Patriot Battery Materials (ASX: PMT) (OTCQX: PMETF) is one of the Australian listed lithium miners that has jumped on the back of the Albemarle bid for Liontown Resources. If one soon to be producing lithium miner is a takeover target then aren't other soon to be producing lithium miners also takeover targets? There's logic to this given two different and separate issues.
The first is that the lithium price has come off the top. China spot prices are down as much as 40% from their peaks so if you're a lithium bull then this might look like a great time to pick up supply at a discount. We tend to think that this isn't just a cyclical cooling off, but is reflective of the real supply and demand balance over time but then we agree that we're very much out of step with the general market view on that. Differences of opinion are what makes markets after all.
The second is that there's often a cycle to the valuations of miners. As a project progresses from an indicated resource (“might be something there worth mining”) through to an actual reserve (“there is something there worth mining and we're about to start doing so”) hopes often get ahead of reality. This leads to a share price that peaks on possibilities, then falls on actual news. In that cycle it can be possible to pick up the mine on the cheap - a possible contention is that a number of lithium projects are at that undervalued stage currently.
Patriot Battery Metals share price from ASX
That Patriot share price there has, until today, been following that fall in the China lithium price in recent months. Yes, Patriot has indicated better geology, has been able to raise money. But the major determinant of the price has been that market price of the potential product.
The jump today is shared by many of the other miners in the same lithium market. The idea that there's going to be a consolidation, with the major current producers buying up the larger of the potential producers. Perhaps taking advantage of that known curve in mining valuations as projects mature, perhaps because the lithium price has come off the boil. The one reason we think this might be a little too speculative is simply the number of potential lithium miners out there. No one's really got the resources to roll them all up. But then that's the same reason we think there might well not be a rally in the lithium price itself - there are simply so many potential lithium miners working to come into production.
