Here are the winners and losers from Argentina’s lithium tax
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Western Australia’s hard-rock lithium companies have been hanging out for good news to stop the share price rot that set in two months ago on investment bank calls that the lithium-ion battery boom would not soak up the wall of new lithium supply.
They got what they wanted this week with news that taxes on lithium and other commodity exports would be imposed by Argentina as part of the country’s emergency economic austerity measures.
Argentina is a competitor to the WA hard-rock producers from brine-based operations.
An export tax on the sector – along with other commodity exports – could be expected to dramatically slow the country’s forecast growth in lithium production.
The export tax amounts to an 8 per cent duty on sales.
While the government has said it would be removed in two years, the damage to the confidence of the lithium producers and developers in the country could be much longer term.
Citi’s commodities desk said that while the proposal is to remove the tax once the economy stabilises in two years, there is an inherent risk that it remains in place longer.
“This is potentially positive for lithium since it will make projects less attractive.’’
West Australian lithium ‘mecca’
Credit Suisse’s take on the export tax was that it “highlights the risk of operating in South America versus the hard-rock mining ‘mecca’ in the tier-1 mining jurisdiction of Western Australia.
“For us, this announcement is an endorsement of the lower risk profile of the hard-rock miners in the ongoing battle of hard rock versus brine.’’
The tax impost is clearly good news for the ASX-listed WA hard-rock producers which have suffered in the last two months on fears that a wall of new supply would swamp lithium demand in coming years, sending prices sharply lower.
Pilbara Minerals is down 30 per cent in the last two months, Kidman has lost 43 per cent of its value, and Altura has dived 28 per cent.
The falls are despite prices for their intermediate hard-rock lithium product — spodumene concentrate — holding on to its value despite the much-vaunted wall of new supply starting to hit the market.
What the export tax has done is to again highlight that aggressive supply growth charts penned by investment banks will not necessarily come to pass because of the sort of disruption and dislocation the export tax in Argentina will cause.
The good news stops here
The good news for the WA hard-rock producers from the export tax is not shared by those ASX-listed stocks with brine operations and developments in Argentina.
Chief among those is Orocobre (ASX:ORE) which went in to a trading halt when news of the export tax was first announced.
It came out of a trading halt and was promptly thumped by the market, plunging 13 per cent to $3.62. It is down 35 per cent in the last two months.
The company put a brave face on the situation, highlighting that the export tax was “temporary,’’ and that the plunge in the value Argentine peso meant the impact would be “counterbalanced to some extent’’ by the benefit on its peso denominated production costs.
But it confirmed the tax would be imposed with immediate effect at a rate of 3 pesos for each $US1 of export value.
Based on current exchange rates, the impost equates to a duty of about 8 per cent on its exports of lithium, as well as its exports of borax.
ASX-listed Galaxy (ASX:GXY) has a foot in both camps. It is a spodumene producer from the Mt Cattlin mine in WA and has plans to develop a brine operation in Argentina.
It fell 3.8 per cent yesterday, taking its two month fall to 22%.