Lithium fulfilment Lithium's move to the mainstream of global...

Lithium fulfilment

Lithium's move to the mainstream of global resources ambition remains a work in progress but there is an increasing body of evidence that reinforces this is an industry that has moved from potential bubble to productive fulfilment.
The consensus among the lithium producers is that the spot market in China is not the weather vane that it is in more mature bulks markets and that there is a secular shift in demand at play. Some level of price reversion is inevitable given that the new production the market will need by 2025 and beyond will arrive with the lumpy timing characteristic of large-scale resources business.

Tuesday brought affirming news from two of the sector's rising stars in the form of a promising profit and bullish pricing outlook from Orocobre and a capital investment-firming sale of a set of Argentine tenements by Galaxy Resources.
But it says a lot about how lithium as an investment class continues to polarise the resources investment community that, despite consistently positive news flow, both have consistently been targeted by short selling. Lithium remains a bulls and bears game. You either believe lithium will embed itself in the electricity storage business for the foreseeable future or you receive it as an asset class that remains vulnerable to over-investment, over-production and to the same sort of technology-driven market disruption that invited that investment in the first place.
The fact is that power storage is going to be a competitive game and the lithium business will need to get ahead of the demand-supply curve if it is to protect its share of market. The battery business is reaching a BetaMax vs VHS moment and the big bets being laid right now appear to include lithium.
Meanwhile, the likes of Galaxy and Orocobre are getting on with business.

On Tuesday, Galaxy announced a non-binding agreement to raise $US280 million ($380 million) through the sale of the northern portion of its Sal de Vida tenements to POSCO in late May and it told the market that the deal was running ahead of schedule earlier this month. And yet, such is the baked-in scepticism of the lithium bulls that the shorts were still left scrambling for coverage after the flagged deal was made binding on Monday.
Needless to say, POSCO is the quality of international investor that can be trusted to deliver on binding agreements so it would be fair to say that Galaxy will certainly get its money and very likely bank the synergies of aligned development of Sal de Vida that were promised in Tuesday's announcement.
Galaxy's plans to develop its southern share of Sal de Vida are well advanced and now seemingly well funded. But, outside of putting the finishing touches to the revised feasibility study that was delivered in May and that flagged a $US471 million project that included a $US31 million potash revenue stream, managing director Anthony Tse is busy marketing his project to potential partners,
According to Tse a long list of dozens has been whittled down to seven interested parties whose interest is sparked by a variety of different strategic needs.
"It is hard to pin down passports of backgrounds," Tse said on Tuesday. "But we have had the gamut of interested parties from end users to industrial materials companies to other industrial groups and other miners," he said.

Of the potential offered by productive alliance with his new Korean neighbour in Argentine lithium, Tse said:
"We have exchanged a lot of ideas with POSCO and we recognise that both parties are playing the long game.
"Where we have been talking a lot is about the opportunities for synergies in things like logistics, utilities and infrastructure. If it makes sense, if the cost of building them is one for us and the cost is one for them but the cost of investment in shared services is 1.6, then it makes obvious sense."
And what of the over-production thesis that feeds the bubble theory that sustains the lithium bears?

"We are aiming to produce 25,000 tonnes of lithium carbonate. The consensus estimates of demand in 2025 is 800,000 to 1 million tonnes per annum," a cool but ever so slightly irritated Tse explained.
"To match likely future demand the industry needs investment of $US9-$US12 billion. Track what has been raised over the last few years in public and private equity and you will probably fall shy of $US4 billion. So where is the rest coming from?"
On the available evidence, that is not a problem that Tse need worry too much about given the maturity of the JP Morgan-run marketing of his stretch of Sal de Vida and the contribution POSCO is going to make to Galaxy's financial security.
"One of the things that is under appreciated about this sector is where the electric vehicle sector is going," Tse continued. "This is not just another normal cycle or growth curve. This is a fairly disruptive type of growth. The vast majority of the AEMs [automotive manufacturers] globally have some sort of electric vehicle strategy.
"Around the world the emissions standards are getting tougher and tougher and the environmental controls are getting harsher. The existing manufacturers will not get by with just working on the old ICE [internal combustion engine] models. They are being pushed to change by governments and customers."