As the author of the opening post to the thread itself, a lot of the discussion above has strayed away from the opening post objective IMO, been looking at what constitutes lithium demand and the growth areas. Look, over a VB or two I am going to summarise a lot of my thoughts I have posted overtime, and some data below may look familiar. Rather than linking too many posts, I am going to add and do cut and past from previous posts of mine in this post. I also am going to transpose what COVID-19 IMO may do to the growth forecasts
1.0 Summary
In terms of my views on COVID-19 below, my view is that were lower growth demand scenarios to the forecasts to transpire, if it happens will be, short term (up to 1 year) IMO and that will impact existing producers mainly (so the likes of PLS are still in for some pain).
IMO Year 2, is the year of catch up as EV sales catch up to pre-virus estimates, on the assumption the virus is contained etc in year 1, sometime.
Then IMO by year 3 are back to the growth trajectory curve previously forecast, meaning EV demand back at trajectory levels. Same theory for all other commodities (with the exception of gold as demand/supply of gold based on monetary values as against physical production need inputs).
So if saying forecasts will be down and not return to forecast values within 2 yars, essentially we are saying the world is in recession and/or slow growth (and I doubt that will be the case as I expect the virus to be contained). If not, might of well move to cash as an investment and not bother looking at day to day movements on the ASX.
Like SARS/bird flu I expect the virus to come under control this year, and that means the timeline to production of viable existing geenfields projects will not change (or be moved no more than 6 months to 1 year down the track to initial production plans). With 2000 GWh of LCE forecast demand in 2030 plenty of scope for a number of new greenfields spodumene suppliers to enter the market in the 2020s, and especially this side of 2025.
2.0 Lithium growth forecasts:
So time to revisit some of the posts in this thread and come to a view on what COVID-19 means for these growth forecasts which were done last year btw (with a trusty VB in hand). The starting basis is this graph:
So, what does 2000 GWh translate to in 2030. In producing spodumene if your average recovery rate is 80% then depending on grade of deposit you will need up to 20.3 operations, if average mine equivalent is Li20 is 1%, (16.2 operations if ore feed grades 1.25% Li20), with each operation having the equivalent hard rock equivalent ore feed capacity of 5 mtpa. Obviously far more if the configuration is 2 mtpa ore feed capacity operations. If recovery rates are lower then need more mines.
Obviously what I am saying is I doubt the existing hard rock producers plus brine producers are able to scale up so as to prevent new greenfield entrants entering the market by 2030. But that is IMO IMO This will be more so IMO if solid state batteries enter the market given graphite in the anode of the battery has at least the same amount of kg as lithium needed in lithium ion batteries (which means if lithium replaces the graphite in batteries well you can expect at least a 50% increase in the lithium need in batteries (but I suspect solid state batteries will be in the higher end market should the technology prove successful, meaning NCM and NCA battery technologies for say EVs will continue to be the predominant go in the 2020s IMO).
The other factor that I think the above forecasts are understating is in the energy storage stationary market. I suspect as economics improves for renewable energy, i.e. solar on your roof for example is becoming more attractive, that more households will have access to battery storage technologies so as to store energy from such things as solar panels so it can be used at night etc. Again that is IMO
So the point is if demand forecasts hold up then the world is going to need quite a few greenfields deposits to get up, and the ones that will get up are high quality hard rock deposits, like AVZ and probably LTR btw IMO
The need for more and more new hard rock greenfields deposits will also be more pronounced if Atacama cannot sort out its water issues btw as well.
Hydroxide versus carbonate - impact on spodumene demand(hard rock): Here are the specs for battery grade lithium carbonate and Fe is in PPM terms at 10 or essentially 0.001%,with LiCO3 been 99.5%: http://palith.com/english/product/index.php?act=&sid=23
The specs for hydroxide are tougher than carbonate is the point so when it comes to cost estimates between brines and hard rock plays well it does boil down to meeting the specs of hydroxide as not all hard rock or brines can get there at a reasonable cost. For hard rock the ones that are likely to get there are the deposits that are high grade and have low impurities in a vertically intergrated concept. The continued move to NCM (and NCA) IMO is going to clearly accelerate the process of hydroxide been required in battery chemistries, because it is these battery types that are the basis of increased hydroxide needs. This article sums that up well and I'll just take this quote from it - https://www.argusmedia.com/en/news/1836977-lithium-hydroxide-demand-to-overtake-carbonate-aabc:
"But the higher nickel content in NCM cathodes can present challenges in terms of chemical stability. If the metals are used in a ratio of six parts nickel to two parts cobalt and two parts manganese (6-2-2), or 8-1-1, rather than 1-1-1 or 5-3-2 as in the past, the chemistry requires lithium hydroxide rather than lithium carbonate. Cathodes using an 8-1-1 ratio are some way from commercial viability, owing to safety problems with the chemistry, delegates heard.....As nickel content approaches 60pc, the higher temperature required to synthesise cathode material with lithium carbonate damages the crystal structure of the cathode and changes the oxidation state of the nickel metal. But lithium hydroxide allows rapid and complete synthesis at lower temperatures, increasing the performance and lifespan of the battery, said Marina Yakovleva, global commercial manager for new product and technology development at lithium producer Livent."
