Key PointsPlummeting lithium prices have forced Arcadium Lithium...

Key Points

• Plummeting lithium prices have forced Arcadium Lithium to mothball its Mt Cattlin operation, signaling broader industry challenges as most Australian lithium mines become unprofitable at current prices
• Despite market pressures, companies like Pilbara Minerals continue ambitious growth plans, betting on a future price recovery while depleting cash reserves in the short term
• Mineral Resources faces critical decisions with all three projects struggling for profitability, compounded by high debt and significant planned capital expenditure for FY25

Citi's cost curve

The Citi report said there's no industry standard for reporting costs in the lithium sector. Currently, most miners report 'free on board' (FOB) costs, which include expenses up to loading the ore onto transport vessels.

To provide a more comprehensive cost analysis, Citi developed a proprietary methodology that incorporates additional factors such as royalties, sustaining CAPEX and growth CAPEX.

The first chart examines C1 FOB costs plus freight, royalties, and sustaining CAPEX for the June quarter. At average spodumene prices for that quarter, most companies remained profitable, except the now-shuttered Mt Cattlin operation.

The second chart builds on the first by including growth CAPEX. This addition significantly alters the cost profile, rendering all operations unprofitable based on June quarter average spot prices, except for IGO's Greenbushes project.

The final chart projects the all-in cost curve for FY25. At current spot prices of US$750 per tonne, nearly all operations appear unprofitable.

Key takeaways from Citi's analysis

#1 The high cost of growth in a challenging market: Australian spodumene producers are looking past current pricing and investing with the belief that prices will eventually return to long-run price estimates of US$1,500 a tonne. As Pilbara Minerals CEO Dale Henderson explains "it's about building out capacity because we know the long term it's required ... in both expansion cases, it takes us further down the cost curve."

Despite these growth aspirations, Citi's all-in costs forecasts for PLS sit well-above current spot prices. The analysts expect these investments to continue to chip away at the company's cash balance, falling to just $1 billion in FY25, down from $1.6 billion in FY24 and $3.3 billion in FY23.

#2 Reassessing growth plans in a depressed market: The current price environment will force companies to reconsider their expansion plans. Pilbara Minerals' pre-feasibility study for its P2000 expansion at Pilgangoora illustrates this dilemma. While the expansion shows promise at US$1,500 per tonne and remains viable at US$1,000 per tonne, its profitability at current prices is questionable.

#3 Potential for further operation suspensions: Citi's FY25 all-in cost curve estimates suggest that all three of Mineral Resources' projects (Bald Hill, Wodgina, and Mt Marion) will struggle, even if you exclude growth CAPEX. The situation is particularly challenging for MinRes, which faces a heavily leveraged balance sheet with approximately $4.4 billion in debt and plans for almost $2 billion in capex for FY25. Managing Director Chris Ellison has already hinted at tough decisions ahead.

"Given the stubborn lithium price and our remaining investment in Onslow Iron, we will continue to take a conservative approach during FY25, deferring expansion projects and focusing on cost reduction and cash preservation," he said.

“There’s no lithium companies making money. We’re just battening down for the downturn … we feel like we’re dragging our feet along the bottom at the moment. So we’re just going to make sure that we throw everything off the deck, as we’ve done many times."