proof. However, given that spodumene mining is a well-known process – those decades of experience more generally – an increased resource is pretty close to an increased reserve even if legally it can’t be called that.
The announcement is, therefore, that Atlantic Lithium has more lithium at the site than they previously thought. They have the general legal right to that material already. The deposit is close to transport and the other necessary resources for extraction – not something always true in African countries – so the more general ability to produce from this larger resource seems highly likely.
Junior mining companies (a “junior” is, roughly speaking, one in development, not producing as yet) are highly volatile with regards to their share prices. For there are so many different things that influence them. The results of their exploration, the market, more generally for their likely output, and so on. The sector as a whole will move on to that general market expectation – what’s the balance between global supply and demand and so what is the price going to be. Individual corporations will move – as Atlantic Lithium has just done – on findings and expectations about their specific deposit and or extraction method.
Add to that the several year time horizons for significant cash flow for projects at this stage of development and the volatility is explained. That volatility is what makes the sector so interesting to speculate in, of course.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.