Wildcat Resources (ASX: WC8) is not up some 300% on the back of the announcement of the Tabba Tabba deal. This is pretty good, we can all agree. But the details of the deal should give us pause about the value of lithium finds. Because there is an interesting detail in here which tells us that lithium really isn't all that rare. And if it's not rare then deposits of it won't have rarity value. This doesn't mean that lithium mining will now turn into a bust. But it does mean that we should expect returns to capital to, over time, revert to something close to the average returns to capital for the economy. Because, absent some economic rent possible through actual scarcity this is what returns to capital will be.
The specific deal that WC8 did looks very good from the point of view of Wildcat shareholders. They took over the Tabba Tabba prospect in return for a share issue. Well, OK, Tabba Tabba might turn out to be a lovely lithium deposit and it might not. The odds are looking good that it will be decent but those are, still, odds. There's a great deal of proof that is still required before anyone can say with any certainty. But within that announcement there is this, something that has great importance more generally: “Previous
exploration focussed on tantalum mineralisation and the majority of samples werenot assayed for lithium”
Wildcat Resources share price from ASX
The point here being that we've a lot of people shouting that there's not enough lithium around to feed the electric battery revolution. That's why the lithium price is up 10x on three years back. But we do need to try to grasp whether there really is a lithium shortage - or just a shortage of people currently digging it up. There's definitely a shortage of current supply, yes. But is there a long term shortage of deposits rich enough to be worth digging up at current or likely future prices? That's the question which will determine the economic rent, the mineral value, applied to minerals still in the ground that contain lithium.
The point here, for non-mining specialists, is that we've got a deposit which is known to contain lithium - this sort of rock just does - but which no one has bothered to check before. At which point we'll have to assume that there's more of it out there too. That is, there's no long term shortage of lithium. We need to adjust our valuations of lithium explorers by that fact.
The other way of putting this is that sure, Wildcat has something here, we're not quite sure exactly what at this stage but it's something. But that very knowledge makes other lithium finds less valuable.
