Lithium sector awash with bluff ’n bluster as billionaires jostle for position

The goings on in the Western Australian lithium space has assumed Games of Thrones-esque proportions.

Most recently, Gina Rinehart has emerged as a potential threat to Albemarle’s $6.6 billion bid for Liontown (ASX: LTR) after snapping up a 7.7% stake in the Kathleen Valley developer, and Delta Lithium (ASX: DLI) was the subject of a boardroom putsch by its existing 17.4% shareholder, Chris Ellison’s Mineral Resources (ASX: MIN), a serial collector of stakes in WA lithium projects.

It seems Rinehart and Ellison, whose companies and personal fortunes have been built on iron ore, are intent on securing a double dose of wealth generation in the lithium space.

There is however a lot of bluff and bluster going on as well. Can Rinehart seek a board seat at Liontown from a 7.7% shareholding? Does her iron ore experience really mean anything when it comes to developing a lithium mine and moving downstream into the chemical sets of refining?

And as for the board coup at Delta in which the ever-bustling executive chairman David Flanagan was bustled aside, just how the rest of the shareholders will take to MinRes being in the box seat without paying for the privilege in a premium takeover bid remains to be seen.

Against that backdrop, the proposed takeover of the Pioneer Dome lithium developer Essential Metals (ASX: ESS) by Bill Beament’s Develop (ASX: DVP) looks positively drama-free. Pedestrian perhaps, but a game changer for Develop in a market where competition for lithium development assets is super-stiff.

As it is, MinRes is a 12.8% Develop shareholder (it sees some of itself in Develop’s mining services/mine operator model) and a 19% Essential shareholder, have acquired the latter to frustrate an earlier bid for Essential from the IGO/Tianqi partnership.

Develop’s agreed bid for Essential – MinRes has endorsed it subject to an independent expert report ticking it off – has just received Federal Court approval for the scheme to be put to Essential shareholders, with Essential in the meantime continuing to move Pioneer Dome through the hoops on its way to becoming a producer.

Beament will be on hand in the Eastern States next week to update the market on Develop’s addition of a leg to its current mix of mining services and its base metals projects, most notably the Woodlawn project near Canberra.

Any insights he can provide on the Games of Thrones-esque goings on in the WA lithium scene will be warmly received. His visit east involves three days of presentations to the Resources Rising Stars “New Energy Metals’’ series in Brisbane on Monday, Sydney on Tuesday, and Melbourne on Wednesday.

Ausgold:

For some in the market, the pace of progress at Ausgold’s (ASX: AUC) Katanning gold project in wheatbelt country to the south of Perth has been way too slow.

Afterall, Ausgold acquired the project way back in 2010 when the resource was rated at about 400,000 ounces. WA gold mines can be discovered and mined out in that timeframe.

It explains why the stock has such a low market rating. It last traded at 2.9c for a market cap of $66 million.

But things are a changing at Katanning, and a re-rate is in the offing to bring Ausgold’s market valuation into line with that of its peers in the gold developer space.

Underpinning the looming re-rate is the benefit of the geology-comes-fist rethink of what Katanning could be by Ausgold managing director Matt Greentree, a PhD geologist and former SRK consultant who arrived on the scene 6.5 years ago.

Katanning has grown from 800,000oz since to the 3.04Moz resource (at a better grade too of 1.06g/t) announced earlier this month. As the company notes, Katanning is now the biggest free-milling open-cut gold development project in WA.

The updated resource now gets plugged into a definitive feasibility study due for completion in the fourth quarter, with previous work pointing to average annual production for an initial 10-year project of 136,000oz at an operating margin of 56%.

Payback was put at 20 months and the post-tax IRR estimate came in at 46% on a reasonable gold price assumption. Assuming smooth passage on the permitting and financing front, first production in late 2026 would be possible. Ausgold will not be a $66 million company by then.

For those still not convinced that Katanning is now in the fast lane, Ausgold followed up the resource upgrade by striking a deal to acquire the two farms on which the project and much of its exploration upside sit for $10.76 million.

Funding is required because at last count the company had about $9 million to hand. But two-thirds of the cost is deferred to April next year, and there are non-dilutive fundings solutions available for the pick-up.

Greentree said the commitment to secure the freehold properties reflected Ausgold’s “intent to advance this large-scale asset towards development”. Take a look at the market caps of 100,000 ounce-plus gold producers and near-term developers out there and Ausgold is an anomaly to the low side, for the time being at least.

If confirmation of Katanning’s potential in the coming DFS doesn’t fire things up, it could come when the lithium and rare earths potential of Ausgold’s big land package in its south-west corner of the Yilgarn Craton is put to the test.

It is a developing story and there could well be some drilling of selected targets by year-end in a part of the world best known in the lithium mining world for the Greenbushes operation, the world’s biggest and best hard-rock lithium operation, some 40km from Katanning.

Greentree won’t be rushed into selecting drill targets. It will be the same the geology-comes-first approach that has elevated Katanning’s gold status. He has noted however that he is getting a lot of inbound inquiries about the lithium/rare earth potential, as he is now about Katanning as well.

Uranium juniors on fire:

It has been mentioned here previously that the forming uranium boom has worked wonders on the near-term producers Boss (ASX: BOE) and Paladin (ASX: PDN) from restarts of their respective Honeymoon and Langer Heinrich operations.

The boom has since gathered pace, with the uranium price reaching 12-year highs of $US63/lb, if the price spike last year that came with Russia’s invasion of Ukraine is ignored. The price is up by 40% this calendar year alone.

It has fuelled intense buying support for Boss and Paladin. Now that buying support is feeding down into the advanced explorers, with the punters figuring that uranium’s rally is no flash in the pan.

They got some comfort on that score in recent days from the assessment by the World Nuclear Association that uranium demand could double by 2040 as decarbonisation steps up. The problem is that there is not a clear line of sight to where the additional uranium will come from.

In previous uranium bull markets, physical uranium and uranium equities have demonstrated a capability to breakout to the upside in dramatic fashion. There’s no reason to think that won’t be the case this time around.

There were signs of that in Thursday’s market when advanced uranium explorers took off. Alligator (ASX: AGE) put on 15.8% to 6.6c, Elevate (ASX: EL8) put on 4.9% to 53c after toughcing 55.5c, and Deep Yellow (ASX: DYL) gained 8.2% to $1.05. Happy days.

The breakout ability of the sector of this kind is understandable. Nuclear power currently accounts for about 10% of the world’s electricity generation yet the market cap of all of the listed uranium equities here and overseas is less than that of Australia’s third-ranked iron ore producer Fortescue.