Without hydroxide all hard rock plays will be possibly done and dusted (but see SSB comments below) is my point, because if the battery type doesn't require hydroxide (but carbonate) well that is certainly the domain of brines.
Solid State Batteries - impact on forecasts and hard rock supply Solid State Batteries will, from my understanding, require a lithium carbonate input, but not the type of lithium carbonate people may think. The key is not about comparing carbonate or hydroxide here in the now IMO, because IMO SSBs are going to be about controlling the impurities, because conceptually SSBs are going to need very very low impurities (probably of the scale and better of those of technical grade applications in the higher end markets you see for lithium per se). If others have comments please share as a debate worth having at some point.
The idea behind solid state batteries is to increase energy density in a battery, meaning you have smaller batteries but having a higher range. To increase energy density IMO means the battery has to be more pure, meaning the impurities in the battery would need to be less than those associated even with hydroxide or else the charge in the battery and release of energy is adversely impacted. Hence some of the comments you read that SSBs can be potentially unstable IMO. With solid state batteries you are also relying on a solid, possibly polymer, metal electrolyte instead of a liquid electrolyte and replacing graphite in the anode as well.
That is, higher density and efficiency means lower impurities and differing cost structures because the smaller a battery gets but gives you the same bang, the more unstable the battery can become if its pureness is not increased IMO etc etc. In other words, I suspect SSBs (and the carbonate input) are going to need impurity levels within the scope of higher end technical grade carbonate (TG) applications (which is what you use in say glass and high end use where impurities are low) - hence my comment around cost and that these batteries will probably be used in the higher performance end markets, whilst NCA and NCM batteries will remain the predominant battery types for ordinary consumers of EVs. Chemical grade (CG) lithium carbonate is what you currently use in batteries, albeit in effect converted to hydroxide for NCA and NCM battery types, but the difference between TG and CG is essentially simply impurity levels.
3.0 COVID-19 and impact on lithium forecasts
Refer back to the summary for initial viewpoint on impact on demand. The below details potential impact on suppliers, been existing producers and explorers seeking to be producers..
Upfront, IMO, the thing that stuns me the most by people posting on these threads, is somehow they think AVZ failing (and say LTR failing) is a good thing. They are completely misinformed given what a new greenfields development in the market means is actually the lithium market is improving and new supply must come onstream to meet demand. If the lithium market improves, price will also improve, and if price improves the likes of existing producers such as AJM and PLS can survive in their own right, full stop. It is a very strange position some posters bring to this thread and other prospective greenfields lithium plays.
If I was to invest in an existing producer btw, and the choice was between AJM and PLS, it would be AJM btw, for reasons here, but not relevant again to this thread (but anyone interested can see the embedded posts): Post #: 41474370 (2nd half of this post) Post #: 43358829 (positive EBIT/DA)
My point is if AJM doesn't survive because of the impact of COVID-19 on economic activity and hence price projections been further reined in, I doubt PLS will survive in its own right as well.
PLS's problems IMO are essentially that it has not achieved its DFS recovery rates and opex costs, as its DFS was actually based on US$550 per tonne so its losses are because it hasn't met DFS cost targets but lets hope the capex program it has fixes that issue up btw - again if anyone is interested I posted this in this PLS thread Post #: 41417087.
