Price kills projects - this is an article dated 6th August 2023... I wonder what happens with price of money being this high - Us 10Year bond Yields touching 5%, and lithium pricing in the dumps... in my opinion existing miners will benefit

Will the lithium price rout kill the next wave of Australian mines?

Elouise Fowler, Peter Ker and Brad Thompson

Aug 6, 2023 – 6.03pm

When battery-grade lithium prices descended into a bloodbath on the new Guangzhou Futures Exchange last month, it sent ripples through the Australian bourse, tearing chunks off the share prices of lithium miners and explorers.

More than $1.5 billion was wiped from the value of ASX-listed lithium giant Pilbara Minerals following sharp declines on China’s first futures contract for the metal.

Reactions in the ASX lithium sector are often disproportionate responses to small pieces of market pricing, remarked Pilbara Minerals boss Dale Henderson, pointing to Pilbara’s stock rebounding within a day of the Guangzhou futures meltdown in mid-July.

Battery grade lithium prices have nearly halved since the beginning of the year. Bloomberg

Still, the futures volatility reflects the market is uneasy amid broader fears of a faltering Chinese economic recovery blunting demand in the world’s largest market for electric vehicles, a key driver of lithium prices.

Daily prices in the spot market for lithium-rich spodumene concentrate have collapsed by nearly half in the past six months, according to CRU Group, a London-based mining consultancy.

And the slump has started to show up in company results. Pilbara revealed in its quarterly on July 25 that its earnings were dented by spodumene prices dropping 33 per cent in the three months to end-June compared to the previous quarter.

A few days later, nickel-lithium miner IGO posted record production at its joint venture lithium mine, Greenbushes – the world’s best hard rock lithium mine and located in WA – but its June quarter earnings were dented by a 6 per cent collapse in the spodumene price.

Despite the volatility, the next wave of ASX-listed lithium projects by Allkem, Liontown Resources, Core Lithium, Leo Lithium, Global Lithium, still appear to be viable.

Lithium spot prices would need to more than halve from current spot levels before miners consider deferring projects, according to an analysis of price assumptions that underpin the next wave of lithium projects in WA, the Northern Territory, Argentina, and the Canadian province of Quebec.

Prices and outlook

Lithium prices surged from mid-2021 as staggering growth in EV sales sparked a race among car makers and battery manufacturers to secure the metal.

That triggered a two-year rally and prompted a wave of prospectors to turbocharge efforts to find mines that could feed demand for “white gold” such is lithium’s importance to the clean energy transition.

But earlier this year, fewer orders for EVs in China punctured the rally, causing prices to tumble 47.4 per cent in the first half of the year, according to CRU.

Over the last six months the price has collapsed from $US6000 per tonne on December 31, to rally briefly in May, before closing at $US3700 per tonne on Friday, the lowest price since the beginning of the year.

Prices for lithium-rich spodumene concentrate have “fallen off quite sharply over the past week”, driven by concerns over the strength of EV demand in Asia’s largest economy, said Martin Jackson, head of battery raw materials at CRU.

Spodumene concentrate typically contains 6 per cent lithium and needs to be further refined, usually in China, to be turned into higher value battery grade lithium.

“As for the short rally we saw, it was in response to improving procurement activity from manufacturers – but it seems speculation probably drove prices higher than fundamental support,” Mr Jackson told The Australian Financial Review.

“There’s still a lot of concern regarding the Chinese economic situation.”

The country’s faltering post-pandemic recovery and President Xi Jinping’s reluctance to implement unrestrained stimulus is weighing on the global economy and the lithium market.

Miners and analysts alike aren’t predicting a return to booming spodumene prices as they eye the performance of Chinese demand and the prospect of a flooded lithium market as more projects come online.

But NYSE-listed Albemarle, the world’s top producer of lithium, is forecasting prices will be “relatively balanced” driven by those same increased EV needs, and more supply entering the market which largely offset one another.

During its June quarter earnings call on Thursday, Albemarle said there had been a recovery in lithium prices since May, triggered by customers returning to the spot market after reducing their “inventory to unsustainably low levels” and strong EV and battery production.

China has also regained growth momentum, with June representing the largest monthly EV sales since last December, Albemarle’s chief executive, Kent Masters, said on the quarterly call from New York. But he was reluctant to put a price on the metal: “Ultimately, we would like to be able to forecast and feel good about that, but that’s not in the near term.”

Mr Jackson, from CRU group, agrees that the market is “fairly tight” after the two-year rally sparked by massive demand, triggering a supply shock which jacked up prices.

