Ground Breakers: MinRes boss wants to know what Goldman Sachs was smoking when it called the end of the lithium boom
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Mineral Resources’ (ASX:MIN) maverick boss Chris Ellison does not pull punches, and the iron ore and lithium miner wound up a Drederick Tatum haymaker for analysts at Goldman Sachs who sunk lithium stocks in May with their controversial call that the lithium market would be in oversupply by 2023.
Lithium prices have stunned in 2022, with chemicals for electric vehicle batteries fetching more than US$70,000/t for several months, around 10 times prices seen in the last downturn a couple years ago.
The concentrate feedstock known as spodumene, trading for under US$500/t in early 2020, is now worth more than US$6500/t on the spot market.
“I don’t understand with a lot of analysts, if you get a little thing called Google you can get on there and it’ll tell you how many cars they’re going to make this year, next year and the year after,” Ellison said on MinRes’ 2022 results call.
“It’ll tell you where the producers are with rock and brine (and) it’s not a hard equation, but we’re in supply deficit and the moment and it feels like it’s going to stay there through til at least 2030.”
“I read that article a few weeks ago from Goldman Sachs and you’ve just got to wonder what they were smoking.
“If you don’t own your rock you’re screwed … by us.”
Ellison says at the long term consensus price for hydroxide of US$16,500/t, many converters who don’t own their own supply of spodumene or brine would out of business given the prices they have to pay for limited supplies hard rock feedstock.
“That means there’s a huge supply problem; I like it, again we’re in the right place at the right time,” he said.
“…California came out of the blue and said by 2035 no more internal combustion engines on the road,” he said.
“You go, ‘yep that’s sensible’ but none of that is factored into the numbers people are at in terms of where the supply is coming from.”
MinRes is currently restarting the Wodgina JV, while its 50-50 JV with Ganfeng at the Mt Marion mine near Kalgoorlie will see production double to 900,000tpa of mixed grade spodumene production.
The company delivered a $1 per share dividend after turning a $400m FY22 profit, reversing a $36m loss from the first half of the year, as soaring lithium prices stemmed lower earnings from sliding iron ore revenue.
On top of its decision to develop the $3 billion Onslow iron ore hub in the Pilbara, the other big news from MinRes’ financial results was a restructure of its lithium JV with Albemarle.
The deal will see MinRes’ share of the new Kemerton lithium hydroxide plant drop from 40% to 15%, while its share of the Wodgina mine in the Pilbara will lift from 40% to 50%, with MinRes taking operational control of the mine and power over the pricing index for its product.
Those marketing metrics have previously been determined by Albemarle, which has a history of conservatism when it comes to its approach to pricing.
While spot-exposed producers like Pilbara Minerals (ASX:PLS) have seen spodumene sale prices soar in recent months, larger miners wedded to hedges and long-term contract pricing have seen their sale prices lag the rabid spot market.
“I want control back of my pricing,” Ellison told analysts and investors.
“So they’re still going to sell our product but they sell it under our model … we just take the price of the day.
“Albemarle asked me what I’m going to do one day when it all turns around and there’s more supply than demand, and I said I’ll do what I always do, I’ll change.
“But in the meantime while supply is short we’re going to take advantage of the price on the way up and I am fairly convinced that I’ve got five to seven years of that.”
MinRes wants to boast upwards of 110,000t of lithium hydroxide production in five years, with a deal that future conversion facilities will be shared between the Wodgina JV owners.
Ellison says MinRes could look overseas for both conversion opportunities and new mining operations, but that the company may be able to deliver a downstream conversion plant at the Wodgina mine in the Pilbara (a study is 80% done) cheaper than anywhere else thanks to a cheap power source via its in-house gas resource.
With mining services, lithium, iron ore, gas and all that in its portfolio MinRes is a bit of a polymath in mining terms. Ellison is looking to add battery manufacturing to that list as well, saying MinRes has dreams of opening a battery manufacturing hub in partnership with a major, deep-pocketed producer in WA.
It is a feature of Australian life that we all like to leave our important tasks to the last minute, facilitating a mad rush to complete what were otherwise mundane and simple activities.
No purer is it expressed than in our financial reporting season, where our companies have an entire month to deliver their results and most wait until the last week of the window to bring home the bacon.
Every man, woman, hross and their dog decided to release financials today. A few goldies managed to get their five cents in wedged between the big names of FMG and MinRes.
First to Kalgoorlie, where Super Pit owner Northern Star Resources (ASX:NST) saw its underlying NPAT fall 27% from $372m in FY21 to $273m in FY22 and statutory NPAT slide 58% from $1.032b to $430m.
On the other hand underlying EBITDA rose 31% from $1.159b to $1.517b, with revenue climbing 35% to $3.735b after completing its merger with Super Pit co-owner Saracen.
NST, which sold 1.561Moz of gold (down 2% YoY) at all in sustaining costs of $1633/oz and record average prices of $2433/oz, will pay a fully franked final dividend of 11.5c, with its full year payments of 21.5c trumping the 19c returned in FY21, representing 25% of cash earnings.
It will also return up to $300 million to shareholders in the company’s first on-market share buyback.
Northern Star MD Stuart Tonkin said the payment took its total returns since 2012 past $1 billion.
“The announcement today of the first buy-back in Northern Star’s history presents compelling value and confirms the Board’s confidence in our strong balance sheet and cash generation outlook and aligns with our fiscal discipline and returns focus,” he said.
“We have made a solid start to FY23 and continue to progress the KCGM cutback with our new cost-efficient mining equipment. The SKO processing plant is now on care and maintenance, at Thunderbox we commence commissioning the expanded mill in Q1, while at Pogo we have removed surplus equipment, reflecting increased development rates across the fleet.
“We are a stronger and more resilient business today than ever before, with a clearly defined multi-year strategy to deliver higher margin ounces. This strategy, backed by our experienced team and portfolio of high quality assets, will enable Northern Star to create superior value for shareholders.”
Ramelius will pay 1c out to shareholders, the minimum payout in its dividend policy after an impairment-fuelled drop in NPAT to $22.5m was flagged last week.
The Edna May gold mine owner, which is expected to make a decision on expanding the Wheatbelt operation later this year, saw underlying EBITDA drop 11% to $293m and underlying NPAT come off 45% to $73m.
Silver Lake, meanwhile, did not declare a divvie in line with analysts’ expectations, posting a 5% year on year fall in underlying EBITDA to $268m, with underlying NPAT of $78m (-21%).
The company, which expects to produce 260-290,000oz of gold in FY23 at $1850-2050/oz, has prioritised a 10% share buyback and capital investment in its new Sugar Zone mine in Canada.
Gold miners were hammered in early trade despite most hovering close to expectations after a 0.84% in gold prices to US$1724/oz, after a hawkish speech from US Fed chair Jerome Powell on Friday which torched the local market, with materials down 2.77% at 12pm AEST with energy stocks off 2.63%.