Ground Breakers: Lithium prices skyrocket for Allkem and Fosterville continues to shine for Kirkland Lake
Lithium prices are charging at the moment, prompting analysts to radically upgrade their forecasts for spodumene and lithium chemicals.
Allkem (ASX:AKE), the ASX 100 lithium miner formed from last year’s merger of Galaxy Resources and Orocobre, was the first to leave the starting stalls in reporting season today and the sharp rise in its realised prices were stark.
Allkem’s Mt Cattlin mine was making just US$386 on each tonne of spodumene sold in the March quarter and US$796/t in the September quarter.
That more than doubled to $1595/t in the December quarter, with indicative pricing for the second half of FY22 of US$2500/t on a 6% Li2O basis, around 6x prices received at the start of 2021.
Lithium carbonate prices are also rising starkly due to the growing production of lithium iron phosphate batteries for commercial priced EVs in China.
Sales in the December quarter were 3293t at an average price of US$12,491/t FOB at the Olaroz operation in Argentina, generating US$41.1m at a gross cash margin of 65%, the equivalent of US$8155/t.
Those prices are expected to rise 80% to US$20,000/t in the second half of FY22.
That’s a stunning rise, and Allkem sales and marketing head Christian Cortes says the increasing pace of EV sales means conditions remain buoyant in the lithium space.
“I think it’s been a phenomenal acceleration that we’ve witnessed in the past quarter,” he said.
“Particularly the expectation on numerous sources that I’ve come across with regards to demand, and expected sales for electric vehicles in 2022, is around 9 million units. So that’s a sizable step up from 6.2-6.5 million units … on 2021.
“And the activities associated with battery production in China, which makes about 80% of the market, in the December quarter was phenomenal, was 40% above the previous quarter, and more than double the same quarter last year.
“So in terms of the activity and the demand I think we’ll see a very strong market in 2022.”
Cortes said the supply of lithium into that market is “very, very tight”.
While some analysts are concerned battery production could be rising faster than EV sales, potentially putting a limit on lithium prices, Cortes said OEM production especially outside China has been hit with supply chain issues that are expected to unwind in 2022.
Allkem executives say with more and more production of EVs being announced by carmakers they are not aware of battery stock being built up in China.
The $7.5 billion company rose 3.87% as of 12.50pm AEDT, threatening a new closing high, with other lithium stocks also soaring to new records.
Fosterville, the reborn Victorian mine which produces gold at a grade of more than 20g/t, continues to confound expectations.
Its Canadian owner Kirkland Lake (ASX:KLA) produced a tidy 509,601oz at gold rush grades of 23.7g/t in 2021 after producing 108,156oz in the December quarter.
That beat updated guidance of 500,000oz after it became apparent last last year the company was on track to smash the upper end of its previous guidance range of 425,000oz.
Fosterville was even more impressive a year earlier in 2020, when it delivered 640,467oz at 33.9g/t, more than one ~US$1800 ounce in each tonne of earth.
But overall Kirkland Lake is heading into its mega merger with fellow Canadian mid-tier Agnico Eagle in rude form, with production way up from its Detour Lake mine in Canada from 516,824oz in 2020 to 712,824oz in 2021.
Overall KLA delivered a record 380,472oz in the December quarter and 1.43Moz for the 2021 calendar year, beating the upper end of guidance by more than 30,000oz.
It is currently awaiting FIRB approval in Australia for its Canuck merger with Agnico to go ahead between late January and mid-February.