Is lithium’s slide near its end? This company might be well placed to catch the rebound.
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Special Report: Global investment banking company Goldman Sachs’ believes that lithium spot prices might be near the end of their long decline.
After nearly two years in decline, is the lithium price reaching the bottom of the market?
Multinational investment bank Goldman Sachs certainly seems to think that now is the time to pick up lithium stocks at bargain prices, saying that lithium prices are approaching a bottom given the limited cash margins for marginal producers.
It noted that while lithium carbonate spot prices had fallen from about $US17,000 ($25,117) per tonne in early 2018 to $US9000 per tonne, it expected prices to bottom out in 2020 as they approached the cash costs of between $US7,000 to $US9,000 per tonne for marginal Chinese producers that purchase and convert spodumene into lithium carbonate.
Goldman Sachs also said that it had recently observed several instances of production and capacity slowdowns that could create the conditions needed for lithium spot prices to bottom and soon begin to increase.
“In an industry where demand is growing by 15-20 per cent, we believe these production curtailments and slowdowns could rapidly shift the cyclical dynamics, driving an improvement in effective operating rates and thus spot pricing,” the investment bank said.
It noted that while electric vehicle (EV) sales had grown 44 per cent in the year-to-date, the overall decline in broader automobile sales had likely impacted EV sales trends. This is further compounded by the removal of a Chinese EV subsidy.
However, Goldman Sachs noted key EV consumer preference for longer range could drive stronger lithium demand as this would require larger battery packs.
Should this be combined with a faster than expected acceleration of EV penetration, lithium demand trends and operating rates could improve faster than expected.
Indeed, Benchmark Mineral Intelligence recently estimated that lithium would enjoy a 21 per cent compound annual growth rate through 2028.
Catching the rebound
Emerging lithium and boron player ioneer (ASX:INR) is one of the companies that is well positioned to take advantage if Goldman Sachs’ forecast that lithium prices will bottom out in 2020 proves to be true.
The company, which will be presenting at the Resources Rising Stars Conference in Sydney on Tuesday and in Brisbane on Thursday, is progressing development of its Rhyolite Ridge lithium-boron project in Nevada.
ioneer recently secured full underwriting for a $40m placement priced at 20c per share that will see its project through to a final investment decision.
A definitive feasibility study and relevant environmental approvals are expected by the first quarter of 2020.
Rhyolite Ridge is a large, shallow lithium-boron deposit that is envisaged to produce 20,000 tonnes of lithium carbonate and 173,000 tonnes of boric acid per annum at full capacity from a resource containing 12.4 million tonnes of boric acid and 1.3 million tonnes of lithium carbonate.
A pilot plant has already demonstrated the project’s ability to produce high-quality lithium and boron products, with samples sent to 30 potential offtake partners.
Analyses by SGS Canada have also confirmed that lithium carbonate produced from the pilot plant had low levels of key impurities that are in line with or less than amounts accepted by customers.
ioneer also benefits from having both its proposed lithium and boron products being classed as critical minerals in the US.