Golden State Mining (ASX: GSM) shares are up 56% today. This is on the hope prospect that there’s actually something useful in the pegmatites they’re about to start drilling - GSM shares are rising on no more than that hope. But for a tiddler like this - market cap in $5 million or so - a find would be value transformative. Which is why we can have a significant rise in an exploration prospect even while the lithium market as a whole is seen to be as in trouble. Prices are falling and there’s considerable confusion about where - if - the price will recover.
The actual announcement: “Paynes Find (Li) Project. Rock chip assay results expected early December 2023. Field mapping identifies numerous pegmatite¹ outcrops within elevated to anomalous lithium-caesium-tantalum (LCT)geochemistry envelopes. Drill planning underway for up to 8000 metres of AC and RC programs.” Note how early this all is. There’s the identification of the right type of rock and some of the - not always accurate - soil tells. And that’s it so far.
Recall the hard rock lithium process. We need to find pegmatites, the rock. Then we need to find spodumene, the mineral in the rock. Then we’ve got to find spodumene that is lithium bearing. Finally, it’s necessary to find enough that the deposit is economic. Currently Golden State is right at the beginning of this process. From surface tells they’ve pegmatites. The drilling is to find out how far those go, whether they’re spodumene hosting and so on. We’ve not even chemical analysis of surface rock chips yet.
Golden State Mining share price from Google Finance
Obviously, there could be an extensive lithium deposit there. But there are those several steps to go through to show it. The reason for the GSM share price jump is simply that hope that there is. Drilling is just starting and we’d hope to find out more soon.
Against this we’ve the general background of the lithium market. The major producers are all falling in value. Albemarle is being down rated. The lithium price is falling. Even current share prices of producers are supported by beliefs that the lithium price will recover. Which it might, even if we don’t think so. The divergence in prospects here is simply that Golden State is a tiny exploration company. Finding even a marginal - at future lithium prices - deposit would be value transformative.
But that’s what the bet is - on the results of that soon to happen drilling.