Lithium: Inventory drawdowns at Australian mineral producers

Posted 29th May 2020 in  Industry news.
By Dominic Wells

“Low grade, high cost, old technology, dodgy operation are losing monies. They’ve no options bu sold off cheaper, alternatively close their operations”
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Since the beginning of 2020, we have seen spodumene producers step-up attempts to mitigate the continued decline in lithium prices, principally with a focus on improving plant throughput rates, increasing run-of-mine (ROM) ore grades, and other changes to mine plans. Mineral operations are, by their nature, higher cost and, therefore, producer’s needs to reduce costs are more urgent in the current market.

Roskill View

Before the COVID-19 pandemic, the lithium market was struggling under the pressure of oversupply. Now the pandemic is stifling the anticipated strong demand growth meaning the situation will persist for longer. As lockdown measures have set in, consumer purchasing power and sentiment has reduced, causing a crash in demand for big-ticket items such as EVs. In turn, transport restrictions have compounded lower demand, hampering orders from being delivered or collected. This is having a significant impact on lithium miners within the hard-rock sector and, for some, their continued survival looks uncertain.

What have they been doing to combat this? One easy method to maximise cash flow has been the reduction or, in some cases complete removal, of mining costs on site. This cost typically represents approximately 40-50% of an operation’s all-in sustaining cost, so any reduction will improve cash flow significantly.

The chart above shows changes from Q4 2019 to Q1 2020 in on-site and port stockpiles for three Australian spodumene concentrate producers. While Galaxy Resources and Pilbara Minerals have seen a clear drawdown in materials at their Mt Cattlin and Pilgangoora operations respectively, inventory stocks at Altura’s Pilgangoora mine have remained broadly flat quarter-on-quarter.

The reasons an operation might supplement ROM or spodumene sales with stockpiles are multi-faceted. Using stockpiles will lower overall production costs and is arguably the most likely reason for stockpile drawdown. That said, it is also possible that previously mined ore in stockpiles is of a higher quality than ore contained in reserves. In this case, it would be beneficial to a mine to use this higher-grade material and benefit from the improved recovery results it will yield. Furthermore, producers utilise their mining fleet at, or near, capacity for short periods to build up stockpiles that the plant can then process. This, by its nature, will cause fluctuations in stockpiles from quarter-to-quarter.

However, without replenishment, stockpiles are finite and can only be used as a short-term cost-saving solution. Ultimately, if prices continue to remain depressed, we expect to see additional mine closures within Australia’s spodumene sector.

“LTR KV will be new generation operations; using high tech mining practices, using high grade Li with new technology to create profitable operations”.