Ground Breakers: And ... we have our first junior lithium deal of 2023

IGO and Tianqi to fork out $136 million cash for lithium junior Essential Metals
Long-serving FMG CFO Ian Wells resigns as executive flux continues at iron ore giant
Miners up despite possible China iron ore price ‘speculation’ crackdown

Lithium has been staring at a still largely hypothetical downward spiral since plateauing in the latter stages of 2022, a reminder for the investors stirred by the exuberant markets of the post-pandemic era that price surges must run out of steam at some point.

Prices for lithium hydroxide and carbonate in China, the world’s key lithium and EV market, are teetering on the edge of a drop below the significant 500,000RMB per tonne level (around US$74,000/t) according to the most recent numbers from price agency Fastmarkets.

That remains high enough to support extraordinary profit margins for miners, no panic stations yet, but is a long way down from the plus-US$80,000/t levels seen for much of 2022’s second half.

While the ceaseless optimism that characterised the ASX lithium sector for much of 2022 has waned in recent weeks (market bellwether Pilbara Minerals (ASX:PLS) is down over 11% on the month), the junior end of the sector is still a growth space.

Look no further than today’s announcement from Essential Metals (ASX:ESS), being taken over by one of the world’s biggest lithium plays, the 51-49 TLEA joint venture between China’s Tianqi Lithium and ASX listed giant IGO (ASX:IGO).

The $136 million, 50c per share scheme of arrangement has been accepted by ESS’ board at a 44.9% premium to its closing price o 34.5c per share on January 6.

It’s chump change for US$19 billion Hong Kong and Shenzhen listed Tianqi and $10.5b nickel and lithium miner IGO. On the surface the prize is relatively small, and other junior spodumene developers will be pricking their ears up.

ESS owns the Pioneer Dome deposit, a little north of Norseman in WA’s Goldfields, an area where lithium speculation is growing with a host of names including Liontown Resources (ASX:LTR), FMG-backed Lightning Minerals (ASX:L1M) and Mineral Resources (ASX:MIN) fishing around.

At 11.2Mt at 1.16% Li2O, Pioneer Dome is relatively modest. But IGO says it is one of just 14 JORC compliant spodumene resources in Australia.

Paying a premium

That suggests incumbent producers are willing to pay premiums to get their hands on spodumene at a time when lithium raw materials are more important than ever.

Essential shares were up 37.68% to 47.5c in early trade this morning. Larger peers Global Lithium (ASX:GL1), Liontown, Galan Lithium (ASX:GLN) and Core Lithium (ASX:CXO) were also slightly higher, with Red Dirt Metals (ASX:RDT) unchanged.

IGO and Tianqi, owners of around half of the Greenbushes mine in WA’s South West, the world’s largest and highest grade lithium operation, hit commercial production at the State’s first lithium hydroxide plant in Kwinana late last year.

They’re clearly on the lookout for more sources of spodumene to convert into lithium chemicals, part of a move from majors to consolidate as much of the lithium battery supply chain domestically as possible.

Currently lithium needs to be shipped to China, Japan and Korea for conversion to chemicals that can be used in EV batteries, but with European and US carmakers keen to source materials from elsewhere and Aussie politicians pressing to turn the world’s largest exporter of raw materials into a future facing commodity hub, there is a growing push to onshore downstream processing.

IGO acting CEO Matt Dusci said the deal provided IGO and Tianqi with an “opportunity to accelerate lithium exploration to bring new resources to production”.

“It also complements the significant growth opportunities within the TLEA business which include the continued expansion of the Greenbushes operation,
the successful ramp up Train 1 of the lithium hydroxide facility at Kwinana and progressing towards the financial investment decision for Train 2,” he said.

“We look forward to supporting TLEA with future work programs over the ESS assets, as the joint venture seeks to bring new resources to production to address the market deficit of raw materials critical for clean energy transition.”

ESS MD Tim Spencer said the deal was a “great outcome” for ESS shareholders, employees, suppliers, Ngadju Traditional Owners and WA, providing certainty in the context of an uncertain economic outlook.

Previously a caesium producer at Pioneer Dome, ESS shares are up almost 85% over the past 12 months. IGO shares were up 1.9% this morning to $14.28, 20.49% higher over the past year.

Essential Metals (ASX:ESS) and IGO (ASX:IGO) share prices today:

Another executive departure at FMG

Fortescue Metals Group (ASX:FMG) has started the year as it spent much of 2022, saying goodbye to a key executive.

Andrew Forrest’s FMG, which finally appointed its new mining CEO late last year in Woodside executive Fiona Hick, has seen a large amount of C-Suite turnover since the billionaire founder announced its shift into green energy in early 2021.

It has been an endless source of fascination for watchers of the $60 billion company, which is attempting to hit ‘real zero’ in its iron ore operations by 2030 and become the world’s largest exporter of its yet to be commercially produced green hydrogen.

Those grand ambitions have been sidled up alongside a period of flux in its organisational ranks, with CFO Ian Wells’ resignation after 13 years at FMG today the latest departure.

FMG says it is undertaking a process to identify a successor, with Wells to wrap up on January 31. It comes after the sudden resignation in November of Fortescue Future Industries CFO Guy Debelle due to health reasons.

Twiggy Forrest said Wells played a key role in FMG arranging finance to expand its capacity to 155Mtpa in 2010.

The then heavily leveraged company has since paid down its debt and transformed into one of the ASX’s key blue chip stocks, with plans to export 187-192Mt of iron ore to Asia in 2022-23.

“I recall fondly back in 2010, when Ian joined our team. The finance team at the time were charged with refinancing our original project finance bonds and the successful refinancing in 2010 enabled the Company to make investments to expand capacity to 155mtpa,” FMG executive chairman Forrest said.

“Since then, we have seen the Company’s balance sheet and capital allocation change from debt repayment to reinvestment and delivering market leading shareholder returns. We now have a strong balance sheet and a renewed focus on growth.

“Ian has been a trusted member of the Executive team which has led Fortescue through a number of iron ore market cycles, more recently the impacts of COVID-19 together with global volatility. Despite these challenges Fortescue has retained a reputation for consistent and predictable performance as well as operating and capital cost discipline.”

Miners opened the day up 1.29% despite a fall in iron ore futures off the back of calls from China’s National Development and Reform Commission to crack down on price speculation for the major commidity, the same thing that happens just about every time the price creeps above US$115/t.

Singapore futures were down 1.25% this morning to US$116.35/t.

Commodities posted a generally strong run on Friday, with copper up 2.6% to US$8590/t and nickel poking its head above US$28,000/t, while gold, tipped by many experts to shine in 2023, was up 1.5% to US$1865/oz.