Lithium price peaked in November 2022, has been falling over last 12 months, China spot lithium carbonate price has already fallen by 75%, its futures price fell 80%. China leading lithium compound producer, Ganfeng share price fell by ~68% from its peak. ALB stock price fell by 65%. It's obviously lithium sector is a downturn, and very likely is currently in the bottom range of the cycle. A typical cycle, commodity price drops dramatically, usually by 70-80%, then bounces hard afterwards.
There're many similarities between iron ore and lithium. Both demand is driven mainly from China, and China is heavily relying on importing to meet its high growth demand. Iron ore price was only around US$20 per ton, China urbanization drove iron ore price to $200/t in 2008, GFC lead it crash to $62/t (-69%), but then bounced to $188/t in 2010. Another big cycle in iron ore happened in 2014, dropped from $140/t to as low as $39/t in late 2015, the bounced to $95/t in 13 months. In 2015 where iron ore price kept falling, and oversupply was the main worry, price outlook was very pessimistic, some analysts predicted iron ore price would stay $40/t and never will touch $100/t again, the worst one even predicted iron ore price would fall below $20/t.
Here were some institution price forecast in 2015:
CitiGroup: US$36/t
Goldman Sachs: US$52/t
HBSC: US$54/t
JP Morgan: US$50/t
World Bank: $63/tBUT iron ore price recovered quickly, even hit a fresh record of $229/t in 2021, currently iron ore price is sitting at $133/t. Where production cost for the big four global producers was around $20/t.
When iron ore price fell hard in 2015, I believed long term iron ore price should be at least US$60/t. Here was my post back in 2015,
View attachment 5750503Currently spot China's lithium spodumene concentrate (6%, CIF) price is US$1,945/t, fell by over 70% from its peak. It's likely to drop a bit further due to gap between the China spot and Futures lithium carbonate prices, imo, the weak China's lithium futures price is mainly attributed to anticipated Chinese New Year holiday season. I noticed Chinese lithium futures price has recently stabilized, after fell 80% Which is in line with the bottom level of the cycle. I expect lithium price to bounce hard next year.
Back to LTR, at $3/share, it's an obviously very generous price especially in the downturn cycle, imo.
Gina is paying top dollar for her strategic reason, spent $1.3b for 19.9% stake, majority of her shares were acquired at $3/share, after she injected further $75m at $1.80/share, brings her average cost down to around $2.86/share base on my estimate. The $365m placement was an emergency one after ALB pulled the takeover offer, it was a double whammy, crashed share price to currently very attractive level, I believe. The $365m at $1.80/share was fully underwritten by institutions. Also, the Chairman is subscribing 6m shares at $1.80 per share, pending AGM approval by shareholders late this month.
The current development in the lithium industry is very interesting, despite crashing lithium price, and lithium stock share price, industry merge and acquisition activities are very active. SQM offers a significant premium for AZS at $3.50/share, then Gina bought 18%, Chris/MIN joined the party, paid even more, at around $4/share. AZS only owns 60% of the Andover lithium project, and SQM already owns 19.90% of the AZS, but still did not prevent Gina and MIN from buying AZS shares.
So what will happen after LTR share price dropped from $3.20 to current $1.47?
Is Gina still interested in?
Will other parties like MIN buy LTR shares?
MIN is currently in a buy spree for lithium projects, DLI, WC8, AZS, A40......
Livent CEO said just weeks ago, Livent will look to acquire junior lithium producer in Western Australia after completing the merge with AKE. So we will have another predator soon.
AZS' Andover project on a 100% basis, is currently valued at $3.08B.
LTR's current enterprise value is around $3.13B, is currently in the middle of construction (55% completion), targets first production mid 2024. LTR has already spent around $508m (on PFS, DFS & construction) since defined JORC in late 2019. AZS is targeting maiden JORC resource in Q1, 2024.
LTR is around 4+ years ahead of AZS in terms of project development, but is valued at less than AZS' Andover on a 100% basis. I think this valuation gap will be closed.
Another factor, SPP usually posts a negative effect on share price, once SPP is done and dusted, share price usually recovers.
Yesterday, another ASX lithium developer, A11, owns 50% of Ghana lithium project, completed DFS, waiting funding to commence construction. The rejected takeover offer is at 63% premium, valuing its resource at $713 per ton.
Currently LTR is valued at $540 per ton on a resource base. So an earlier stage and smaller African lithium developer is offered at higher than LTR's.
View attachment 5750353Another factor to consider, lithium demand has been more than doubled over last 3 years, still anticipate an exceptional growth over coming years thanks to growing electric car sales led by China.
China new energy vehicle penetration rate was only around 1% in 2016, accelerated in 2021; China NEV sales were 6.8m units last year, is expected to hit 9m units this year, 14m units next year; might hit 32m units in 2030 in China alone. Roughly, 1m EVs require around 50kt LCE, or 1GWh requires 850tong LCE.
The market can be irrational, but it can't remain irrational for very long. Where the market priceed stocks at an irrational level, it usually presents great opportunities as well.
All imo and always do your own research. GLTA.
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