“The huge deficit that we saw last year has now been brought back to balance. That is partly due to slower growth of demand from the Chinese EV market, exacerbated by very weak electronics shipments.

“But it’s not weak demand growth by any stretch of the imagination. We’re still expecting almost 30 per cent year-on-year growth in demand for lithium this year, and it’s natural for maturing market growth rates to slow.”

Meanwhile, more mines have come into production, responding rapidly to the price rally over the past couple of years, with “several new operations ramping up in Brazil, Zimbabwe and Canada, as well as Australian projects finally coming to capacity”, he said.

“We believe there’s room for prices to rise further in 2023. Prices are expected to average $US4650 per tonne in 2023, but prices will remain around $US4100 per tonne for the remainder of the year,” Mr Jackson said.

UBS is more circumspect. The Swiss bank is predicting Australian lithium spodumene concentrate will fetch an average of $US3750 a tonne in the six months to December 31.

The broker expects spodumene concentrate with 6 per cent lithium will fetch $US3500 a tonne in 2024, $US3000 a tonne in 2025, and $US2500 a tonne in 2026 before dropping to $US1531 by 2030 and settling at a long-term price of $US1300 a tonne.

Analysts at US investment bank JPMorgan predict spodumene will average $US3400 in 2024 and descend to $US1000 in the long term.

Mr Henderson, the Pilbara Minerals boss, said: “There has been a lot of conjecture around short-term movements up and down, but the long-term outlook looks incredibly good.”

Project viability

Just one example of that bullish outlook came in March when Albemarle offered to pay a 63 per cent premium for control of pre-revenue market darling Liontown Resources, which is building Australia’s next big lithium mine, Kathleen Valley, and has inked supply agreements with US automakers Tesla and Ford.

Liontown, which is targeting Kathleen Valley production in 2024, batted away the $5.5 billion tilt, and appears well-placed to weather the price downturn, given the spodumene spot price is $US3700 per tonne.

The definitive feasibility study for its Kathleen Valley hard rock project from November 2021 bases its economics on a spodumene price of $US1392 a tonne over the life of the mine.

The study says the mine, in North East Goldfields of WA, will produce 2.5 million tonnes (Mt) per year over 23 years. And based on an assumed lithium price of $US1392 per tonne, it will deliver a 57 per cent rate of return and deliver a return on capital in just over 2 years.

A sticking point identified by analysts is the cost of building the mine has almost quadrupled in three years. In December 2019, Liontown forecast the mine would cost $240.5 million to build, but that is now $895 million. On Sunday, Liontown boss Tony Ottaviano declined to comment on the project cost, speaking on the ground from Kathleen Valley.

Leo Lithium, which holds a dual listing on the ASX and Frankfurt stock exchanges, is developing a hard rock lithium project in Mali which is set to come online in 2024.

The definitive feasibility study for its Goulamina mine from June 23, 2022, says the mine will produce 4 million tonnes per year when ramped up to full tilt, over at least 21 years. It will cost $US325 million to build, with an assumed lithium price of $US1250 per tonne for the first five years and $US900 per tonne thereafter.

Global lithium, which is developing a hard rock mine about 100 kilometres east of Kalgoorlie in the Goldfields region, delivered a scoping study for its Manna project in February 2023.

The study says the mine could operate on an assumed lithium price of $US688 per tonne. The miner is embarking on a definitive feasibility study.

ASX-listed Allkem, the lithium producer formerly known as Orocobre which merged with New York Stock Exchange-listed Livent Corp for $US10 billion in May, is developing the James Bay hard rock lithium mine in the Canadian province of Quebec. Allkem expects the mine to come online in the first half of calendar 2024.

The definitive feasibility study for James Bay from December 2021, says the mine will produce 321,000 tonnes a year over 19 years, cost $US285.8 million to build, and based on an assumed lithium price of $US950 per tonne, it will deliver a 35.2 per cent post tax rate of return, delivering a payback in nearly three years.

Meanwhile, Core Lithium became Australia’s newest lithium exporter in May, but revealed in late July its plan to develop multiple small, adjacent mines will take longer than expected to deliver, sparking a 15 per cent slump in Australia’s second-most shorted stock.

The definitive feasibility study for stage one of its Finness project, south of Darwin, from July 26, 2021, says the mine will produce 7.4 million tonnes over eight years, and cost $89 million to build. Based on the assumed lithium price of $US743 per tonne, the mine will deliver a 47 per cent rate of return, and a return on capital in just over two years.

All eyes will be on China’s consumers over the coming week, as the market warily eyes the whether Beijing’s stimulus hits the spot.