WR1 General Discussion, page-32279

Good article concerning what it would take for a Lithium comeback.

It has been an annus horribilis for the lithium market.

A year ago, the market was humming along — with industry analysts, companies and commentators projecting a great opportunity for Australia, and for Western Australia, in particular.

McKinsey¹ estimated the opportunity at US$10 billion per year for Australia to capture a share of the lithium hydroxide market.

Rapid expansion of mine supply would be accompanied by parallel ramp-up of lithium hydroxide converters, in triplicate in WA.

But then, as for alumina² and nickel³, things got a lot tougher for local lithium players.

Low product prices, accompanied by lower share prices, were joined by higher costs, delays, and ramp-up challenges at the nascent hydroxide plants.

Albemarle recently put it simply: "The market is not improving⁴".

So, in sporting parlance, what would it take for the comeback for WA lithium to be on?

Only four things need to be true to still capture the highly sought-after, ‘downstream dream', in Australian lithium.

1.The lithium demand growth story remains intact.

Despite the current market malaise, the structural fundamentals of the lithium demand-side market ‘break out' remain in place.

Your scribes used to track the 2025 forecast lithium market demand for several years — not to specifically ‘believe' the forecast — but just to watch how the consensus forecast changed over time.

About a decade ago, lithium demand by 2025 was forecast to reach around 200,000 tonnes of lithium-carbonate-equivalent (LCE). That number was then gradually revised upwards by market analysts periodically to 250,000 tpa, then to 300,000 tpa, and then to 500,000 tpa.

The right answer? We're not quite in 2025 yet, of course, but the typically forecast market demand now sits at around 1,500,000 tonnes LCE, although exact numbers will vary between analysts.

That's only 2025. With lithium central to the "net zero by 2050" global mandate, "we ain't seen nothing yet".

Our Verdict: True.

2.Challenges common in lithium project delivery globally.

The world is not short of lithium in the ground, which is a huge positive (although many see it as a negative) to facilitating the build-out of a significant new industry. The world is also not short of iron ore — but that has not stopped Western Australia from leading the world. The same opportunity exists in lithium in the decades to come.

Aside from South American brines, Canadian pegmatites, recycling, and non-traditional sources of emerging supply in clays⁵, geothermal and oilfield brines, Africa has sizeable spodumene deposits, too.

As in iron ore, however, Africa has enormous potential but faces logistical and infrastructure hurdles. Like iron ore, Africa has also an unfortunate penchant to tie up world-class resources in protracted legal disputes.

If such non-technical issues materially delay new project development, the window will remain open for Western Australia to kick-on and delivery multiple new mine developments.

Our Verdict: True.

3.The exploration drill bits keep turning.

Exploration spend by commodity tends to track the relevant prevailing commodity price in a market, albeit that explorers have no direct exposure to prices via current production.

As such, when lithium prices are high, lithium exploration spend is high. Right now, with lithium prices low, there is scarce new capital being raised to keep the drill bits turning.

Luckily, several explorers remain cashed-up from 2023 raises and committed, for now at least, to keep drilling.

If forecast low prices remain for the next 2-3 years, then the biggest risk to Australia's lithium future is that the drill bits stop.

Unfortunately, unless something changes, that outcome appears likely.

Why? Not least because high (and higher) gold prices are the principal driver of exploration activity. If gold exploration dominates the commodity mix across explorers, that's bad for just about everything else on the Periodic Table — including lithium.

Counter-cyclically, now is the time to be picking up lithium tenements for low or zero-cost, albeit we understand that this may not please all investors. Avoiding the ‘buy-high, sell-low' trap is not just a problem confined to the lithium industry.

Our Verdict: False.

4.The WA hydroxide plants eventually work!

The final ‘what needs to be true' is obvious. Unlike the Western Australian nickel laterite plants of c.2000, the current generation of WA lithium hydroxide plants must overcome their teething troubles.

A lot rides on the Covalent (SQM & Wesfarmers) Kwinana hydroxide plant — as the 2025 flag-bearer for the local industry to ‘get it right' — and to have learnt from those that went before (Albemarle, Tianqi, etc.,) who would not have had this benefit.

Rather than ‘third time lucky' in lithium hydroxide, let's hope it is more a case of ‘third time, very well planned, and executed, on-time and budget, project delivery'.

Our Verdict: Nobody knows!

So, that's it. Only four things must be true for Australia, and WA in particular, to continue to maximise the benefit of a long-term lithium growth story.

Simple really: Well, perhaps not quite that simple after all.

Lithium is dead, long live lithium.