Huge demand for lithium and Azs's Andover will be at the forefront of said demand.
- Sprott says lithium miners are likely to be a compelling investment with mined supply the biggest bottleneck in the electric vehicle industry
- Lithium demand growth could hit an outrageous CAGR of 16-20% to 2030
- Which emerging players have posted some of the best gains in 2023?
Lithium prices have suffered a couple of big falls this year, while equities have been rocked a couple times in the past 24 months on the back of bearish price predictions from generalist analysts.
But more and more market observers are coming round to the idea the EV revolution is a long-term thematic that will continue to throw kindling on the fire for lithium miners.
That’s because the real bottleneck in the supply chain for EVs is not at the OEMs in Detroit or the converters in Qinghai, but the mines across Australia, Chile, Argentina and the rest of the world.
Famed investment manager Sprott, known for its ahead-of-the-market bets on gold and uranium, has entered the fray, releasing a new note last week making the call that lithium miners were a long-term beneficiary of the EV revolution.
We’ll get into the nitty gritty in a second, but this is one stat you need to know.
In order to meet current projected battery demand for lithium, supply would need to increase at a compound annual growth rate of 16-20%.
To get a sense of perspective, copper – widely expected to be in a major deficit by the end of the decade as demand from EVs, renewables, poles and wires accelerates – is poised to grow at ~5% CAGR.
Since 1900 copper mine supply has grown at a rate of 3.1% a year. Lithium’s growth profile completely boggles the mind.
“The success of the EV revolution invariably hinges on the ability to increase the supply of lithium, and unearthing the investment opportunity inevitably leads to lithium miners,” Sprott director of ETF product development Steve Schoffstall said.
“Pure-play lithium miners – companies upstream in the supply chain and specialising in mining lithium – may likely benefit most from the increased demand for this critical battery metal. We believe that pure-play investments offer a strong potential opportunity for capturing the upside of lithium.”
Lithium prices remain historically high
Lithium chemical prices fell from over US$80,000/t to a touch over US$20,000/t in a radical swing in market demand over the first four months of the year in China.
They subsequently rebounded into the mid-US$40,000/t range before a recent slide to the low US$30,000s.
But there are potential signs of a floor emerging, with margins getting tight for high-cost swing supply from some Chinese lepidolite producers.
Carbonate prices lifted ever so slightly in China last week according to Fastmarkets by ~US$700 to US$30,178/t (220,000RMB).
“While the price of lithium has retreated from its November 2022 record high, it remains above its historical average and surpasses the production costs of many lithium miners,” Schoffstall said.
“Miners’ prospects are not tied to the fortunes of specific EVs or battery makers.
“Instead, they benefit from the broader surge in lithium demand and its price.
“With lithium prices remaining strong and demand rising, the long-term growth potential of lithium miners may likely provide a compelling investment opportunity.”
Compelling is exactly the kind of investment opportunity we like around these parts.
So what do the numbers say?
We’re glad you asked.
This is what Schoffstall and Sprott see happening in the years to come.
Each battery pack in an EV contains over 16 pounds of lithium, divide that by 2.2 and you get 7.3kg.
They reckon demand for lithium ion batteries surged 65% to 550GWh in 2022 alone.
On that growth trajectory, lithium demand is increasing rapidly and while there’s plenty of the lightest metal to be found in various concentrations across hard rock pegmatites, salty brines, in geothermal wells, clays and even the ocean floor, just 25% of it is currently accessible.
“Increasing the annual lithium supply will be challenging, as new mines can take a decade or more to begin producing,” Schoffstall said.
“Governments are providing support as they seek to regionalise lithium supply chains to enhance security and sustainability.
“With governments making electric transportation central to decarbonisation goals, many automakers plan to go all-electric as soon as 2030.
“As a result, automakers like General Motors, Ford and Tesla are increasing their involvement in the supply chain and providing capital to lithium miners by entering into long-term offtake agreements or investing directly in lithium mining.”
A record US$466 billion was spent on transportation and charging infrastructure in 2022, Schoffstall said, up 54% in a year. The IEA expects a top end of 350 million EVs could be on the road by 2030, a growth rate of 38% per annum.
On Sprott’s numbers lithium metal output (not lithium carbonate equivalent) will rise from 118,000t in 2022 to 304,000t in 2030, largely from Australia.
The drive to expand among incumbent producers like Albemarle, Pilbara Minerals (ASX
LS), Allkem (ASX:AKE), Mineral Resources (ASX:MIN) and SQM gives a sense of how bullish they are that the market will keep growing.
“With the building of new lithium mines years away, existing mines are expanding to meet the increased demand,” Schoffstall noted.
“For example, the Silver Peak Mine, run by Albemarle (located in Nevada), is currently the only US source of lithium and has historically provided a modest amount of lithium annually.
“In 2021, however, Albemarle announced it would invest $30-$50 million to double the Mine’s output by 2025.
“Albemarle is not alone; most major lithium producers worldwide are working on expanding and looking to shuttered plants to return to the production line, especially if they were initially closed for economic reasons.”
Top lithium performers in 2023
It’s worth noting the extraordinary growth period that powered a number of lithium miners into the ranks of Australia’s biggest companies has, for now, cooled.
Pilbara Minerals is now looking like a regular dividend payer, while Allkem is seeking a tie-up with US-based Livent to trigger its next growth leg. Both are up around 25% YTD.
MinRes has stuttered as it shifted strategy multiple times on downstream processing and faces a big capex outlay on the development of a new 35Mtpa iron ore operation in the Pilbara, as well as time and cost blowouts on the expansion of its Mt Marion JV with China’s Ganfeng to 900,000tpa.
IGO (ASX:IGO) is down slightly YTD, largely due to a massive impairment on the value of the assets acquired in its $1.3 billion takeover of Western Areas last year.
But a number of emerging lithium names chasing big new discoveries are sitting on much bigger gains. Who are some of the sector’s big up and comers?
And number one is …
We bet you thought we were going to say Azure (ASX:AZS), seemingly everyone’s lithium stock du jour right now.
