Barry FitzGerald: Why Wildcat may the BESS buy as lithium demand goes through the roof

News.com.au

3 hours ago

'Garimpeiro' columnist Barry FitzGerald has covered the resources industry for 35 years. Now he's sharing the benefits of his experience with Stockhead readers.
Will battery energy storage systems bring forward the day when the lithium market flips from over to undersupply, putting a rocket under lithium prices and ASX lithium stocks in the process?
It could well be the case, with the previously under-appreciated demand growth from BESS known to be a key reason behind Rio Tinto's (ASX:RIO) dive in to the lithium space, as the renewable energy sector gets both bigger and smarter.
Its $10bn acquisition of Arcadium was classic straw hats in winter stuff by Rio, given the beaten-up lithium prices at the time, which are still to find a bottom. But if it's right about BESS, Rio's move into lithium may well prove to have been sweetly timed.
BESS is the new high growth driver for lithium battery demand. It wasn't that long ago that a new solar or wind farm would be built without battery storage. Now utility-scale systems sit alongside renewable energy sources to improve efficiency, providing grid stability benefits as well.
BESS demand is not as big as the electric vehicle sector, but its growth rate in 2024 was a phenomenal 51%.
Demand growth from the EV sector was a none too shabby 26% off a higher base.
High demand growth rates from EVs and BESS have continued in 2025. Combine the two and the question of when lithium demand again outstrips supply comes into sharp focus. Some forecasters suggest a supply deficit could emerge by the end of next year.
It was a supply deficit that drove lithium prices to a crazy $US80,000/t ($US6,000/t for concentrates of the intermediate raw material spodumene) in late 2022. Prices are now back at $US8400/t and $US620/t respectively.
Struggle town
It is struggle town for all but the (very) low cost producers and means that the incentive to bring on new mines and expand existing operations to meet the growth in demand has been extinguished for the time being.
That too feeds into the suggestion that the supply deficit and happier days of higher prices could be closer than equity markets think.
No one is forecasting a return of prices to the boom time conditions of 2022. But there doesn't need to be for ASX-listed lithium stocks to get off the floor.
That comes through in a lithium sector update (June 20) by Argonaut's Hayden Bairstow. His price targets for lithium producers and developers he follows are all well above prevailng market prices even though the price targets have been cut due to lower spodumene prices.
'We believe a (spodumene) price recovery is likely to be rapid once the market swings to a modest deficit, but the cycle is likely to be shorter given the volume of brownfield capacity that can be brought online, largely in Australia,'' Bairstow said.
He now expect spot spodumene prices to peak at $US1500/t in late 2026, which is likely to trigger a re-start of existing capacity. A return to a balanced market is then forecast for 2027 before the widening deficit pushes prices higher in the long-term ($US1600/t).
Wildcat pick
Of the stocks mentioned by Bairstow it was Wildcat Resources (ASX:WC8) that caught Garimpeiro's eye.
It was trading mid-week at 14c for a market cap of $187 million. Bairstow has it as a ''spec buy'' and has set a 40c price target.
Wildcat is advancing its Tabba Tabba project in the Pilbara towards production. A pre-feasibility study is due for completion in the coming quarter. It's a world-class hard rock discovery weighing in at 74.1Mt grading 1% lithia with exploration upside.
Garimpeiro mentioned Wildcat back in December when it was a 20c stock on the basis that projects like Tabba Tabba will be needed to meet the wave of demand coming for lithium from EVs and BESS.
His timing for an acknowledgement from the share market that stocks like Wildcat had been oversold was obviously a bit off. But here we are with the lithium demand scenario now being juiced up by BESS.
The company itself sees value in its stock as it has just announced a $5 million on-market share buyback. It is an unusual thing for a developer to do, but in Wildcat's case having $60 million in the till makes it a no-brainer given the current share price level.
There is also a takeover overlay to the stock. Mineral Resources (ASX:MIN) has an 18% stake which it acquired in November 2023 for 85c a share.
MinRes is a 50% partner in the big Wodgina lithium mine about 87km by road from Tabba Tabba. MinRes is busy sorting out its balance sheet and would likely entertain a bid for its stake at prices much higher than the current market price.
But it could also decide, like Rio, that lithium represents a high growth opportunity and that Tabba Tabba needs to be part of its lithium story given its proximity to Wodgina.