SMALL CAP IDEAS: European lithium explorers

Europe is crying out for lithium to feed its burgeoning electric car industry, and there just doesn’t seem to be enough to go around.

Not that’s local, anyway. And in this age of supply-chain uncertainty, that’s a real problem.

As it stands, roughly 57 per cent of the world’s lithium deposits are found on the three-way border between Argentina, Bolivia and Chile, in an area known as the Lithium Triangle.

Other major sources are Australia and China, and then some way down the scale, Zimbabwe.

Competition for supply from these areas is fierce, not least from China, which wields considerable influence in South America and Sub-Saharan Africa.

Meanwhile, in the USA, the recent Inflation Reduction Act has provided huge subsidies for green energy, including lithium.

All of which has left the Europeans reeling, and very much in catch-up mode.

At the moment, there’s no major lithium production in Europe, although at the present time Portugal outscores all the rest in terms of a developed resource base.

Other countries with known deposits include France, the Czech Republic, Germany, and the UK.

Some of the deposits in these countries are at a more advanced stage than others, but the real headline is that whatever the merits and development stage of specific projects, Europe is still crying out for more.

Any company that can deliver into that sort of economic and political environment is likely to receive very favourable treatment on several bureaucratic levels, never mind the benefits of jobs and know-how that such projects bring.

Even so, the market has been slow to recognise the opportunities on offer here, and the share prices of several of the companies that are already up and running in this area could still have a long way to run.

In Portugal, Savannah Resources (2.65p) has been pushing on with the Barroso project, which it reckons is capable of producing enough lithium for 500,000 electric vehicle batteries per year.

Recently completed studies on reducing the project’s carbon footprint only go towards boosting Savannah’s green credentials even further.

In the Czech Republic, European Metals (39p) is already moving through the definitive feasibility stage with its Cinovec project, perfectly poised to deliver into the German car industry across the border.

Zinnwald Lithium (7.8p)is further behind both of these companies, but recently put out a preliminary economic assessment for its German project.

Shares in all these companies, however, have been impacted by the broader investor malaise that has affected the market since the effects of the Ukraine invasion began to peter away.

That’s in spite of continued strength in the lithium price, as more and more electric vehicles get put on the road and the market continues to grow.

Meanwhile, in the UK, our own lithium industry continues to move ahead in leaps and bounds. By international standards, the UK’s lithium sector is still comparatively small. But it’s come a long way in a short time.

Companies like Cornish Lithium, British Lithium and Cornish Metals have been blazing trails in this area over the past couple of years and are now just beginning to put mining in the British Isles back onto the industry map.

Certainly, the British government has sat up and taken notice, and every courtesy and encouragement has been offered at both the local and national levels, even allowing that, as yet, the country doesn’t have its own Ministry of Mines like others do.

What will really change the game, though, both in the UK and on the Continent will be meaningful production.

After all, with the lithium price so strong, once British and European-based lithium companies actually start selling material it’s likely to provide an economic boost on several levels.

There’ll be local jobs, employment, the payment of taxes and royalties, and the stimulation that all that will provide to local and national economies.

And there’ll be the contribution to the strategic supply chain that supports European carmakers. No wonder more and more companies are moving into the lithium space.

It may yet be that the early bird catches the worm, and that the established companies like European Metals and Cornish Lithium end up profiting the most.

But this looks like being a long-term growth story, likely to run over many decades, and there’ll likely be plenty of room for newcomers too.