Savannah Resources (LSE:SAV) jumped to 8.75p, its highest level in several weeks, today after revealing its third mineral resource upgrade in seven months for the Mina do Barroso lithium project in Portugal.
The company, which is hoping to establish itself as Europe’s first significant lithium producer, rose 4.8pc after reporting a 44pc in the project’s overall mineral resource estimate. According to the business, this confirms Mina do Barroso as Western Europe’s largest spodumene lithium mineral resource, with an estimated resource of 20.1Mt containing 209,000t of lithium oxide.
The boost in the project’s resource was aided considerably by a 64pc increase in the total mineral resource estimate at its Grandao deposit to 16.4Mt. According to Savannah, 90pc of the mineralisation within the Stage 1 Grandao pit, defined in a scoping study released in June, has now been converted to measured and indicated resource estimates. Such a figure would cover the first four to five years of Mino do Barroso’s mining inventory, based on average annual production of 175,000tpa of spodumene concentrate at 6pc lithium oxide.
As part of today’s update, Savannah also updated its exploration target for Mina do Barroso to between nine and 15Mt at 1-1.2pc lithium oxide, which translates to a potential mineral inventory of over 30Mt.
Savannah also took the opportunity to remind investors that the project’s feasibility study is on track to finish in late Q1 2019. The study began after the company raised £11.5m in July to fund Mina do Barrosa’s development up to decision to mine ahead of targeted production by 2020. The scoping study gave the project an NPV(8) of $356m and an 11-year life of mine (LoM) processing 1.3Mtpa per year. Based on an average spodumene price of $685/t, LoM revenue is expected to come in at c.$1.6bn.
Savannah also said it will release more mineral resource estimates for Mina do Barrosa this year, and is currently carrying out infill and expansion drilling underway at its Reservatorio Deposit to identify more upside.
On today’s news, Savannah’s chief executive, David Archer said: ‘Today’s Mineral Resource Estimate increase, shows that Mina do Barroso is shaping up to be Europe’s most strategically significant mineral discovery in recent years. The increasingMineral Resource base of the Project means we have a long-life asset that can anchor the up-stream end of the European lithium value chain, with Europe being the second largest consumer of lithium in the world.’
As we wrote in July, Savannah is entering the lithium market at a time when demand is multiplying due to new forms of energy storage and, in particular, the rise of electric vehicles (EVs). Batteries currently make up around 43pc of total lithium demand, but this is expected to double by the end of the decade. Indeed, a study from research firm Roskill has forecast a more-than-threefold increase in overall lithium demand by 2027. With lithium supply needing to triple to keep up with demand growth, many believe the price of the metal is going to keep rising after already increasing from c.$5,500/t in 2013 to c.$18,500/t at present.
Archer told us he believes that Savannah will benefit from first-mover advantage in Europe as the region attempts to build up a domestic EV market to capitalise on its position as one of the biggest global consumers:
‘Europe is concerned with maintaining a competitive position in the global car industry. The most valuable part of an EV is the battery pack, and that is where most of the value-add will be, so a certainty of supply is crucial. As the first major domestic supplier of lithium in Europe, we will be able to anchor the upstream part of the value chain.’
Since we last covered Savannah, its shares have drifted from 9.4p to 8.75p despite little change in its underlying fundamentals. The business still looks sharp from several measures- indeed, its current work programme is fully funded, it has plenty of institutional interest, and it has a portfolio of attractive, diverse assets.
With plenty of news on the horizon, it could be worth having a punt on Savannah now following a brief period of weakness before shares potentially move upwards again. Fundamentals aside, an investor’s interest in the company will eventually come down to how much they buy into the hype surrounding electric vehicles.
Author: Daniel Flynn
Disclosure: The author of this piece does not own shares in the company covered in this article.