Lithium boom has echoes of Poseidon craze
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by
Trevor Sykes
The
lithium boom has revived happy memories for Pierpont, because it has strong similarities to the great Poseidon boom of 1969.
For the benefit of those infants who weren't trading back then, Poseidon shares ran from $1 in September 1969 to a screaming peak of $280 in February 1970.
Better still, Poseidon dragged a mass of ragtag and bobtail penny stocks along with it in the wildest share boom Australia ever saw. Poseidon's major shareholder, Norm Shierlaw, became a household name.
They were magic times, which Pierpont thoroughly enjoyed. He didn't make much money out of it overall but the experience was terrific.
A typical episode involved Pursuit Oil, whose shares trebled from 4¢ to 12¢ in a single day's trading (October 16, 1969, if you want to check).
The run was started by heavy buying from around Geelong. disallowed queried the company, which said it knew nothing that would justify the run.
One chap claiming to be a fisherman rang a broker and said while he had been out on a lobster boat he passed an oil rig and someone had called out to him to buy Pursuit.
The broker pointed out that Pursuit was drilling its Hindhaugh No.1 well onshore, not out in the Bass Strait.
Further investigation – some of it by Pierpont – revealed that the punters who started buying had spotted oil stains on the creek alongside the rig. So they put two and two together and got 22. Or rather, they raced off to phone their brokers.
Except that what they had seen was oil that had spilt from the drilling rig's sump. So the shares went back down next day and Hindhaugh No.1 never discovered a barrel of oil.
Mystery metals
The Poseidon boom was primarily about nickel – a metal which had never been discovered in economic quantity in Australia until three years earlier and which few of the punters knew anything about. That provides a parallel with the present boom because Pierpont doubts many of
today's punters understand much about lithium.
And you can count Pierpont in that number, because your correspondent has always thought of a metal as something hard used to make girders or locomotives.
By comparison, lithium is quite odd. It is soft, silver-white and alkaline. The pure metal is lustrous but corrodes quickly to black when exposed to the atmosphere. It's also flammable, so has to be stored in mineral oil.
A locomotive would turn black and catch fire before you even started building it. Nevertheless, the boffins have decided it's a metal.
The fact that lithium is so reactive means that it only occurs in rocks or brines as a compound and not in pure form. Otherwise geologists would have an easy time finding the stuff. They'd only need to wander around the bush until they saw a rock bursting into flame.
The old Poseidon excitement now seems to be spreading among the junior miners with every atom of lithium they discover.
Pierpont has been too lazy to count the rapidly expanding number of juniors who have suddenly discovered lithium, so today he'll only be considering Prospect Resources, Argosy and Pioneer Resources.
Pioneer (PIO) went into a trading halt a fortnight ago and emerged with an announcement that soil geochemistry on its pegmatites near Norseman had shown multi-element anomalies containing lithium, niobium and rubidium. They'd also taken 36 rock chip samples which assayed up to 3.94 per cent lithium.
As soon as the announcement hit the screens, punters pushed Pioneer shares to 7.8¢ but by the end of the day they had sagged back to 4.8¢. It was a wild ride for the stock, with 30 per cent of its register turning over in a single day.
The fact that the shares closed lower may indicate that the punters are smarter than Pierpont thinks. Samples from soil chemistry and rock chips are nice, but a lot more work needs to be done before an economic orebody is established.
Further, lithium is not a rare element. It is the 12th most common element on the planet, so you can find traces of it almost anywhere. It's in the human body, so presumably you could strike lithium by drilling an abandoned cemetery.
Nearology a find science
Pioneer is certainly an exciting stock, though. Since March 11 it's had three trading halts and one suspension, all resulting in announcements about its lithium activities. Pierpont would have thought Pioneer's best prospect was its Donnelly ground, which at its closest point is 12 kilometres from Greenbushes.
That's another echo from 1969, when there was a rush by other juniors to peg claims alongside Poseidon's Windarra nickel strike. The scientific name for this behaviour is nearology (you might not have the right geology but you're near it).
