Argentina's lithium dance: Is Pursuit Minerals the ideal partner?
Argentina – land of Messi, Milei, and massive lithium deposits. Dive into Pursuit Minerals with us in stop 4 of our 5-part lithium stocks to watch in 2024 series
While Argentina is renowned for Malbec wine, Lionel Messi, and the magic of the tango, it’s the stuff lying beneath its soil that gets the team at Equities Club most excited… Massive lithium deposits.
And just like Messi rose from humble beginnings to dominate the global stage, today we're looking at a company in this resource-rich nation that's already made the jump from explorer to developer and has production in its sights.
The cherry on top? It’s trading at a tenth of the price of its Argentinian rivals.
As part of our 5-part series on lithium stocks to watch on the ASX, could a small company in this resource-rich nation become a significant player in the global battery race? To find out, let's turn to some insights gained during our recent trip to the Future Facing Commodities Conference in Singapore.
There, we met with industry experts, including the legend himself, ’Mr Global Lithium’ Joe Lowry.
Joe was quick to inform us and the conference at large of his view on the current lithium market.
“I've never seen sentiment this bad...this is an overreaction by the market.”
We couldn’t help but see a flicker in Joe’s eye when he spoke of lithium pricing in the coming years. Joe highlighted issues with financing, construction, and production that are all set to slow the supply coming to market, resulting in a large supply deficit come 2030.
Prices have to increase if demand exceeds supply.
After listening to Joe and other experts on stage, we couldn't help but feel that a lithium price turnaround is on the horizon. With this shift, we expect lithium stocks to see a rebound in valuation. This brings us to a company we believe is well-positioned to capitalise:
The centrepiece of Pursuit Minerals' 100%-owned Rio Grande Sur Project in Argentina's lithium triangle has a point of difference. Unlike the hard rock lithium projects we've discussed before, Pursuit is targeting a vast underground lake of lithium-rich brine.
Like salt dissolved in seawater, it’s basically a large pool of underground water that contains a significant amount of lithium dissolved in it. A company will drill down to extract the water and then pump it out to sit in an evaporation pond to separate the lithium.
Pursuit’s project is a JORC 251.3kt Lithium carbonate equivalent (LCE) at an average grade of 351mg/litre (mg/L) to a depth of 100m.
What does that all that jargon mean? I'm glad you asked.
Think of a JORC resource like a quality seal of approval for a lithium project. It’s a classification that ensures mineral and resource reporting is accurate, transparent, and independently verified. It also gives investors a sense of comfort when putting their hard-earned money in.
The 251.3kt LCE is the product that Mr Global Lithium was talking about earlier, the lithium that goes into batteries. The 351mg/L describes how much lithium is in the brine below the surface, all this to a depth of 100m below the surface.
This resource is considered open at depth, meaning the company thinks there is more brine below the existing pool of water, offering potential exploration upside for Pursuit. The more lithium, the better in terms of attracting a partner.
Why this pilot plant matters: Pursuit's x-factor
Most companies start with bench-scale work for their lithium assets. This means they do test work on small amounts of lithium and then try to apply that to a much larger projected production figure. Pursuit has a crucial point of difference here that’s much more attractive.
Using strong local connections, Pursuit has skipped the small-scale experiments and landed a fully operational pilot plant – one with a history of producing lithium carbonate. This means potential revenue sooner and less need to dilute shares by raising more capital. Pursuit aims to produce 250t per annum at current lithium prices of over US$2.6 million a year.
Why is this impressive? This plant is proof-of-concept on a grand scale. Look at Arcadium Lithium, a multi-billion dollar producer in the same region – they followed the same path, from a smaller pilot plant to producing 20,000t annually via their evaporation ponds. Pursuit is demonstrating they're serious about scaling up.
This pilot plant will allow Pursuit to walk before it runs and show potential investors that this project is worth backing. With the plant's commissioning complete, the first phase of operations for the production of Lithium Carbonate is underway.
This is a massive head start for a company of Pursuit’s valuation.
Exploration upside
A 251.3kt LCE resource is a good start, but the management team see real value in growing this resource. The bigger it grows, the more attractive it becomes to potential partners.
This is where the Equities team smells opportunity.
This lithium asset has had historical work done, and recent surveys completed by Pursuit point to there being more lithium at depth. Only drilling can confirm this, but we like our chances.
Pursuit began its highly anticipated drilling campaign in February 2024 following the receipt of advanced exploration environmental permits. A resource upgrade is expected later this year.
Argentina, is the new government good or bad?
President Javier Milei swept to power in December 2023 amid headlines calling him the Donald Trump of South America and thought pieces on his comb-averse hairstyle and impressive sideburns.
What was often overlooked in his pro-Argentina vision was his focus on the country becoming a mining powerhouse.
The presidential decree outlining the reforms reads:
"Mining is another area with great potential in the country that is notably underdeveloped. To that end, we must eliminate costs."
As investors, we love to hear that.
Governments can often provide roadblocks for companies trying to enter production. In our eyes, the less government interference, the better, and for that reason, President Javier Milei is our guy.
The pieces of the jigsaw puzzle
Every investment has risk, and Pursuit Minerals is no exception. We like the current valuation in risk vs reward ratio.
With a lithium resource and supportive government in place, the Equities Club team sees the biggest risk to long-term success is the lithium price remaining stagnant longer than projected.
Suppose lithium prices don't rise or we don't see the so-called green shoots of the future as many have predicted. In that case, Pursuit's pilot plant's conversion to a large-scale operation will be heavily impeded.
But Pursuit is well-positioned with a resource, pilot plant, and drilling – ready to capitalise if the market turns.
This perfectly aligns with our investment philosophy: find out-of-favour commodities with the potential to surge. Pursuit Minerals fits that profile.
If you dig a little deeper with Pursuit, you'll realise there is a lot to like.
Olé.