Savannah Resources is another lithium play that requires long term investors with nerves of steel. Profit-taking now ignores the bigger picture.
In September 2019, I purchased shares in two promising FTSE AIM companies at the bottom of the lithium cycle — Premier African Minerals (LON: PREM), which even after the retrace is up around 2,000% since then, and Savannah Resources (LON: SAV) which has roughly doubled.
My buy-in price for Savannah was 2.05p and I timed the purchase meticulously — just after a £5 million share placement, and after delivering a promising maiden resource estimate for Grandao, part of the Barroso project. I was under the impression that as the stock had hit 13p a year earlier, it would be unlikely to go any lower. But I was wrong.
Legal issues
It rose to 2.80p by January 2020, but then fell to 1.10p on 20 March 2020, widely regarded as the bottom of the pandemic crash. By mid-April 2021, SAV had risen to 5.40p, but it then fell to my original buy-in price of 2.10p in early July 2022 as the critical Declaration of Environmental Impact decision was delayed by up to six months ‘under Article 16 of Decree-Law No. 151-B/2013, amended and republished by the Decree-law 152-B/2017 of 11 December.’
In other words, pointless bureaucratic nonsense. Anyway, the company was given six months to resubmit its application. There followed a barrage of press accusations, whereby The Baldios Management Commission lodged a civil claim against certain landowners, including Savannah, for occupying land it alleged was actually owned by Baldios.
The lithium company noted that ‘to the best of Savannah’s knowledge, the purchased properties correspond to what has been declared by the private landowners to the official registration of cadastral information office, BUPI – Balcão Único do Prédio and Savannah has purchased exactly what is registered with the Land Registry Office.’
Regardless, the claim was for just 1.4% — or 8/593 hectares — of the project.
SAV was then hit by relaunched action brought by the Parish of Covas do Barroso as plaintiff in the Mirandela Fiscal and Administrative Court in Portugal against the Ministry of Environment and Climate Action as defendant. This same Parish brought a similar lawsuit against the Republic of Portugal and the Ministry of Economy in February 2022, which was slapped down in March 2023 after the Court acquitted them for not being legitimate parties in the lawsuit.
The Parish is attempting to nullify Savannah’s expansion of the C-100 mining area, leaving it with just the original project to mine. Importantly, the C-100 Mining Lease which contains the Barroso Lithium Project remains fully granted, has a term of 30 years to 2036 and remains in good standing — and this legal action is unlikely to work as courts generally favour maximising production in one area.
However, all of this legislative stress has been more than counteracted by the European Critical Raw Minerals Act, a new law introduced by the EC which means that at least 10% of Europe’s future critical minerals be supplied from domestic sources. This is a massive boost for Barroso.
Why Savannah Resources?
Savannah is the 100% owner of the Barroso Lithium Project in Northern Portugal, 145km northeast of the City of Porto and the industrial port of Leixões. And it’s expanded to the adjacent ‘Aldeia’ Mining Lease Application.
The project is now widely regarded as Western Europe’s most significant spodumene lithium project, capable of supporting 500,000 EV battery packs every year. The company thinks that Barroso is ‘the closest European analogue to the successful Australian hard-rock lithium projects.’ More importantly, its physical location means that its lithium will be highly sought after by European car manufacturers looking to get security of supply and ESG credits.
SAV has completed 31,000m of resource-focused drilling and delineated a JORC Code (2012) compliant resource of 27Mt containing 285,900t of Li2O at an average grade of 1.06% Li2O (707,000t lithium carbonate equivalent) across five orebodies. 66% of the total resource is located in the Grandao orebody.
Finances
In recent results, SAV described its finances as ‘robust’ with a loss from continuing operations down to £2.7 million for the full year from £2.7 million; meanwhile it held cash reserves of £7.2 million, enough to ‘carry the Company into the second phase of the environmental licencing process and allow Savannah to progress the Definitive Feasibility Study on the Barroso Lithium Project.’
I speculate that the DFS will land in mid-2024, hopefully alongside all necessary environmental permits.
The company is adamant that ‘third party commercial interest in the Project remains strong and Savannah maintains discussions with multiple parties around future offtake and partnership opportunities.’
On 31 May 2023, Savannah finally received the Positive Environmental Impact Statement (DIA) from Portuguese Environmental regulator Agência Portuguesa do Ambiente. This ‘key positive decision’ has unlocked the next steps: to complete the project’s final design, to progress to the RECAPE stage of the environmental licencing study, and to finally finish the long-awaited DFS.
This is the first positive DIA for a lithium raw material supply project in Portugal, while also implementing European best ESG practices. An updated scoping study is on the way for early H2 2023, and CEO Dale Ferguson enthuses he is ‘delighted that APA has issued a positive DIA for the Barroso Lithium Project. This is an extremely important step forward, not only in the development of the Project, but also in the development of the lithium raw material industry in Portugal.’
He further notes that the decision is a ‘fundamental de-risking milestone for the Project and marks the start of an exciting new phase.’
The bottom line
Savannah owns 100% of a critical lithium deposit in Western Europe, and its geographical location alongside the European Critical Raw Minerals Act means it will have no shortage of offtake partners in the future. The share price will reflect this in time — despite local protestors hoping to offshore the country’s lithium requirements.
As a caveat, this is a very long term investment. Despite rising 104% year-to-date, there will be more volatility on the way. For the real profits, investors will need to wait, and at least for another year.
For lithium, I have all the time in the world.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.