Morgan Stanley has been wrong more often than right, when it comes to Lithium supply.
The sale price of "battery quality" Li2O3 or LiOH never fell to the levels MS stated. The sale price of lower quality Li2O3 certainly did though.
MS put a SELL on the entire Lithium Sector after Tesla Battery Day which proved a monumental fail.
The South American Brines never achieved the supply expansions they trumpeted 4 years ago.
It was the Australian Spodumene miners who upset the market. Greenbushes (ALB/Tianqi) doubled Spod output to 1.34mtpa. Mt Marion (Ganfeng/MIN) increased production. PLS and AJM began production.
The winners then were the Stage 2 Chemical Converters controlled by the Lithium majors.
PLS survived and have come out the other side looking extremely strong, especially after acquiring Altura. PLS is now a A$3.4b MC with net debt of A$30m.
PLS have plans in place to expand from 330ktpa to over 1mtpa, as per the Strategy and Outlook corporate presentation. Financed out of profits, prepayments and currently available finance.
This seems understated as Pilgan Stage 1 DFS was for 330ktpa. Stage 2 DFS to increase to 780ktpa and Stage 3 SS to 1.25mtpa. Then add 206ktpa for Ngungaju Stage 1 and up to 400ktpa for Stage 2.
The movement of Lithium pricing over the years has demonstrated the ability of Australian Spodumene miners to step up to meet market demand. The failure of South American Brine to meet demand, underlines the difficulties that sovereign jurisdiction poses when it comes to raw material supply. Downstream production managers live and breathe supply certainty. Just ask Chinese Steel producers.
Greenbushes have plans in place to increase Spod production to 1.95mtpa (when Tianqi can afford it). PLS to 1.65mtpa and who knows how much more. Dale was reticent to answer the question of PLS production by 2030 in the Strategy and Outlook Q&A, deflecting to an answer saying, "the maximum". POSCO state their intentions to produce 220ktpa of LiOH by 2030. They will be needing much more Spodumene than their current PLS offtake commitments.
The only impediment to Oz Spod production's future, has been European and American concerns about the carbon footprint of their production.
Certainly the ALB CEO has been trumpeting the benefits of South American Brine, in spite of his own firm's investments in Oz Spodumene.
Now PLS has put in place plans to reduce the carbon footprint of Spod mining production to net zero. PLS is at the forefront of "clean" production of all Oz Spod producers. Not just replacing Diesel generated power source with a Solar polar generation and perhaps wind ... but also the Calix electric kiln tech to produce Lithium Salts. A superior and lower carbon footprint precursor to finally produce Li2O3 or LiOH.
PLS also looks to be the only Oz Spod producer who will supply the open spot market. All other Oz Spod producers (with the exception of Liontown), have Stage 1 product already committed downstream. Perhaps MIN could ... but they have to do what ALB and Ganfeng tell them to do.
The PLS CEO maintains he will honour offtake contracts and use Ngangaju output for the open market. Plans to increase Ngangaju output from 206ktpa to 400ktpa by 2024.
However, it was notable from the presentation that the General Lithium and Great Wall Stage 1 offtake agreements are for 6 years and will therefore expire in 2023. This offtake may then become available for sale on the Spot market.
The presentation also noted that this output could be diverted to anyone who wished to take the Calix value added production and/or a further downstream investment.
US Inflation data caused a hiccup during the week, causing a "risk off" sell in high growth shares. This further lowered the AUD to USD, just as it began to retrace the hit it took late Jan21 from rising US Bond yields. The commodities boom remains on track and therefore the AUD should regain its ascent.
LIT ETF and Lithium majors increased strongly on friday night and this will surely lead into a strong monday for our share price, IMHO.
I'm a bit obsessed with the PLS resource drill program. In 2018 they outlined plans to explore for an additional 50mt to 90mts, until funding became tight in 2019 and 2020. Note the drilling excludes the "sterilised" section next to Altura tenement that we are drilling now. The red markings indicate the outcropping pegmatites.
The entire resource looks like its going to continue on a dogs leg from the Central Pit down to the South Pit. There's also notable red markings on the border north of Altura tenement and a large peg the size of a Goanna at the very south of the tenement.
If we were looking at increasing the resource by 50mt to 90mt excluding the sterilised section, then we're looking at much more including it.
PLS Price at posting:
$1.10 Sentiment: Buy Disclosure: Held
(20min delay)