Savannah Resources Drops 35% On Barroso Licence Problems – How Bad Is This?

Savannah Resources (LON: SAV) shares are down 35% this morning on the news that the development of the Barroso lithium mine has been called in by the environmental regulators. In one sense this isn't a killer blow because paperwork and design problems, well, they're pretty normal. On the other hand this is going to lead to a significant, many months, delay and that can be damaging to business prospects. So, the effect can be predicted to go either way in the long term.

The specific problem is that the Portuguese environmental regulator isn't, as yet, entirely happy with the plans for the mine. The Savannah announcement says “certain elements of the Project's infrastructure, such as the access road and waste storage areas, and the management of local water resources, landscape impacts and ecological systems. Socio-economic considerations include the impact of the Project on other local businesses,” which is anywhere between not a worry and a very large worry.

The not a worry part is that the technical issues are pretty easily solved. It's the local stakeholders' that could be the problem. For there is considerable local opposition to this mine in Portugal. The more local the consultations have to be the more likely it is that a spanner will get thrown in the works.

Also Read: The Best Lithium and Lithium Mining Stocks To Buy

As to what Savannah is undertaking here the Barroso project is a large – Europe's largest resource by some measures – spodumene development. This has its merits as spodumene is one of the two major current sources of lithium. Given the EV revolution this would seem to be of interest.

However, it's also possible to be slightly worried. Will the lithium price hold up? For spodumnene is always the marginal source – brines are near always cheaper sources. Also, there's no spodumene concentrate processing in Europe as yet, so to be free of reliance upon China that other industry also needs to appear.

The effect of this delay, workover, to the environmental permits isn't, on those pure environmental grounds, all that much of a problem. Spodumene mining is a well known technology and all that. It's however much of a boot the local stakeholders might put in that's the real worry over the success of the process. But even if the process is successful there's still the time required to complete it. Savannah indicates that as a result of this they expect the full decision no later than March 2023. Given the current market for lithium that's quite a long time in fact. And that does only get the project to the definitive feasibility study.

Savannah Resources says it is fully funded through out this process which is useful, as that 35% drop in the SAV share price this morning would make raising capital difficult. It's still true that we'd think Savannah is going to gain the full mining licence. But this delay does make the whole project riskier – this lowering the value of it.