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 Wed Mar 29, 2023
KW Excerpt: Kaiser Watch March 29, 2023: Patriot Battery Metals Corp (PMET-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2023 John A. Kaiser

 
Patriot Battery Metals Corp (PMET-V: $14.700)

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Kaiser Watch March 29, 2023: Albemarle helps put Liontown into play
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(0:13:47): What are the implications of the Liontown bid for Lithium Mania 2.0 juniors like Patrtiot Battery Metals and its much earlier stage Corvette project in the James Bay region of Canada?

If Liontown does become the focus of a bidding war that results in it being acquired by a much larger company it will accelerate the transition from Lithium Mania 1.0 to Lithium Mania 2.0. Lithium Mania 1.0 was characterized by a rush into Australian pegmatites and Lithium Triangle salars. In both settings the low hanging fruit is now owned and already in production or heading into production. Whatever is left to be found in Australia will require riskier exploration probing under cover. When you use Google Earth to fly over Western Australia, you can see that the northern two thirds has little vegetation, swamp or lakes, very unlike much of Canada. Much of the bedrock is covered by dirt, but then most of eastern Canada is covered by glacial till and overburden. The difference between Australia and Canada is that exploration of Canada's outcropping pegmatite potential is just getting underway. Those LCT pegmatites such as Galaxy/Cyr, Rose, Wabouchi and Moblan which were found decades ago were acquired and explored as part of Lithium Mania 1.0. These are now heading into production.

Lithium Mania 2.0 is based on a market realization that the supply potential identified by Lithium Mania 1.0 is insufficient to meet the lithium demand projected for 2030 and beyond. Liontown's most recent corporate presentation has a very useful slide with a graph that presents supply and demand projections based on work done by Wood Mackenzie and Albemarle which also shows future supply deficits. This chart shows a balance being achieved in 2026, beyond which the supply deficit widens dramatically, peaking at 51% in 2036. This is based on lithium in the current supply mobilization pipeline. Lithium Mania 2.0 is about identifying the pegmatite supply that will take care of the supply deficits that emerge in 2028 and beyond.

Patriot Battery Metals was bootstrapped in 2021 by Australian investors who understood what was happening to future lithium demand and the limits of Australian pegmatite and Lithium Triangle brine supply alone delivering that demand. The outcropping spodumene enriched pegmatite zone on the 55 km long Corvette trend represented low hanging fruit similar to what the Australian juniors harvested in Western Australia during 2015-2018. Lithium Mania 1.0. however, was haunted by uncertainty about whether consumers would actually embrace electric vehicles on a large scale. While the logic behind future lithium demand was sound, the timing of its arrival was uncertain, and that ripped the rug out from underneath Lithium Mania 1.0 when the Australians proved highly efficient at mobilizing new supply and tanked the price of lithium carbonate to a level where nobody has economic incentive to develop pegmatite based lithium supply. But today the car makers have gone beyond the point of no return and the future supply requirements are so well understood that car makers themselves are willing to violate the taboo about getting involved with upstream raw material supply. Furthermore, if the recent slowdown in demand from the Chinese EV sector does threaten to drop the price of lithium carbonate below $10/lb, the battery and car makers will soak up the surplus supply and stockpile it because they understand that if Lithium Mania 2.0 collapses, and the resource juniors who are the exploration engine behind identifying the new supply lose their funding audience, there simply won't be sufficient lithium to make planned EV sales for 2030 and beyond a reality. Albemarle making a tentative move on Liontown in the current environment of a plunging lithium carbonate price reflects this reality.

PMET has during the past 18 months drilled over 150 holes into the CV5 pegmatite and is now marching 6 drill rigs along strike to try to double the footprint by demonstrating that the CV4 outcrop on the north shore of the lake is part of the CV5 pegmatite system. Drilling will pause on April 20 for a month to accommodate the Indigenous goose hunting season. The potential to delineate a 50-100 million tonne body grading 1%-2% Li2O is already visible through the published drill results, which would make CV5 comparable in scale to Liontown's Kathleen Valley deposit. On Wednesday afternoon ahead of the Thursday ASX trading session PMET published the first batch of assays for the 2023 drilling. The results include significant intervals in the 3%-5% Li2O range.

PMET currently has an implied project value approaching CAD $2 billion which represents S-Curve territory ahead of a maiden resource estimate, but that milestone should be achieved by the end of Q2. It has been 7 years since Liontown acquired Kathleen Valley from Ramelius as a pegmatite prospect, with production scheduled by year 8. PMET acquired Corvette at the same time but is only in its second year delineating the CV5 discovery and one might think its valuation is very far ahead of the fundamentals. However, PMET has the Lithium Mania 2.0 advantage over Lithium Mania 1.0 in the form of very big stakeholders understanding the urgency behind identifying the lithium supply that will prevent supply deficits from emerging in 2028 and beyond as Wood Mackenzie projects. While Corvette may look like another Kathleen Valley, the project still needs a couple years of de-risking to attract a bid with a comparable valuation, but the times are such that a $2-$3 billion offer from a party that wants a district scale trend with a flagship deposit already outlined is not inconceivable. The Lithium Mania 1.0 operations were all developed with scales that reflected the uncertainty about the size and timing of the EV future. In the Lithium Mania 2.0 context a much more aggressive production scale can be justified as soon as Corvette passes the maiden resource estimate milestone.


Liontown's Lithium Supply-Demand Chart

Initial 2023 Drill Results for PMET's CV5 Target

 
 

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