Macquarie’s bullish backflip good news for lithium players
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Special Report: It’s an extremely good sign when one of the biggest local bears in the lithium sector suddenly turns bullish on the battery metal.
Late last year Macquarie claimed the lithium market was “sleepwalking into a tsunami of oversupply”.
But more recently it has backflipped on those predictions given German car giant Volkswagen’s aggressive push into electric vehicles (EVs).
VW board member Stefan Sommer told Reutersthat the company would need 150 GWh of battery production in both Asia and Europe by 2025, and double that by 2030.
He said the plan was to buy more than $US56 billion of (lithium loaded) battery cells and that to date, it had identified Northvolt (Sweden), SKI (Korea), LG Chem (Korea), Samsung (Korea) and CATL (China) as “strategic partners”.
After a bit of number crunching, this is Macquarie’s expectation now: “Assuming an average battery size of 60Kwh, that implies 5m units of full EVs by 2025 and 10m by 2030. Global EV sales were less than 2m units last year.”
Other big carmakers are also fast tracking their EV schedules in order to help meet demand.
Last month Toyota revealed it would bring forward its target of having half of its global sales from EVs to 2025, five years earlier than anticipated.
The good news for lithium players is that the sell-off in stocks thanks to Macquarie’s predictions of mass oversupply is widely expected to be reversed in the 2020s.
There are several lithium players at the starting blocks, but experts predict not all of those projects will get away.
But AVZ Minerals (ASX:AVZ) is one company that looks to potentially have a big money-maker on its hands — even at conservative lithium prices.
Just last month it demonstrated its confidence in its Manono lithium and tin project in the Democratic Republic of Congo by buying a further 5 per cent for $US5.5m ($7.8m) – taking its ownership to 65 per cent.
The increase is expected to lift AVZ’s share of the net present value (NPV) by some $US130m to $US1.68 billion, based on the recent scoping study for a 5-million-tonne-per-annum operation.
IRR and NPV are used to estimate the profitability of a potential operation – the higher they are above zero, the better they are.
The extended scoping study estimates that on a 100 per cent basis Manono will have an NPV (before tax and royalties) of $US2.63 billion and an IRR of greater than 64 per cent.
But AVZ isn’t stopping at 65 per cent and is in further discussions with its main partner La Congolaise D’Exploitation Miniere to secure additional equity on similar terms.
AVZ has already piqued the interest of two big Chinese battery manufacturers for potential investment in or supply from its Manono lithium project in the Democratic Republic of Congo.
The company has had initial talks with Beijing National Battery Technology and early last year inked a memorandum of understanding with China’s Guangzhou Tinci Materials Technology.