Not owning lithium has definitely cost us performance, over the past year. There’s the commodity price itself, which has c5x’ed, and there’s the operating and financial leverage that comes with the producers, to mean even greater returns, in some instances.
Having missed all that (we won’t beat ourselves up too badly, we were very long oil and gas across mid 2020 to early 2022, which did just fine) the question is do we chase, and in each instance we think not.
Our world in data (we use them all the time for COVID-related analysis) has, below, shown that lithium reserves are increasing sharply, after a fairly flat decade or so of discoveries.
In the short run, supply is fairly inelastic. Over the long run, it is highly elastic, and responds aggressively to price signals.
Now, the above are reserves. Those are the ones we really want to see increasing, but resource discoveries are also good. With time and effort, those resources can become reserves. And here, the picture is also pretty good.
Incentivised people are out searching, and finding, lithium in size.
That is likely to continue. Lithium is not especially rare.
So, to our point, we’ve no real idea what the lithium producers are worth, because we don’t have a sense of what the long run lithium price looks like. Supply deficits, and surpluses, can cause essentially anything between positive and negative infinity (I exaggerate, but you get the point, oil was -$20bbl for a bit there, which no-one ever put in any model anywhere), and if we stick in pre-pandemic spodumene pricing we get share prices that are much, much lower.
So, we won’t chase, it is too volatile, too (in our view) risky, and we’ll make perfectly reasonable money doing other stuff.
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