Ground Breakers: PLS boss Dale Henderson gazes into his crystal ball in search of the next lithium rebound

Pilbara Minerals saw spodumene prices soften in March, but MD Dale Henderson says the long term demand outlook is strong
A ‘crystal ball gazing’ Henderson sees a potential rebound in lithium chemical pricing in the second half of 2023
IGO records strong profit on record Greenbushes result, but faces impairment on nickel acquisition

Lithium prices have been on their way down this year after scaling unimaginable highs in 2022, with weak demand in China, the end of EV subsidies, rising supply and even Chinese efforts to “talk down” prices for the electric vehicle ingredient fingered for the blame.

Whether the narrative sending lithium prices lower is true or false there is little doubt they are softer.

Just how much softer they can get, with Aussie miners still drawing mega margins, is a big question.

According to Fastmarkets, lithium hydroxide in Asia was going at a spot rate of US$40,500/t yesterday (around half of last year’s highs), with the more troubled carbonate market down to US$29,000/t.

6% pure lithium spodumene concentrate however, the product peddled by WA’s network of hard rocking lithium miners, saw an uptick in its last assessment, rising US$463/t to US$5313/t.

Today, Pilbara Minerals (ASX:PLS) and IGO (ASX:IGO), two of the lithium market’s leading lights, were back with their quarterly results.

PLS saw its export prices fall a massive 15% in the March quarter, from US$5668/dmt on a 5.4% basis to US$4840/dmt on a 5.3% basis (equivalent to US$5522/t if the product were at 6% Li2O spec).

Costs rose 9% to $632/dmt on a 9% drop in production to 148,131t and 3% fall in sales to 144,312dmt, affected by downtime at the Ngungaju plant, but remained around a tenth of sales prices.

Remember, spodumene out of WA was selling for around US$400/t two and a half years ago.

Dale Henderson’s crystal ball

The good news for lithium heads is Dale Henderson, Pilbara Minerals (ASX:PLS) MD and CEO, says the market remains long-term bullish despite prices pulling back.

“In terms of the long term outlook, we remain very positive on the structural deficit for lithium,” Henderson said in his now unmissable quarterly updates on the lithium market and its dynamics.

“And of course, we note that there seems to be a broad support of opinion for that deficit.”

Major investments, like Albemarle’s more than $5b bid for Liontown Resources (ASX:LTR) and the latter’s rejection of that primo offer point to the longer term bullishness around demand.

Major investment announcements point to that flood as well, Henderson reckons.

“GM invested US$650 million and Lithium Americas’ board invested $3.5 billion was committed for its first LFP plant in the States,” he said.

“LG has committed US$5.6 billion towards a battery manufacturing facility in Arizona.

“Redwood has secure US$2 billion from the DoE in the US, BMW’s announced an US$870 million plant in Mexico and the Canadian Government has unveiled a federal government budget of $C80 billion in tax credits for clean technology, including C$25 billion for investments in clean energy.

“As it relates to EV sales, China 27% year on year growth, pullback quarter on quarter, but overall the broad theme remains strong. Now outside of China, the combined global EV growth rate remains strong at a 25% year on year growth.

“So broadly very, very strong indicators supporting the structural deficit that looks to emerge in the outlook.”

As for the short term outlook, Henderson says prices will likely soften slightly or stabilise in the months to come.

High stock levels, growing lepidolite supply and a competition between ICEs that don’t meet emissions standards and are flying off Chinese lots ahead of a July 1 scrapyard deadline and EVs have kept lithium prices in check.

Look out for a potential rebound in the second half of the year.

“Now, of course, this is in the category of crystal ball gazing. But our assessment is, having spoken across our customer set and engaging with some of the respected reporting agencies in the space, what we anticipate in the June quarter is likely either a leveling or softening,” he said.

“If it is softening, we’d be surprised if it softens strongly, but we’ll wait and see.

“But as to a turn in the market, the opinion we have formed, as I say engaging with others, is the back half of this calendar year looks most likely.

“Now granted, there’s a big range of opinions in the space, ranging from seeing an uptick within weeks, some saying late in the year.

“As I say we’re anticipating the second half of this year to be the most likely time that we would see the uptick to get underway. But of course we’ll all have to wait and see.”

Pilbara looking downstream

Meanwhile PLS is talking to potential JV partners to head downstream using material from the expansion of its Pilgangoora mine to 1Mtpa, a process expected to wrap around the end of the year.

That will be on top of the 43,000tpa hydroxide plant PLS can option a 30% stake in South Korea with POSCO, where a first 21,500t train will be operating by March next year.

Henderson said a number of factors would be taken into account in selecting a partner, including technical expertise, supply chain integration, costs and whether the company will be eligible for government support with construction costs.

“With the particular domicile does it yield IRA (US) support or European subsidy support?” he said.

PLS ended the quarter with a massive $2.68 billion in cash at March 31, up $457m on the end of December.

Pilbara Minerals (ASX:PLS) share price today:

IGO to cop impairment on Western Areas acquisition

PLS led the large caps with a 7.2% gain and is now up 15.61% in 2023, with fellow lithium stocks Allkem (ASX:AKE), MinRes (ASX:MIN), Core Lithium (ASX:CXO) and Sayona (ASX:SYA) all in the green.

Up 1.15% was IGO (ASX:IGO), which announced a 22% quarter on quarter lift in EBITDA to $533m and 22% rise in NPAT to $412m, with underlying cash flow of $284m (up 21%) and net debt down 95% to just $9m.

Its Nova mine made a strong recovery from a fire that blighted December quarter output, with nickel tonnes up 16% QoQ to 8358t, though spodumene production at the Greenbushes mine in WA, the world’s largest, sagged 6% to 356,000t.

Putting a dampener on proceedings, IGO will be forced to record a non-cash impairment on its $1.3b acquisition last year of Western Areas. That’s starting to look like an expensive deal with underperformance at Forrestania and capex increases.

Since announcing the deal last year its key asset, the Cosmos nickel complex and Odysseus mine in WA’s northern Goldfields has proven costlier and more timely to open.

First production, initially forecast by WSA to occur late last year, is expected in the September quarter.

It has, however, opened the door to a potential nickel sulphate and battery pre-cursor facility for which IGO recently announced the selection of a Kwinana industrial site alongside project partner, Andrew Forrest’s Wyloo Metals.

At Greenbushes production may have fallen with sales down 13% to 336,000t, but the JV between IGO, US Albemarle and Chinese Tianqi reported record sales revenue of $2.846 billion, up 23% QoQ, with earnings of $2.616b, up 29% QoQ.

That came at sector low cash costs of just $292/t, up 11% on the $263/t in the December quarter, with mined grades at a remarkable 2.59% Li2O. Greenbushes made just $868.2b in revenue in the June quarter of 2022.

Meanwhile, IGO’s Kwinana lithium hydroxide JV with Tianqi delivered its strongest quarter yet, with production up from 585t in December to 963t in March.

Product is still being qualified by customers, with IGO expecting to hit 60-70% of its nameplate 24,000tpa capacity by the end of 2023.