PLS (ASX) AFR: $60m cap raise at 30c

Originally posted by yarrum2 ↑

The lithium sector’smoment of truth has arrived in a week of carnage for Australian producers thatsent share prices tumbling and claimed the sector’s first corporate victim.Cash-strapped Alita Resources slid into administration only 18 months after thestart of production at its Bald Hill lithium concentrate plant in WestAustralia’s southwest. Alita collapsed the same week that Pilbara Mineralsabandoned efforts to sell a portion of its Pilgangoora lithium project in thePilbara, pulling back production plans and extending the timeline for furtherexpansion of the project before launching a $60 million capital raising to seeit through the market downturn. At the same time, lithium major Talison pushedback its next round of expansion at Greenbushes, the world’s biggest and besthard-rock mine — for generations Australia’s only exporter of lithiumconcentrate. Galaxy Resources incurred a $US172m ($256m) half-year loss,slashing the value of its Mt Cattlin lithium mine, while Chris Ellison’sMineral Resources flagged putting a lid on production if lithium markets remainweak, pointing to a 36 per cent fall in prices for concentrate from its MtMarion mine, near Kalgoorlie, from $US1070 a tonne at the start of thefinancial year to $US682 at its close.

The only company thatappears to be bucking the trend of falling prices and slowing demand is AlturaMining, which confirmed its export guidance yesterday after tellingshareholders on August 20 its current pricing was “in line” with the March andJune quarters. Most lithium exporters have pointed to slower than expectedgrowth in downstream processing plants, particularly in China, and a build-upof stockpiled concentrate. However, the simple fact is that the market isoversupplied with concentrate, and the next six months could see many producersface a battle to survive.

The closest parallel is the iron ore market of 2012. For generations a cosy oligopoly of Rio Tinto, BHP Group and Brazil’s Vale dominated supply of the steelmaking commodity. Then came a sudden surge in demand from Chinese steel mills, and a host of nimble Australian miners, including Fortescue Metals Group, Atlas Iron, Mineral Resources , BC Iron, swept into the market to fill the emerging gaps before the iron ore majors could respond, making plenty of hay while the sun was shining. But by 2012 the majors had caught up, and Rio and Vale’s expansion plans were pourings hundreds of millions of new tonnes into China, pushing down prices to the point that a sudden price plunge late in the year pushed even Fortescue, the biggest of the new miners, to the brink.

And from there theykept coming, even though their most expansive plans were dropped, favouring asteady increase in production as they optimised operations and drove downcosts, slowly grinding more expensive miners — particularly those outsideAustralia — out of the market. Lithium is no different. In 2014, the cosyoligopoly included Chile’s SQM, US major Albemarle and Talison lithium, ownerof Greenbushes — then the only hard-rock lithium mine of any note, supplying 40per cent of global demand. SQM and Albemarle’s primary production centres werein South American brine lakes, and they were slow to respond in any scale,allowing Mineral Resources , Galaxy Resources, Altura Mining and others thespace to nip into the market, growing WA’s lithium operations from one to ninein a few short years. The Australian sector hit its peak in early 2018, whenPilbara Minerals was worth $2 billion, Galaxy nudged a market capitalisation of$1.8bn, and Altura hit $898m. Mineral Resources’ Chris Ellison — also a veteranof the iron ore boom — admits the 2018 market was “ a little overheated” .

“We were getting up to some pretty dizzy heights. We’ve seen that happen often in the past with the likes of iron ore and other commodities. “That happens sometimes, but it just got to an unsustainable level. It’s always nice to go there, but it’s never going to last long,” Mr Ellison told analysts. “It just gives the market a lot of unreasonable expectations. “At the same time, last year, iron ore was pretty marginal. So about this time last year, if you were in lithium, you were a hero. ‘About this time last year, if you were in lithium, you were a hero. And if you were in iron ore, you were a total loser’ CHRIS ELLISON MINERAL RESOURCES And if you were in iron ore, you were a total loser. Today, that’s sort of turned around a little bit.” There is no doubt demand for lithium is still growing quickly, as electric vehicles take a bigger share of the car market and home battery units being to emerge as a viable storage option for renewable energy. Bloomberg New Energy Finance predicts lithium demand will still grown eightfold over the next decade, while lithium bulls tip higher rates of growth if electric vehicles can hit a tipping point in production costs over the next decade.

But the lithium majors are coming. Talison is now owned by Albemarle and China’s Tianqi Lithium, and has moved from exporting 700,000 tonnes of concentrate a few years ago to an annual capacity now worth 1.3 million tonnes a year when it is fully ramped up — although Albemarle has since put the brakes on further production growth in the short term. But SQM chief executive Ricardo Ramos made it clear in the company’s earnings call last week that his company would be running the same playbook used by the iron ore majors in the early part of the decade, happy to live with lower prices to ensure SQM recaptures market share from newer competitors. SQM is set to produce between 45,000 and 50,000 tonnes of lithium carbonate equivalent this year, and Mr Ramos flagged a more than tripling of that capacity by 2023, to 160,000 tonnes. “We expect a growth for next year higher than the market growth, that’s for sure. What we are doing next year is to, in some way, recover our market share participation,” he said. “So, that’s why we are moving to 120,000, 150,000, and probably the next step will be 200,000 tonnes.” Australia’s new lithium producers face the same test as Fortescue , Atlas and others before them: push down costs and push up quality, or risk falling by the wayside. Copyright © 2019 The Australian
GXY Priceat posting: $1.16 Sentiment: Hold Disclosure: Held

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Thanks! @yarrum2
Any chance of this article 'Pilbara raising in doubt' which is in The Australian Dataroom section it appears

https://www.theaustralian.com.au/su...d5430&memtype=registered&mode=premium

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