Takeover fever grips lithium stocks as price predictions turn bullish

The sector is buzzing again, as investors showed at this week’s Resources Rising Stars conference. Interest was also high in oil and gas junior Triangle ahead of its drilling in the Perth Basin.

By Barry FitzGerald

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No surprise in finding out that it was the lithium crew that were the most buoyant at the Resources Rising Stars conference on the Gold Coast during the week.

Prices for the battery material are on the rise again and merger and acquisition at the big end of town with the $16 billion Allkem and Livent combination has fired up investor interest in the sector again.

It could heat up from here too, with Citi joining a chorus of investment banks talking up lithium in the second half of the year after the big fall from last November’s high, albeit only to levels that remained at historically high levels anyway.

Citi reckons the stage is set for lithium prices to rally by 25-40% by year-end. “Lithium carbonate prices in China are no longer in freefall and appear to have bottomed out,” it said.

“Demand from downstream players remains tepid but buying interest has improved and restocking by the supply chain in the second half of 2023 should drive prices higher,” Citi said.

It lifted its three-month price for carbonate from $US20,000/t to $US32,000t.

Alley of lithium M & A targets:

Pilbara (PLS) was once a 10c stock at the RRS conference. Now it is a $12 billion company, with the veteran Gold Coast investors at the conference having made plenty along the way.

Pilbara presented at the conference but didn’t have a booth. There are only so many questions from happy punters – who also endured the horror years when lithium was down and out – that a company can bear.

But there was a lithium alley of sorts at the conference, with the booths of Liontown (LTR), Delta (DLI), and Patriot Battery Metals (PMT) all lined up in a row.

It could have been called a takeover target alley.

Liontown, another regular conference attendee that the punters remember when it was a 10c stock, recently rejected a $5.5 billion bid from US heavyweight Albemarle.

No one thinks Albemarle has gone away but it had better sharpen its pencil.

Liontown chairman Tim Goyder owns 15% of the stock. Add in another 25% or so held by his loyal followers, and he is calling the shots.

Albemarle tried with $2.20 a share, then $2.35 a share, and most recently, $2.50 a share. The market has Liontown at $2.78 a share, so Goyder’s no fuss rejection is widely supported.

What will it take to change his mind? Something well north of $3 a share most likely. But even then, that might not do the trick given Goyder’s comments in a fireside chat at the RRS conference.

“We believe that the cashflow that this project is going to generate over two years will pay for (Albemarle’s rejected $5.5 billion offer), so $2.5 billion dollars a year of free cashflow (from Liontown’s Kathleen Valley project).

“So we’re not selling this project for consensus. We’ll just see what happens.’’

Delta was mentioned here last week and again there is no surprise in knowing that executive chairman David Flanagan was buzzing with enthusiasm about the company‘s future as a lithium producer from its Mt Ida project, and the emerging big time potential of its Yinnetharra exploration project in the Gascoyne.

(He also reckons Liontown would be a steal at $3 a share).

Others share his enthusiasm, with a couple of billionaires - Mineral Resources’ (MIN) Chris Ellison and Gina Rinehart - chomping away at the register. MinRes is believed to now hold about 2%, and Ms Rinehart about 3%.

The dual-listed Patriot came away from the conference sporting the biggest share price gain for the week in response to latest exploration results from its Corvette project in Canada.

That Corvette is something special is reflected in the run up in its market cap to $2.2 billion (fully diluted), and the decision by former Pilbara boss Ken Brinsden to come out of retirement to become Patriot chairman.

Patriot’s locally listed shares put on 24.5c or 15.4%  to $1.83 in response to the fresh exploration results which included 122.6m at 1.89% lithium from 126m, with an 8.1m section within that grading an off the charts 5%.

Euroz Hartleys headlined its report on the results with “you’re gonna need a bigger boat”. It was suggesting that industry players eyeing off Patriot as an M & A target will have to cough up more in light of the latest results.

Pilbara and MinRes are most often mentioned as possible predators. But Rio Tinto’s big presence in the region – and its need to grow its lithium business into something more meaningful – also makes it a likely contender.

There was something special in the Patriot report for Aussie investors who get hung up on the fact that the Corvette pegmatite runs under a small shallow lake. But draining lakes in that part of the world for mining operations is common practice. BHP did it for years when it was mining diamonds at Ekati.

Anyway, the fact that the strike length of Corvette is growing by the day, means that an increasingly bigger portion sits on dry land. Mining there could well provide the material to build a bund at the lake-drained portion of the orebody.

Euroz Hartleys has a price target on the stock of $2.50. Macquarie is at $2.

Triangle:

There is nothing the RRS Gold Coast investor crowd like more than a lightly capitalised junior with a near-term shot at the big time.

And they don’t mind if the junior in question is in the oil and gas space rather than minerals exploration game.

It’s why the oil and gas veteran and Triangle Energy (TEG) boss Conrad Todd found himself working overtime at the company’s booth at the conference. At 1.7c a share, its market cap is $23 million.

Triangle is a player in WA’s onshore Perth Basin. It is where the industry found that if it drilled deeper than it had been over the years, it could find a lot of gas.

And so it has, maybe as much as 3 trillion cubic feet across a number of discoveries of the increasingly pricey stuff. Gina Rinehart, Mineral Resources (ASX):MIN) and Strike Energy (STX) are the main players in the new gas hotspot.

Further to the north, you’ll find Triangle with a 50% interest in two permits after farming out 50% to NZOG and Talon for $20 million in work commitments.

Things heat up in the first half of next year when the partners are planning two wells. The first of them is likely to be the Booth prospect where the ‘’best estimate” of the gas target is 279 billion cubic feet of gas.

One bcf of gas has value of around $2m. So Booth alone has game-changing potential for Triangle. Add in Triangle’s “best estimate” net exposure to another two prospective gas targets and its exposure is some 197bcf of gas.

Only success with the drill bit will make any of the upside a reality. But the 2024 program will be one to watch, certainly by the bigger players to the south if Triangle and its partners enjoy success.

Tiny Triangle has also hitched itself to the carbon capture and storage (CCS) space by proposing to transition its ageing offshore Cliff Head oilfield into a receptable for carbon dioxide that comes with the gas produced onshore in the North Perth Basin.

Cliff Head is neatly located in Federal waters, so there is a regulatory pathway for CCS to become a reality. Apart from deferring Cliff Head abandonment costs, the ability to take in an initial 10 million tonnes of carbon dioxide from the onshore gas producers could be a major money spinner.

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