European Metals Holdings (LON: EMH) should, in our opinion at least, be classed alongside Zinnwald Lithium (LON: ZNWD). On the very simple grounds that they're trying to mine what is largely - but not exactly - the same deposit from opposite sides of the same hill. Zinnwald is on the German side, Cinovec on the Czech and the two villages of those names rather run into each other - the border's little more than a line on the map these days. True, the Cinovec deposit - the one EMH owns - has rather more tin in it but we'll come to that. In terms of lithium both face exactly the same problem.
Both are hoping to mine for zinnwaldite, a form of mica which contains lithium. Extraction of the zinnwaldite is what European is crowing about today. That's never really been a conceptual problem, more just the application of known techniques to find one that works. Extracting the lithium from the zinnwaldite, well, that's more of a technical challenge. Zinnwald Lithium claims to have solved it. They may have done although we are aware of the difficulties they had in getting to that claimed point.
We are willing to agree that those particular technical problems have been solved. Willing to believe, we have our own measure of whether they really have but that's for another time. What worries us rather more is the economic background to what is happening here.
European Metals share price from London Stock Exchange
It's possibly unkind of us to think about this in this particular manner. But there we are, this is the way that we do. The Cinovec deposit - the one European owns - is indeed a tin and lithium prospect. That's just the way the geology and mineralogy work in that part of the world. It's a significant tin deposit too.
But here's the thing. Tin prices are currently rather below economic extraction costs for hard rock mining in Europe. OK, but the lithium price is high, right? Well, yes. Even yeeees. Except that lithium price is some 50% off where it was just 7 months ago. Our own expectation is that in the medium term it will decline significantly more too - there's no shortage of it out there, only of operating mines.
At which point something we've noted about European Metals. When the tin price is high then it's a tin company. When the tin price is low, the lithium high, then it's a lithium company. We've no problem with someone having a primary and secondary line of production - that's common enough. But when the primary keeps switching, well, we do start to wonder whether the project as a whole is likely to turn out to be economic. And that's what our problem is here. Tin, alone, isn't economic. Tin plus lithium might be - but Li from mica we think is going to be expensive compared to other sources. But if the Li price falls will even Sn and Li be economic? That's what we need convincing of.