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Mining
Chalice Mining (ASX:CHN), which has raised well over $200 million from investors to bankroll exploration in the West Yilgarn since making the Julimar nickel and platinum group metals discovery on farmland just 70km northeast of Perth in early 2020, is the latest battery metals stock to tighten the belt in response to sliding prices.
And in a rough morning for one-time market whisperer Tim Goyder the lithium developer he chairs, Liontown Resources (ASX:LTR) has also eaten a more than 20% loss after revealing the collapse of a $760m funding package for its Kathleen Valley lithium mine and the deferment of a planned ramp up from 3Mtpa to 4Mtpa.
Goyder is also the top shareholder in Chalice and used to be its chairman, but has seen the value of his investments go south since last year, when intervention from Gina Rinehart scuppered a $6.6 billion takeover of Liontown from Albemarle that would have netted him almost $1b in cash.
Albemarle has since sold its minority LTR stake to raise $120m as it conserves cash amid an 80% drop in lithium prices.
Based on the most recent market disclosures for Goyder’s holding in Liontown, the value of his holding dropped $85m with this morning’s wipeout. Rinehart and her Hancock Prospecting is now on sitting a massive loss on the $1.3b she spent building a near 20% stake which blocked Albemarle’s bid last year.
And a sign of the swift turn against the previously booming WA nickel space, which comes after a major scale back of production at the large Ravensthorpe nickel laterite operations, closure of Panoramic’s (ASX:PAN) Savannah mine and flagged cutbacks in BHP’s (ASX:BHP) Nickel West business, Chalice will cut its expenditure by 40% from $5m to $3m a month and slash executive pay and director’s fees, the latter by 25%.
It will demobilise drill rigs in a move that will save $29m on last year’s spending and cut corporate costs by $2.2m, responding to wintery conditions in the nickel and palladium markets, the two key commodities in its polymetallic Gonneville deposit.
Promoted as the largest nickel sulphide discovery in Australia in two decades and its first major platinum group elements find, Gonneville was highly touted as a tier-1 battery metals deposit which opened up an entirely new exploration frontier on the previously overlooked western margins of the Yilgarn Craton.
CHN raised $70m from large institutions as recently as May last year at $7.30 a share. But its stock has been in freefall since after a tepid response to its scoping study and criticism from investors of the above spot market commodity prices used in the first economic assessment of the Julimar project, not due for an FID until 2026 and production until 2029.
Once worth over $3b, CHN opened trading today at $1.07, capped at around $416m.
That drop has come alongside a dramatic drop in commodity prices, with LME nickel prices falling from over US$30,000/t in early 2023 to a touch over US$16,000/t today in response to a structural shift in supply-demand dynamics from a flood of cheap nickel out of Indonesia, while palladium prices of US$951/oz are less than half of the US$2000/oz base case used in the Julimar study.
Meanwhile, Andrew Forrest owned Wyloo Metals also revealed it would put the Cassini mine near Kambalda into care and maintenance by May, around a year on from a $760 million cash deal to acquire its owner Mincor Resources.
It will stem supply of fresh nickel ore to BHP’s Kambalda concentrator, which only refired its main processing circuit on the resumption of Mincor’s operation in the past two years and where Wyloo is the main ore supplier under a supply arrangement stretching to 2025.
Liontown, which is now trading at under a third of Albemarle’s $3 takeover offer last year, this morning said it would defer plans to expand the scale of its Kathleen Valley mine from an initial 3Mtpa underground mine to 4Mtpa in response to collapsing lithium prices.
It comes amid a more than 80% fall in spodumene concentrate prices since early 2023, with prices now sitting around US$875/t, down from a peak spot level of more than US$8000/t.
That has seen a $760m finance package from financiers including ANZ, Commbank, HSBC, NAB, Societe Generale, the Clean Energy Finance Corporation and export credit agencies fall over.
It came alongside an equity raising of $365m at $1.80 a share on October 19 last year that followed Albemarle’s abandonment of its takeover bid.
LTR has now drawn down on a $300m funding package from Ford that was going to be closed out under the terms of the scuppered debt deal.
Liontown MD Tony Ottaviano said the lenders would continue to work with the company on a smaller funding package, and that the miner’s debt would need to be downsized because its price forecasts no longer supported the terms of the debt facility.
Ottaviano said the medium term price deck used for its funding discussions — WoodMac’s — had been pulled down to ~US$950/t from 2027-2029, with forecasts 60% lower than those the consultancy had used in the third quarter of last year.