Greenbushes, in southern WA, is a terrific place to be near because it's one of Australia's best mine sites. Without consulting the records Pierpont would guess it has been in continuous operation since 1888, when it began as a tin mine. In the 1940s it also began producing tantalum and since 1985 it has been mining lithium.
For many years it was owned by Sons of Gwalia and if that was all they owned the company would still be in business. Instead they made some dreadful mistakes in the gold market and went bust in 1995.
Getting back to the lithium boom, another contender is Prospect Resources, which had been trading between 0.5¢ and 0.7¢. Sometimes it didn't trade at all, so desultory was the interest in its affairs. Then on May 12 it jumped a spectacular 216 per cent to 1.9¢ on news that it had acquired the Arcadia lithium deposit in Zimbabwe.
Arcadia intermittently produced lithium from pegmatite rocks (again) between 1954 and 1972. The grades went as high as 5.5 per cent, which is a very good grade for lithium. Nearly all the production was 15,000 tonnes produced between 1967 and 1972.
Although this deposit has been known for 60 years, exploration has never been adequate to provide reserve or resource estimates.
Pierpont has a prejudice against exploration in countries run by dictators with a long record of expropriating and murdering white chaps, but he must admit that the country is quite prospective for minerals, including lithium.
Prospect has announced its target at Arcadia is to find an orebody of 15 to 18 million tonnes containing 3.5 per cent lithium. The company says, however, "the potential quantities and grades are conceptual in nature". It is not certain that further exploration will result in a mineral resource as defined by JORC.
Pierpont is very fond of companies with conceptual targets and has made a small fortune selling their shares just before they drilled. But having no shares in Prospect, he wishes the lads well anyway.
Drilling for the truth
Prospect isn't going to die wondering. It intends to punch 30 holes in Arcadia to depths of 50 metres, beginning in July. They will be the first holes drilled on the prospect since 1981.
Argosy is set to buy two brine projects in the "lithium triangle" region of Argentina. The triangle is in the arid northwestern corner of Argentina, a good region for lithium because several explorers are developing prospects there already.
Which raises a point. A main cause of the enthusiasm for lithium is Tesla's move to build a lithium-ion battery plant in Nevada which at its peak will require 25,000 tonnes of lithium compounds a year. There are now dozens of companies around the globe trying to develop lithium mines.
Pretty obviously, they're not all going to succeed. The winners will be (1) those who are already producing and (2) maybe the first of the rest to start producing.
The big winners look like being the Chinese who have already grabbed control of Greenbushes, which last year supplied about 40 per cent of the world's lithium demand. So if you're going to punt, find the mines which are going to come on quickly.
Don't look back in anger
This being the only column Pierpont will write during the election campaign, he must vent his displeasure at Scott Morrison's introduction of retrospective taxation.
If only 4 per cent of superannuants have more than $1.6 million in their fund, Pierpont is desperately sorry for the other 96 per cent, who will have to eke out the last 20 or 30 years of their life, including health costs, with less.
It is also unfair to the aspirational classes of Australia, who have been working hard to build up their super funds on the understanding that they would be untaxed upon retirement, and who now have it capped by Scott.
In good years, superannuants' funds will rise above $1.6 million and they'll be hit by taxation. In bad years, their funds will shrink and the owners will have no way of repairing them. They're all headed for the misery of the old age pension which superannuation was supposed to rescue them from.
Worse, Scott has created a precedent which could be used by the economic plunderers in the Labor Party to impose yet more taxes on superannuants.
Worse still, Scott has now gone off on an election campaign without any of his victims seeing the details of the legislation. The so-called wealthiest 4 per cent of the nation have been left in uncertainty because our leaders think they will automatically vote for the Liberal Party.
Pierpont wouldn't be so sure. If any candidates were to stand on a No Retrospectivity platform, Pierpont believes they would get strong support from the 4 per cent, and probably more from those people still in the workforce who are trying to join the 4 per cent.
And Pierpont will wager that whenever we do see this wretched legislation, the pensions of Scott and his Canberra buddies will be exempted from its provisions.
Pip! Pip!
Pierpont
www.pierpont.com.au
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