Key points:
- Atlantic Lithium announecs drill results at Ewoyaa
- The spodumene mineralisation is more extensive than thought
- This is positive news but what will the future lithium price be?
Atlantic Lithium (LON: ALL) has announced improved drilling results at Ewoyaa, the company's lithium project in Ghana. The results are, briefly, that there's more lithium there than first assumed. This makes exploitation of Ewoyaa both more likely to actually proceed and more profitable as and when it does. This is clearly a positive for Atlantic Lithium shares which is why they have risen 4.3% this morning on the news.
This sort of exploration drilling takes us to the heart of how a mining operation works. First, obviously enough, there has to be the decision to go look for some mineral and decide where to look. Once there's confirmation of the basic existence of a deposit comes the detailed work of delineating it exactly. This is exactly the work that Atlantic Lithium is undertaking at Ewoyaa. We know there's lithium there. So, how much of it, in what grade, under what sort of other rock and earth, is there?
This is where we get into mineral resource – we know it's there but haven't absolutely proven it can be extracted at a profit – and mineral reserve – we have proven it. We know that we can extract lithium from spodumene if the Li content is 1.26% or better – because many mines do exactly that. So, we measure the resource at that minimum Li content and Ewoyaa has a mineral resource estimate (MRE) of 30.1Mt at that cut off point. Remember, we've not proven this is profitable as yet but we're pretty sure that it will be given current lithium prices.
Also Read: How to Trade The News
The new drilling results from Ewoyaa show that there's more spodumene, therefore more lithium mineralisation, than previously thought. It's possible to go into the full details but not really necessary. There's more there than currently thought – the deposit is worth more therefore.
Of course, this is not as yet a slam dunk, for the work to translate the resource into a reserve is an ongoing task. That's the ongoing work that Atlantic Lithium is doing. The way this generally works is that up to the proving of a reserve – something we know will be profitable to mine – all expenses are met from capital. It's only after that formal feasibility study that banks are likely to join in financing allowing the use of debt – with the concomitant reductions in dilution of equity.
What this means for Atlantic Lithium shares is that the valuation has risen – as has the ALL price of course. But for us as traders the decision has to be, well, has it risen enough? Or too much? At which point we've two entirely different influences to try to balance. The first is that extensions to he mineralisation do make the project more likely to proceed. There are certain inescapable costs to spodumene mining, not least the building of a concentrate plant. The more mineral there is the lower the per unit cost of such a plant.
On the other hand spodumene miners are always the marginal players in the lithium market – brine operations are almost always lower cost. So, the viability of this sort of hard rock mining depends upon that lithium price. And what's that going to be 5 years or whatever in the future which is the likely earliest production date?
It's the trade off between those two which define the Atlantic Lithium opportunity.
