Lending Association

Will lithium money funnel back to gold?

The lithium price rout and associated decline in equities could be an opportunity for the long-struggling junior gold space.

That was the view of the Canaccord Genuity team during the opening panel discussion at the RIU Explorers Conference in Fremantle.

While the price of lithium declined by 85% in 2023 and has continued to decline, the gold price was the second-best performer (behind uranium) and has tested new highs already this year.

Canaccord is bullish on gold for 2024.

“The macro paints a reasonably strong picture for it to be potentially reaching new highs this year,” Canaccord gold analyst Tim McCormack told delegates.

McCormack sees little chance of US debt dropping and gold had typically performed well coming out of an interest rate-hike cycle.

He also noted that while the Australian dollar gold price was up A$500 an ounce over the past year, the share prices of the larger ASX-listed producers were flat to slightly lower.

“There’s a really big disconnect in those prices,” McCormack said.

“You kinda scratch your head about that a bit.”

McCormack said the average generalist fund remained underweight gold.

“You’re having a situation where there has been a very legitimate pool of money into other sectors – lithium and things like that – and that is diminishing in my view,” he said.

“And hopefully that results in a focus back into the gold sector and will funnel money back into that sector as well.”

On lithium, Canaccord analyst Tim Hoff said pricing could remain depressed for the next 9-12 “or maybe 15” months due to a “wave of supply”.

However, he said demand was still strong, albeit potentially delayed.

“The thematic is still in place,” Hoff said.

Hoff said the mainstream media was running the line that the electric vehicle revolution was dead.

“That couldn’t be further from the truth,” he said.

Hoff added that the notion that hydrogen would be used for transportation and displace lithium was “absolute rubbish”.

Meanwhile, McCormack said that attending conferences like RIU provided a potential opportunity to be ahead of the market, though it was difficult.

“The reality is the Azures, the Gruyeres, the Tropicanas don’t come around often,” he said.

McCormack said he was early into De Grey Mining in late 2019/early 2020 but it wasn’t a regular occurrence.

He noted most investors were late to the party on discoveries and didn’t catch on until the share price had doubled or tripled.

“Don’t be put off by that if it’s a true tier one discovery,” McCormack said.

McCormack looks out for three key factors when looking at mining stocks: asset, management and jurisdiction.

Canaccord has been supporters of leaders like Bill Beament, Raleigh Finlayson and Mark Clark.

“You sort of close your eyes and say ‘take my money’ – those guys deserve it,” McCormack said.