Zinnwald Lithium PLC (LON: ZINN) shares have had several factors weighing upon them, holding them back, in recent months. Most of these now seem to be resolved and it’s possible that there will be a substantial revaluation of the Zinnwald share price.
As background, we’ve that whole EV revolution going on which leads to a desire for more – much, much more – lithium around the world. The two basic sources are spodumene, which many companies are exploring for, and brines which many more are also hunting for. Zinnwald is an offshoot of a search for a third possible source, from the zinnwaldite associated with the tin and tungsten deposits on the German/Czech border. It’s definitely possible to extract from this source, total certainty about whether it’s profitable to do so eludes.
Having a highly desired mineral resource is, of course, a good position to be in. However, there have been a number of issues depressing the price recently.
As we noted about Zinnwald before there was a recent placing and so dilution at 15.5p. Only once that stock is securely placed with long term investors will there be the absence of any overhang to continue to depress the price.
There was also the historic link with Bacanora Lithium to deal with but that issue is now also gone as Bacanora is being taken over.
There was one more issue here though. The entire research programme into lithium from zinnwaldite was an offshoot of Solarworld. That’s a German solar cell manufacturer (they used to make the actual silicon ingots onwards) or rather that was a German solar manufacturer which then went bust. This meant that there was some 9% (about) of the Zinnwald stock in the hands of the Solarworld liquidator. It was always known that this was going to be placed but when and who with?
We now have our answer on that. The Solarworld stake in Zinnwald Lithium was placed just before Christmas but all we knew about it was that it was to financial market players (JP Morgan etc). That’s not securely placed, that’s still an overhang. Now the market is waking up to where it really went, to Gangfeng. Gangfeng is one of the big Chinese processors of lithium and there’s a hint that they – with some other Chinese companies – desire to have a significant stake in every lithium project going.
So, the share overhang in Zinnwald is gone, placed with long term investors. But also that’s Gangfeng, who may or may not want to have more of the project. It’s also true that we could take Gangfeng buying in as validation of the prospects for the Zinnwald project itself.
That’s the upside and it could well continue. It’s also possible to think of it another way, which is that Gangfeng just wants a seat at the table on any lithium project, it now has it (at a cost of perhaps $3.5 to $4 million) and that’s the end of that.
So it’s equally possible to think that the action here is over. What will actually happen is what the rest of the market thinks about these conflicting theories. As ever, trading positions are about being on the right side of what others think.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.