How to invest in lithium explorers: pitfalls and pointers

Exploring for lithium, a key component in electric vehicle batteries, is all the rage as companies seek to plug the gap between low supplies and surging demand to fuel the green energy transition.  

The 700,000 tonnes of lithium mined globally last year will need to nearly quadruple to 2.7 million tonnes by 2030, requiring an investment of US$95 billion to meet supply needs, according to Hatch, a global engineering consultant based in Toronto.  

But how to invest in lithium explorers, the small companies on the front edge in countries such as Chile, Argentina, Canada and the United States? Koby Kushner, CEO of Libra Lithium with 290 sq. km of claims near Thunder Bay in northwestern Ontario, says investors need a checklist on geology, company structure and assay results. 

“There’s a lot of investment opportunities to pick from if you’re trying to play grassroots lithium exploration,” Kushner said on Wednesday at the Society for Mining, Metallurgy & Exploration’s eighth annual Trends in Mining Finance Conference in New York. “Therefore, it’s very important to learn at least a little bit about the geology.”  

Lithium is mined either from a brine pumped to the surface and left in settling ponds for months, or from hard rock sources such as spodumene. Brine-borne lithium is predominant in Chile, Nevada and Alberta, while hard rock lithium is found in Australia, Quebec and Ontario. Spodumene is found in pegmatites produced under heat and pressure from granites, though not all pegmatites contain lithium.

Kushner’s privately-held Libra this week began to survey 50 pegmatite targets on its Flanders North project. It’s one of eight projects held by the Toronto-based explorer. 

“What’s key is that lithium mineralization is spatially related to this granite,” Kushner, who worked as a mining engineer for Barrick Gold (TSX: ABX; NYSE: GOLD) and an equity analyst for Red Cloud Securities. “Generally, there’s a Goldilocks zone about 3 to 4 km away.”  

Close-ology

The danger is relying on so-called close-ology, staking claims just because they’re near properties with demonstrated potential, like the swarm of activity around Patriot Battery Metals’ (TSXV: PMET; ASX: PMT; US-OTC: PMETF) Corvette project in Quebec, Kushner said. All the land within a 20-km radius is staked, but many of the claim packages are full of granite which is less prospective ground, and the companies are still getting funded, he said.  

Another factor to consider is how some companies hold huge blocks of land to prospect but may be under obligation to spend hefty amounts within a few years on exploration or development that they may not be able to cover. Companies should generate projects in-house to avoid expensive option agreements while investors should beware of management teams that flock to whatever is optionable, he said.  

“My simple filter is ‘OK, was the CEO – he or she – previously in cannabis or crypto?’ And if so, I’m out.”   

Investors should also be wary of reports of high lithium content in lake sediments, a commonly used indicator in Canada after the government conducted a survey, but unreliable because the lithium could have traveled, and its source is unclear. 

Assays of pegmatites also have a limit to how much lithium oxide they can hold, which is about 8%. When a company reports 12%, red flags should wave, the analyst said.  

“You get a lot of people that are chasing that pot of money and not everyone is in this to do genuine exploration,” Kushner said. “A lot of people are in it because they can raise money, you know, maybe buy a second vacation home.”