MIDAS SHARE TIPS: Mine a rich seam of profit from electric car batteries boom as Savannah Resources has one of the most exciting operations in Europe
Boticas is one of Portugal’s poorest regions. Located in the north east of the country, its population has tumbled by almost 15 per cent over the past decade, as industry has declined and unemployment has risen.
Now, however, Boticas’ prospects could be on the verge of dramatic change. The area is home to one of the most substantial lithium mines in Europe, owned by AIM-listed Savannah Resources. Savannah shares are 4.2p and should increase materially as the company develops its mine and moves towards commercial production.
Lithium is the lightest metal in the world, just one of the reasons that it is a key component of electric vehicle batteries. Last year alone, more than 2.3 million electric vehicles were sold in Europe, equivalent to 17 per cent of all cars sold. Experts predict persistent growth in the market for at least the next ten years, as we battle to reduce our dependence on oil and gas. That translates into booming demand for lithium – and surging prices.
Revolution: Lithium is the lightest metal in the world, just one of the reasons that it is a key component of electric vehicle batteries
The trend should prove highly beneficial for Savannah, which is targeting 200,000 tons of annual lithium concentrate production by 2025, enough to power half a million cars.
Chief executive David Archer, a plain-speaking Australian with decades of mining experience, acquired the Savannah mine in 2017. A year later, when the group completed an initial scoping study, lithium prices were hovering at about $400 (£320) a ton and Archer thought long-term prices would settle at approaching $700 a ton. In recent weeks, the price has rocketed to $6,000 a ton. Even if this proves short-term, most forecasters expect prices of at least $1,500 a ton for several years to come.
At such rates, Savannah could generate annual profits in excess of £120 million. The group is expected to be one of the lowest-cost lithium miners in the world, benefiting from cheap local labour and a mine which produces spodumene, a mineral that is particularly high in lithium. Archer is also hopeful that annual production can exceed 200,000 tons as exploration develops and accelerates.
There are, however, some key steps that need to be taken before Savannah can move into commercial production. First and foremost, Archer needs environmental approval from the Portuguese government. This has been held back by snap elections earlier in the year and ongoing bureaucracy at local and national levels.
There are, however, strong indications that the permit will be granted in the coming months. Currently, most lithium is refined in China but the West is anxious to change that and Portugal is keen to establish itself as a lithium hub for Europe. The government backed the construction of a huge Gigafactory outside Lisbon last December and this will clearly need lithium as a feedstock, with Savannah’s mine the most obvious choice. Archer has also worked hard to ensure his mine exceeds environmental standards, while benefiting the local Boticas community, through jobs and financial support. Discussions are under way with potential financial backers and Archer is aiming to move into construction in 2024 and start commercial sales a year later.
The company is already producing more than 10,000 tons a year of quartz and feldspar, used to make the decorative tiles and crockery for which Portugal and Spain are famous. Once Savannah moves into full-scale lithium production, its mine is expected to produce up to 300,000 tons of quartz and related minerals, generating annual revenues of at least $10million.
Midas verdict: Lithium is a metal whose time has come. Savannah Resources has one of the most exciting mines in Europe, that could be up and running within three years. At 4.2p, the shares have been held back by concerns the Portuguese government will refuse to let Savannah move into construction. But there are strong grounds for optimism and, if all goes well, the stock could deliver substantial rewards. An attractive buy for adventurous investors.
Traded on: AIM Ticker: SAV Contact: savannahresources.com or 020 7117 2489