update re: Australian Lithium and Rare Earths Miners.
Macquarie maintains it's buy recommendation and PT of $1.30 at this stage.
Yesterdays
Canaccord special metals comps had
CXO listed under "lithium developers" with a spec buy and PT of $1.50.
Otherwise they appear to remain bullish on the sector.
Canaccord's research shows the price of Spodumene (6% China) holding firm at $6,110 across the month, despite the 5% fall in carbonate (which is still up 11.4% over 3 months).
Also the Australian
Office of the Chief Economist released it's quarterly outlook a few days ago. Worth a read but some interesting points:
- World demand for lithium is estimated to increase from 592,000 tonnes of lithium carbonate equivalent (LCE) in 2021 to 745,000 tonnes in 2022 (Table 15.1). Over the following two years, demand is forecast to rise by Resources and Energy Quarterly December 2022 over 40%, reaching 1,091,000 tonnes by 2024.
- Global lithium production to grow, but supply gap will take time to close - World output was 551,000 tonnes LCE in 2021, and is estimated to reach691,000 tonnes in 2022 and 1,087,000 tonnes in 2024 (Figure 15.3). Thisrapid growth is forecast to be met by gains in output by Australia, Chile and Argentina.
- A supply gap is forecast to persist over the outlook period, with total supplyfrom both mine and brine operations currently insufficient to meet demand.With new lithium projects being developed rapidly, the supply gap isexpected to reduce over the outlook, but will take time to close. Lithiumstockpiles remain hard to ascertain, with some estimates of 4-8 weeks forspodumene.
- In September, the Chinese government announced a continuation ofvehicle purchase tax exemptions for new energy vehicles through to theend of 2023. The 12 month extension is expected to cost around100 billion yuan. Compared to a similarly priced internal combustionengine (ICE) passenger car model, Chinese government subsidies providea saving to customers of about 10,000 yuan.
- Spot prices continue to set record highs, driven by shortages of spodumene, lithium hydroxide and lithium carbonate. Spot spodumene concentrate averaged about US$6,100 per tonne in November 2022 (SC6.0, CIF China). This was up 6.4% from October, representing a more than three-fold gain from the US$1,900 a tonne average spot price for November 2021. In November 2022, spot lithium hydroxide price (delivered to China) averaged around US$78,950 a tonne, up from US$28,560 in November 2021.
- As most Australian producers have historically utilised long term contracts, prices received take time to adjust to shifts in spot prices. High prices reported by Australian producers confirm spot prices are now flowing more rapidly into contract prices. Spodumene contract prices appear to be increasingly linked to battery-grade lithium chemicals, particularly lithium hydroxide. ABS trade data indicate that average realised prices (which reflect a mix of contract and spot priced exports) rose strongly in 2022, as processors sought to ensure supply was sufficient to meet likely demand.
- Spodumene prices are forecast to rise from an average of US$598 a tonne in 2021 to US$2,730 a tonne in 2022, as record spot prices feed through into contract prices (Figure 15.4). Prices are expected to grow further next year as contract prices reset in the September quarter 2022, averaging US$4,010 a tonne in 2023 before moderating to US$3,130 in 2024
- The lithium hydroxide price is estimated to rise to US$39,850 a tonne in 2022, up from US$17,370 a tonne in 2021. Prices are expected to peak at over US$60,000 a tonne in 2023 before moderating to average about US$48,000 in 2024.
- Rapid price movements and the relative immaturity of the market will likely lead to ongoing uncertainty. Risks to the lithium price forecasts are balanced over the outlook period. While expansions to production are already underway in Australia and overseas, there are long lead times for lithium mine and brine operations. Moreover, the potential for delays in bringing such large volumes of lithium into production, mean risks remain of persistent supply shortages over the next few years.
- As economies around the world look to reduce their dependency on Chinese imports and develop their own lithium and battery production, increased export opportunities will arise for Australian producers. For example, under US Government’s Inflation Reduction Act a new EV will only be eligible for tax credits when at least 40% of the battery’s critical minerals are extracted or processed from: the US, a free trade agreement partner such as Australia, or North American recycling operations.
- The US content requirement includes minerals such as lithium, nickel,cobalt and graphite. Policies such as these — as well as broader trends inglobal battery and EV production — can be expected to affect tradepatterns for Australia’s resource exports (including lithium) over thecoming decade.
- Site construction continues at Core Lithium’s Finniss Project near Darwin.Mining of spodumene ore commenced in early October, and the companysold ore at a price of US$951 a tonne. The company reports thatdevelopment is on schedule for first spodumene concentrate production inthe first half of 2023.
- Forecast export revenue over the outlook period has been revised upsubstantially. This reflects rapid price rises, faster than expected passthrough of spot prices to contract prices and exchange rate effects.Since the September 2022 Resources and Energy Quarterly, revenuefrom lithium exports in 2022–23 has been revised up by $2.3 billion (to$16 billion), and 2023–24 has been revised up by $4.2 billion (to $17billion)
It is my experience that the Gov prefers to err on the side of caution and would rather underestimate and have a surprise budget surplus, than overestimate and end up with a surprise budget deficit. So I suspect their forecast is somewhat conservative - though this is my opinion only.
Also keep in mind on 19/12/22, when CXO was at $1.05, Macquarie research stated "
we estimate that CXO’s current share price is factoring in a long-term spodumene price of ~US$2,300/t". Quite the stark contrast to the above.
It's hard not to get knocked about during a capitulation, no one likes seeing day after day of red and some people on this forum may have bought in north of $1.80
It's not easy but if you still believe in the business you should try and hold the course, but if you're struggling to sleep at night or it's affecting your mental health, there is no shame in seeking help or cashing out/cutting your losses.
Look after yourselves but know you're not alone, sink or swim we are all on this boat together... fortunately the boat is about to be loaded up with 15,000 DMT of DSO.
(20min delay)