Blue sky missing from Tianqi sale picture
China’s strained trade relationship with Australia and COVID-19, added to crushed lithium carbonate prices, makes the timing of Tianqi Lithium’s attempt to raise much needed cash from selling some of its Western Australia interests seem particularly forlorn. But Toronto-based Stormcrow Capital still sees the apparent lack of strategic intent from potential buyers as a bad sign for lithium for “the foreseeable future”.
The equity research firm and battery minerals market commentator has suggested last week's announcement by Shenzhen-traded Tianqi of an equity sale by Chinese parent (up to 6% of the company's stock over six months) to help meet looming debt repayment obligations merely highlighted the continuing absence of favourable terms for any selldown of Tianqi's stake in its WA mining and processing joint venture.
JV partner Albemarle and Australian industrial and mining groups Wesfarmers and Fortescue Metals Group are among the reported potential buyers of some or all of Tianqi's 51% stake in the operator of the low-cost Greenbushes hard-rock mine and emerging Kwinana lithium hydroxide operation.
Media reports last week indicated Chengdu Tianqi Industry Group's sale of part of its 36% Tianqi Lithium holding might realise US$200 million of proceeds, but Tianqi's liquidity problems, in the wake of the plunge in lithium product prices and steep fall in its own market value this year, appear unlikely to ease, hence its increasingly urgent talks with providers of debt that includes the $3.5 billion borrowed to fund the purchase of 23.8% of Chile's SQM in 2018
Stormcrow says Tianqi borrowed in what was a relatively easy money market at that point in China.
"But with lithium prices falling and money drying up, it has become difficult for Tianqi to service its debt and make money," the firm says. It believes last month's announcement by Tianqi that it was examining strategic options for Greenbushes and the Kwinana plant opened a window to the sector's future - despite all the strings that appear to be attached to any deal - with a suitor having to show some real faith in that future.
"… In a very real way, the fate of Tianqi will show us the way our market is going to evolve for the foreseeable future," Stormcrow says.
"If Tianqi find a buyer or investor at good prices, then we can become at least a little more relaxed about the prospects for the industry. At the opposite extreme, if even Tainqi's partner in Greenbushes, Albemarle, are unwilling to take a larger stake in the Greenbushes mine, this is a likely indication that we are going to see hard times ahead.
As of [last week's equity sale announcement by Chengdu Tianqi] one can be forgiven for thinking that the situation is not good."
Stormcrow says Greenbushes is "one of the very few hard rock deposits that can economically produce spodumene concentrate even at these lithium prices", which have worsened in May.
It says the price for battery-grade lithium carbonate has dropped a further 5% in May (up to May 16) to about US$7,500/t as a "surplus of lithium carbonate has become a flood".
UK-based Roskill has suggested Tianqi Lithium, "once considered the poster child of China's lithium industry", is emblematic of the sector's core current problems.
"The actions of Tianqi Lithium to lessen its debt-load will have significant repercussions, not only for Australian lithium mine supply, but also for Chinese mineral conversion," it says.
"The Greenbushes operation in Australia, with capacity of over 105,000 tonnes per year of LCE in lithium mineral concentrates, is considered a world-class operation, being the largest, lowest cost hard-rock producer globally. Although the accompanying Kwinana plant remains suspended, the 24,000tpy capacity lithium hydroxide plant also represents an attractive asset."
Roskill has said the "potential 25% stake in both operations up for grabs" could go to regional investors in the lithium industry, such as Wesfarmers, but alternatively, a major cell or automotive manufacturer with existing ties to Tianqi could look to purchase the stake as a strategic investment to maintain its supply chain.
"There is also potential for a Chinese state-owned white knight investor, such as China Minmetals, to step in and maintain Chinese ownership of these key strategic assets, though the Australian Foreign Investment Review Board may pay particular attention to such a deal.
"For short-term lithium supply, the impact is expected to be negligible. If Tianqi continues to experience low liquidity and is unable to find a buyer, however, investment in future expansions at Kwinana, Greenbushes and the Chinese processing facilities could be limited."
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