Lithium sell-off is ’overdone’
- The West Australian
- 23 Jan 2018
- Stuart McKinnon
Shares in WA lithium players continued to fall yesterday even as analysts suggested the recent sell-off was overdone.
Lithium miners and aspiring producers have been under pressure since last week when a raft of brokers expressed concerns about a looming wave of supply which could send prices for the commodity falling.
The selling intensified on Friday after chemicals giant SQM ended a long-running dispute with the Chilean Government that could pave the way for it to lift production from low-cost brine projects in the country from 52,000tpa of lithium carbonate to 216,000tpa by 2025 and 350,000tpa by 2030.
Canaccord Genuity senior mining analyst Reg Spencer said yesterday the recent sell-off of lithium stocks was “probably overdone for a few reasons”.
“It will take a number of years and a lot of capital investment (up to $US1b) to get output to the suggested 216,000tpa,” he said.
Mr Spencer also noted any increase would still need to be permitted by the Chilean Nuclear Commission and the country’s environmental agency.
“Even if that is achieved, we know it takes years to ramp up brine production,” he said.
Mr Spencer estimated the global market would need another 650,000tpa of lithium carbonate equivalent by 2025 (from 230,000t last year) to satisfy demand forecasts, based on an electric vehicle penetration rate of just 13 per cent.
“We could see the potential for some temporary supply imbalances from 2020-2023, but by the mid 2020s we expect the market to return to deficit just as demand really starts to ramp up,” he said.
“In the long term, we need more supply to come online.”
Independent analyst Juan Pablo Vargas de la Vega agreed the sell-off was an overreaction.
While the SQM news had come as a shock to the market, he said aspiring Australian lithium miners still had a five-year window of opportunity to bring their projects online.
This would allow time for them to move into downstream processing and become integrated producers, thereby benefiting from the higher prices on offer for battery-grade materials such as lithium carbonate and lithium hydroxide.
“As an investor, I’d be averaging down (on lithium stocks) rather than selling,” Mr Vargas de la Vega said.
Aspiring lithium producers were the worst-affected stocks yesterday, with Kidman Resources tumbling another 12.5¢, or 6.81 per cent, to close at $1.71, down from an all-time high of $2.23 this month.
Altura Mining retreated 2¢, or 5 per cent to 38¢, Tawana Resources gave up 3¢, or 6.25 per cent and Pilbara Minerals — which posted the biggest percentage increase in shorted stocks on the ASX in the past week, according to Bloomberg — fell another 5¢ to 94¢.
Lithium miner Galaxy Resources closed down 7¢ to $3.45, off an all-time high of $4.54 this month. Mineral Resources arrested its recent decline by closing steady at $18.84.
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