...this is what industry insider Ron Mitchell , MD of Global...

...this is what industry insider Ron Mitchell , MD of Global Lithium expects
* long term sustainable SC price at US$1500-1750/t to allow enough producers to survive
* lithium recession could last 2-3 years


The Big Shake-out: Is this the lithium recession we had to have?
Mining
February 15, 2024 | Josh Chiat

• The lithium downturn could ‘shake out the fluff’ and put the sector on a road to longer term stability: GL1’s Ron Mitchell
• Low prices could see more projects curtailed: ANZ
• Downstream demand shines a light on the long-term outlook for the EV metal

Some people want to do you slowly, as Paul Keating famously told ill-fated Liberal challenger John Hewson in 1992.

Instead, Chinese battery makers have been doing lithium investors very, very fast.

Prices for Aussie spodumene crested at over US$8000/t in the final quarter of 2022, falling to US$850/t in early 2024 as supply outpaced demand growth from the electric vehicle sector.

But one of the WA lithium sector’s leading voices suggests this could be lithium’s recession it had to have, to pull another phrase from the Keating playbook.

In 14 years in the lithium sector including 10 as an executive at the Greenbushes mine and its Chinese co-owner Tianqi Lithium, Global Lithium Resources (ASX:GL1) managing director Ron Mitchell says he’s survived three bear markets.

This one could bring the shakeout that will return confidence and correct volatility in the market, he believes.

“You needed to shake out a lot of the fluff because if you look at you look at the trigger of an $8000 all time high spodumene price, it just triggered this wave of investment into raw material projects,” he said on the sidelines of the RIU Explorers Conference in Fremantle.

“Projects that ordinarily would never have a chance in hell of being sustainable on a long term basis, everything made sense at $8000 bucks a ton.

“Now we’re in a situation where the reality is kicking in, I think investors are far more sophisticated, the market’s more sophisticated and the reality is an incentive price somewhere between, say US$1500 and US$1750/t … allows enough projects to get up but not too many.

“So the market is going to continue to mature from a pricing perspective.
“I probably agree it’s a shake-out absolutely, we needed to have.

“As hard as it’s been in terms of equities being hammered, in the long term maybe we’ll look back two, three years from now and say, well, what happened in 2023 and 2024 is exactly what the market needed.”
Further lithium projects to be curtailed: ANZ

Since the start of 2024 multiple lithium mines have run into trouble, with Core Lithium (ASX:CXO) halting mining at its Finniss mine in the NT, Liontown Resources (ASX:LTR) seeing support from bankers for a $760 million funding package at its Kathleen Valley mine dissipate and the world’s largest lithium operation at Greenbushes in southern WA slowing production.

Tim Robertson, the junior resources relationship manager for WA at ANZ — one of the banks in the Liontown consortium — said more mines would likely be curtailed with supply expected to run ahead of demand growth in 2024.

“To give you a sense of this lithium supply has nearly doubled in the last couple of years and this year ANZ is forecasting that production of lithium will increase by 40% but demand will only increase by 25%,” he told delegates.

“And so whilst lithium still remains long term in demand as part of the decarbonisation journey, in the short term, at least we’re seeing producers whacked with this double whammy of profit margins coming down in a market that’s already over supplied.

“So we may unfortunately see further lithium projects being deferred or existing projects curtailed.”
He said more new projects were also being pushed up the cost curve.

“We’re seeing many mining operations put under severe stress when prices are deflated for long periods. And so we’re looking to fund projects where there’s fat in the game,” Robertson said.

“We’re looking to fund projects where there’s capacity to meet additional cost overruns during construction, or at the very least, we’re looking for projects where we can put in place some structural enhancements that can reduce the cost risk.

“Things like hedging, or projects that are lowly geared will have a lower cost base to begin with.”