AJM has issues, but whilst not achieving its DFS recovery rate yet, it has contained some of it costs (refer embedded posts above). So an increasing spodumene price is the key, and for those yabbering COVID-19 virus in this thread, as it impacts lithium demand, well the point is the longer it takes for lithium forecasts to retrack the 2019 estimates the bigger strife PLS/AJM and other high cost producers may find themselves in. Lets just hope that COVID-19 is a short term blip on commodity pricing and balance will be returned All IMO
4.0 AVZ's role in the emerging lithium market
If you go back to the opening post in this thread, I stated that the thread is about lithium demand and transport is something we should talk about elsewhere. The only thing I will say is the Road to Manono thread from this post - Post #: 43500526 - onwards and backwards I posted a few weeks ago shows how the transport road map in the DRC has changed, and that AVZ will be using the same rail route as Ivanhoe. There are a number of posts from this embedded post forward around transport routes etc, but ultimately it is about the DFS here on which route is appropriate.
It is obvious that AVZ will need to attain equity for Offtake Agreements and/or Equity for Offtake Agreements with some external bank funding to fund the project's development.
If the DFS shows costs of US$300 per tonne or below, the project is obviously profitable if prices are above US$500 to US$550 per tonne, but if funding is not available that also implies that the lithium demand forecasts have not come through, meaning prices will not return to the US$600 - US$700 per tonne trend anytime soon, prices which have more relevance to the survivak of some of teh existing hard rock producers btw IMO IMO IMO IMO. Again that is not a debate for this thread but if anyone is interested this is how I saw the AVZ's DMS project economics in this other thread - Post #: 42983272. That is IMO btw
Some people have some strange logic that explorers don't get funding to become miners, essentially implying no explorer will become a miner, a ridiculous proposition. At the end of the day it is the commodity that matters and whether there is a supply need for it. If there is a need it will be funded, provided the economics stacks up. Orelse, explorers with potential greenfields developments will never be miners. How did PLS and AJM get funding, well shortfall in lithium supply = funding for new greenfields development, fullstop. Yes funding markets will be tight, why because you need to have projects that show a profit and ensure that the demand and sales are there, full stop IMO IMO.
Ultimately high grade, homogeneous deposits with low deleterious elements will be required by the market. IMO if the market cannot accommodate AVZ this side of 2025, and preferably within its own 2021/22 proposed start date, then IMO what that means is that the market has slipped in its timeline to get on the trend line to 2000 GWh of demand need by 2030. What that means is a longer period of low spodumene prices, which will be a continual headache for existing producers.
For explorers like AVZ (and LTR) who are seeking to be miners, yes it will be a headache but the world still moves on but cash is conserved - in terms of AVZ the DFS will be there, infrastructure in the DRC will continue to improve and as the lithium sector is shaken (i.e. low prices will destroy the high cost prodycers), AVZ will continue to remain ready for its entry to market (because provided the transport costs come in at US$200 per tonne, it will be a very low cost producer so its entry to market relies on the demand projections coming through is my point.)
5.0 Falling oil prices Falling oil prices are one factor that can impact EV takeup, unless costs efficiencies of EVs continue to improve - the opening post to this thread deals with those aspects.
Why - falling oil prices make the running costs of ICE fall, noting a lot of the studies I have seen between the life cycle costs and benefits of EVs compared to ICE from an individual point of view is based on a higher petrol price btw. Obviously, the other consideration and balancing act is that governments worldwide have been seeking to internalise the environmental costs of ICE in charging regimes and/or are also moving to ban ICE a lot earlier in their countries than previously forecast and that means the longer term forecast lithium demand figures (and as they translate through to required mines developments) remains as per the earlier section in this post IMO. But that is a guess too, but I would be expecting EV costs to be coming down as economies of scale through increasing EV sales takes hold btw.
6.0 Conclusion
The point is we can agree that the future for lithium does look bright, but the short term is cloudy, for those deposits that have high grade and low deleterious elements. Whilst the short term may be cloudy the outlook is still very good. Explorers will be less impacted than producers in terms of profit/loss outcomes if the short term outlook extends into the medium term.
Returning to lithium demand, the question is how much to the right (i.e. the lithium forecasts are now below the trend line this year to what was anticipated this year as a basis for trending to 2000 GWh in 2030) they are, and whether that difference can be recovered in year 2 and 3 for example to move back to that trend line.
A lot of drivel above, but this thread as I said is about lithium demand. BTW I write essays with endless VB in hand.
All the above is IMO for avoidance of doubt.
All IMO IMO IMO IMO
AVZ Price at posting:
4.8¢ Sentiment: None Disclosure: Held