He said the early expansion of the mine may no longer be supported by price forecasts, triggering a review.
“With the market outlook that has been predicted by the independent experts on forecasting, we’ve started questioning whether or not do we really want to bring additional supply into the market when they’re forecasting an oversupply,” he said on an analyst call today.
“So what we’re going to target is whether or not it’s prudent or not to spend that capital on accelerating the 4Mt underground.”
Capital to expand the plant to meet that production rate would also be reviewed.
Ottaviano said Liontown was more bullish on prices, but that banks required an independent forecast to underpin their debt offers. But he said the company would look at alternative ways to fund the expansion if they emerged.
It had $515m in the bank at December 31, with the Ford facility expected to fund construction to the first production from Kathleen Valley in mid-2024.
A funding update is due at the end of the current quarter, though the miner says it remains on schedule and budget for the ~$1 billion development.
It comes shortly after Core Lithium (ASX:CXO) halted mining at its marginal Finniss project in the Northern Territory earlier this month.
The Kathleen Valley mine is the next major lithium deposit to be developed in WA, which produces around half of the world’s lithium raw materials.
It is one of two ~500,000tpa spodumene mines due to begin producing in the middle this year, alongside the Goulamina mine in Mali.
That project’s ASX-listed owner Leo Lithium (ASX:LLL) late Friday announced a deal to sell down a further 5% in the project to its JV partner Ganfeng for US$65m, taking its share to 40%.
But it has been suspended from trade for several months amid discussions with the Malian Government, which is yet to take up its project stake and has recently pushed to introduce a new mining code which will bolster its take of local resources projects.
Leo has been vague on the nature of discussions with the Malian Government, but has flagged a potential “settlement” that would involve a negotiated payment.
Chalice, which says it is continuing to progress a strategic partnering process for the Gonneville deposit (though there is no guarantee of a transaction), says it will focus exploration efforts now on greenfields exploration elsewhere at the 26km long Julimar complex and in the West Yilgarn.
It’s remains well-stocked, with $112m of cash in its pocket as of December 31.
But the belt tightening activities come amid what boss Alex Dorsch said were “structural changes in the nickel market”.
The International Nickel Study Group forecast a 239,000t surplus in 2024, and the ANZ’s Daniel Hynes and Soni Kumari said in a note last week Indonesia’s share of the nickel had risen from 30% in 2021 to 55% last year, with supply projected to rise 8% this year to 2.2Mt out of the world’s major producer.
Dorsch, who joined the Tim Goyder backed explorer and long-time project generator ahead of the Julimar discovery, predicted a ‘near-term’ recovery in palladium pricing and repeated suggestions western automakers would preference nickel produced outside Indonesia for their electric vehicle batteries.
Indonesia does not have a free trade agreement with the US, meaning it is not compliant product for Inflation Reduction Act incentives.
“The current palladium price is estimated to be at approximately 50% of the cost curve, meaning that around half of the world’s mines are currently operating at a loss. Internal combustion and hybrid
vehicle sales are also very strong and there are emerging palladium applications in the green hydrogen sector. As such, and guided by historical price behaviour, we expect to see a recovery in
the palladium price in the near term,” he said.
“The nickel market is also experiencing structural changes, with an oversupply of highly polluting, high carbon intensity nickel from Indonesia. Given the majority of this supply is driven by Chinese
investment and will not be compliant with the United States Inflation Reduction Act, in our view western battery makers are still actively looking to source western nickel and this is not reflecting in LME prices.”
He said the reduction in spending would give Chalice a ‘strong cash runway’.
“We remain focused on attracting a tier-1 strategic partner for Gonneville with the financial, technical and/or marketing capabilities to assist Chalice in bringing the Gonneville Project into production. We have made positive progress on this front and remain in active discussions,” he said.
“At the same time, our exploration team remains focussed on delivering the next major discovery in the West Yilgarn with several high-priority targets to be drilled over the next few months. Given the West Yilgarn hosts the >40Moz Boddington Gold-Copper Mine, the world-class Greenbushes Lithium Mine and our world-class Gonneville Ni-Cu-PGE Deposit, we are very excited about the exploration potential of the province.”
CHN says it expects to remodel a higher grade resource focused on selective open pit and underground mining in March.
A ‘high grade’ starter case is expected to be presented to the market in the second quarter, with PFS (due mid-2025), met testwork and infrastructure studies ongoing and referrals for regulatory approvals to be submitted this quarter.
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