Big oil looks set to pour petrol on lithium fire, joining global miners, car makers and governments in driving up asset values

Two events put lithium at centre stage and might even have caused BHP, the big lithium holdout, to reconsider its involvement in an industry which it has been ignoring.

The first event was news that Exxon Mobil, the world’s biggest private sector oil company and long-term BHP partner in the Bass Strait oilfields off the coast of Victoria, has joined the lithium race with a brine drilling project in the U.S. State of Arkansas.

Exxon Mobil’s recognition that it needs to be involved in new energy as well as old energy will see other big oil companies re-engage with mining despite a historic clash of cultures with the entry of big oil highly likely to drive lithium asset values higher.

Rio Tinto, the world’s second biggest miner, is the only mining major to have so far dipped its corporate toe in lithium with a series of relatively small investments.

Ken Brinsden, former Pilbara Minerals chief executive and now chairman of Canadian focused Patriot Battery Metals, said during the week that the majors will have to join in soon or risk paying very high prices to buy assets later in the cycle.

The second event which kept lithium in the news was a deal between the Ford Motor Company and the leading lithium producer, Albemarle of the U.S. to secure future supplies of the battery metal.

For the broader lithium sector there are now multiple value drivers with customers clamoring for raw material, big new entrants hunting for assets, and consumers being forced by governments to buy electric vehicles.

Macquarie Bank picked up the theme of merger and acquisition activity in a midweek research note headed “Lithium M&A underway”.

“We expect M&A to continue with the key considerations including access to markets, jurisdiction risks, supply chain synergies and value proposition,” Macquarie said.

Leo Lithium was the star of the sector this week with a strong rise of 10c to 78c after it reported high grade assays of up to 2.01% over 92 metres from a depth of 132m at its Goulamina project in Mali.

Other lithium news included:

• Liontown falling by 15c to $2.58 after a report that it is in talks with 12 banks to finalise funding for its Kathleen Valley project in WA.
• Dreadnought Resources slipping 0.2c lower to 5.6c despite encouraging exploration news at its Tarraji-Yampi project in the Kimberley region of WA and a speculative buy tip from CG Capital Markets which reckons the stock is heading up to 24c.
• Trek losing 0.7c to 6.6c after reporting the raising of $7.5 million to accelerate work on its Tambourah project in WA’s Pilbara region, and
• Core falling 11c to $1.01 despite announcing early work on its BP33 project in the Northern Territory and a buy recommendation from Macquarie with a price tip of $1.30.

Interest in lithium failed to flow into other sectors with investors hugging the sidelines or ducking for cover as a triple dose of economic and political pressure bore down on the broader economy.

The New Zealand rate rise seems certain to be followed by Australia as the Reserve Bank pushes ahead with its attack on inflation and the Bank of England gets ready to raise after the latest high reading in the U.K.

If higher rates were not the prime reason for the Australian market falling 1.8% this week, as measured by the all-ordinaries index, then China’s sluggish growth, Europe’s ongoing economic problems and a debt crisis in the U.S. completed the catalogue of bad news.

Gold, which might reasonably have been expected to relish the pessimism, failed to respond, slipping US$20 an ounce lower to US$1957/oz, a fall not reciprocated locally with the Australian gold price rising by A$18/oz thanks to the A-dollar dropping to a new low for the year of US65.3c.

Despite this week’s gold price correction, the case for gold as a counterweight to other currency moves remains valid, as investment banking heavyweight Morgan Stanley told clients yesterday in a note which said gold was heading to US$2150/oz in the second half of the year.

“We see the ongoing U.S. debt ceiling negotiations as having the potential to raise market volatility, which is typically supportive for gold, Morgan Stanley said just before the Fitch credit rating agency put the U.S. on negative credit watch.

Silver, the poor man’s gold, lost another US$1/oz to settle around US$23/oz, well down on the US$26/0z of early May, but with Citi, an investment bank, sticking with a tip that silver will rise back to US30/oz as weak economic data “undermines confidence in China’s economic rebound”.

Leading gold producers weakened with the gold price. Evolution was down 17c to $3.54 over the course of the week. Northern Star lost 58c to $12.56.

There was better news among the explorers and emerging producers. Bellevue shrugged off the effect of the lower gold price to add 2c to $1.27. Benz Mining rose by 4c to 40c after announcing an increase in the resource at its Eastman project in Canada, and Musgrave added 1.5c to 23c after reporting high grade drill hits at its Leviticus project near Cue in WA with a best hit of 4 metres at 20.9 grams of gold a tonne from a depth of 38m.

The St Barbara saga dragged on with another rejection of an attempt by Silver Lake to crash St Barbara’s planned merger with Genesis Minerals. All players in the game lost ground over the week. St Barbara was down 5.5c to 54c. Silver Lake lost 1.5c to $1.04, and Genesis lost 10c to $1.13.

Iron ore finally yielded to persistent pressure from China’s weakening steel sector with the price for high grade ore slipping back through the US$100/tonne level to trade around US$99.50/t, the lowest since last year.

Fortescue Metals Group led a weaker iron ore sector with a fall of $1.50 to $19.02. Champion Iron was 13c weaker at $5.96 and Mineral Resources dropped by a hefty $6.11 to $69.92.

Other news and market moves in a forgettable week included:

• Bell Potter claiming a spot in the “optimist of the week” competition for a bullish research note on nickel and palladium developer Chalice Mining which the broker reckons is heading up to $12 even as it lost 14c this week to $7.17.
• Shaw and Partners was a step ahead of Bell with its note on Tanzanian graphite explorer Evolution Energy Minerals which it sees rising to 72c as the stock added 0.5c to 22c.
• Stavely Minerals rose by 2c to 14c after announcing the acquisition of the Hawkstone nickel, copper and cobalt exploration project in the Kimberley region of WA from Chalice.
• Sheffield Resources slipped 1c lower to 48c after reporting that its Thunderbird titanium minerals project WA was 85% complete.
• Sandfire Resources lost 46c to $5.49 as the copper price fell below US$8000 a tonne and despite news of first concentrate being produced at the Motheo mine in Botswana.
• 29Metals suffered another big sell-off, down 38c to 68c as it tries to recover from flooding at its Capricorn copper project in Queensland.
• Hastings Technology Metals added 7.5c to $2.06 after its chief executive, Alwyn Vorster, told a conference that a premium market could develop for rare earths produced outside China, and
• Highfield Resources added 9c to 60c after announcing a $25 million fund raising to support development of its Muga potash project in Spain.