Kula Gold (ASX: KGD) is yet another of the small mining companies that have got caught up in the rush to find lithium properties. There's a certain fun in the idea that lithium is sometimes referred to as “white gold” when so many of these prospectors are in fact more normally thought of as gold miners. The connection carries on in that there's very definitely something similar to a gold rush going on in the lithium market. Our considered option though is that this is going to work out the other way around from a gold rush.
The point being that gold is really a pretty rare element. These days a find of some decent amount of rock that grades 2 or 3 grammes per tonne would be considered a rich find. And there really aren't that many of those left out there - so we think at least. On the other hand, for lithium, we might be looking for something that grades 1% lithium perhaps - a nicely sized spodumene or lepidolite deposit say - but how rare are they? And here's the thing - not really that rare. So, in a gold rush few people find what is being looked for. We think the outcome of the lithium rush is going to be that many do find deposits which can be considered economic.
Kula Gold share price from ASX
So Kula Gold has announced preliminary results from Mustang and Cobra. No one is as yet saying this is a lithium find, what we could say is that we've found mineralisation which is consistent with there being lithium there. So, this is very early days and not, at all, proof of ultimate value. On the other hand Kula is pretty small ($7 million market cap) and so can be regarded as an option on there being something there of final value. 30% up on this news isn't out of order.
But we do, we think, need to think about that ultimate value. There are literally hundreds of lithium exploration stocks out there. Many reporting finds as good as, maybe better, than this. As geologists will tell us there's no overall shortage of lithium on Earth - only of specific mines ready to produce. So, it's possible to wonder about how valuable yet another lithium find is. The point really being that very few people have bothered going looking for lithium until just recently. So, when they do they find a lot of it - and if there's a lot of something then how valuable is each piece going to be?
That is, give it a decade and we think lithium is highly likely to be in oversupply. Thus we're less than excited by lithium finds that might take a decade from now to get into production.
