Zinnwald Lithium Fades As Effect Of Gangfeng Stake Wears Off

Zinnwald Lithium PLC (LON: ZNWD) shares have dropped off their recent highs which seems a pity as the company seems to have been doing many things right. The problem seems to be that there’s simply a long way to go as yet.

There are technical issues here with Zinnwald Lithium. As we’ve mentioned before the company was originally an outgrowth of Solarworld AG, that went bust, there was an overhang of the stock. That was placed, leading to a drop to the placing price. The Zinnwald share price then jumped again when Gangfeng used the opportunity to build a stake. That should be good news, a major lithium processor takes a stake in a potential lithium miner. But then there’s the other side of this, which is that the Chinese lithium processors seem to be taking stakes in every possible lithium miner – this isn’t a rare event.

The Zinnwald share price though is coming off those highs and seems to be drifting? Why is that?

Also Read: The Best Lithium Stocks to Buy

If we think more deeply about Zinnwald then it’s got certain things right. The particular hills it’s looking to mine, we know that there is lithium in there. The area has been mined for tin (and then tungsten) for centuries and the mineral zinnwaldite is known to be there – this is a mica which contains lithium.

So that first hurdle that any junior miner – recall, this means “not producing yet” – has to jump has been. There’s definitely the mineral there. Much work has been done on being able to extract from that mineral and that has also been shown to be possible. The unknowns now are being able to do that in volume and at cost – a cost that meets whatever the market lithium price is at the time of mining and processing.

The ability to mine in the area, gain a workforce, permissions and so on, these all seem to be in place. So, why isn’t the Zinnwald price soaring?

The answer is probably the bane of all mining operations for minor metals. Which is that what everyone else is doing also matters. As we’ve pointed out before another gold miner – unless they make South Africa sized discoveries – doesn’t change the global price of gold. But the lithium market is small, even if getting larger. So, each new lithium miner in any volume impacts that global lithium market for all producers. Which means that we need to regard each new potential miner – like Zinnwald – against total global supply and demand.

This does matter as the past can tell us. There was a boom in lithium funding back in 2012/3 and at least one of the miners funded then has gone bust since. Nothing wrong with the deposit, the mining, they were actually producing – but too many others had also done so to keep the price up where it needed to be.
The effect of this is probably that we need to have more news, new news, about Zinnwald before we see any other significant move in the share price. While operations to date all make sense it’s still a long road and the market will want to see more travel along it before a re-rating.