Lithium market ‘desperately short’ and more margin is going to miners, says bullish Brinsden

Pilbara Minerals chief eyes another spot sale as he ramps up second plant. Plus, Sunstone soars on ‘major’ gold-copper find and St Barbara spurned in offer for neighbour Kin.

7th October 2021

Barry FitzGerald

Share Article

The lithium stocks have been trading well off their highs in recent weeks.

The broader equity market weakness in response to fears over the global economic impact of shortages and rising costs for good old-fashioned carbon sources of energy have been cited for the hit.

It kind of works if the EV buildout was coming to a screeching halt, which it is not. If anything, governments can be expected to insulate the booming battery space from the energy shortages/rising costs, as looks to be the case in China.

Given the reality that the boom in demand and pricing for lithium is not over by a long shot, does the sell-off in lithium stocks represent an opportunity?

Do those who missed out on the lithium equities surge earlier this year need to start thinking about catching the second bus before the year rolls by?

Pilbara (PLS) CEO Ken Brinsden does not make calls on equity valuations. But he was happy to share his view this week on the lithium market.

“This phase of the cycle is with us for quite some time yet because the market is so desperately short of lithia units,” Brinsden said.

“It means that more of the margin is going to be passed upstream to the miners as the end-users set about securing supply.”

As a producer of spodumene concentrates to the convertors who process the material into lithium hydroxide and carbonate for use in batteries, it is the spodumene price that matters for the company.

It can be said that concentrate pricing under long-term contracts remains at pretty extreme levels of around $US1,500/t, with the smaller but developing spot market at about $US2,400/t. It also seems apparent that end-users are being pragmatic about resetting contract prices to reflect the super tight market conditions.

“Given that we were only getting $US360/t 12 months or so ago, it is pretty amazing,” Brinsden said.

Pilbara is looking to grow the spot market through its BMX trading platform. It is the initiative that set the market alight in recent months when bids for its first two sales were massively ahead of the ruling prices.

Brinsden said that all things going well, the winning bid for a third parcel of spodumene could be announced by the end of the month.

His mention of all things going well is a reference to progress in the recommissioning of the 200,000tpa Ngungaju plant by Pilbara.

It sits adjacent to Pilbara’s 380,000tpa Pilgan plant and was acquired by Pilbara for the knockdown price of $A240m when the previous owner Altura fell victim to the tough times in the business during 2018-2020.

Ngungaju’s output will give the BMX more material to sell, delivering welcome transparency in the lithium market for all to see.

Pilbara got as high as $2.53 a share a couple of months ago. Confirmation of the restart of Ngungaju – and the continuing extremely tight supply of spodumene – saw the stock pout on 12.5c or 6.6% to $1.99 on Thursday.

Brinsden’s take on where things are at in the lithium market, and how Pilbara expects to benefit, will be the focus of his headline presentation at the RRS-MiningNews.net “The Boom in a Room” conference in Perth next Thursday and Friday.