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Mining
Mineral Resources (ASX:MIN) boss Chris Ellison says by 2035 no country in the world will allow internal combustion engines to be built, clipping analysts who think the lithium market will be oversupplied in the near future.
Forecasts from Bloomberg NEF project that over 10 million EVs will be sold in 2022, more than 50% up on last year’s record of 6.6m.
Speaking at the lithium and iron ore miner’s AGM in Perth today, two days after analyst notes from Credit Suisse and JP Morgan on a drop in carbonate futures in China sent investors in lithium running, Ellison bullishly said there is “way more demand than supply”.
“You read in the paper now and then someone coughed up in China the other day, and the market dropped 5% which is amazing, I hope the audience bought shares in us,” he said.
“We get the odd commentary out in the market. Goldman Sachs seemed to have a thing about getting it right one day and I’m sure in the next 30 years, one of the years they’ll be right … please don’t write that down.”
Well, you said it Chris.
MinRes holds 40% and 50% stakes respectively in the Wodgina and Mt Marion lithium mines, forecast to produce around 29% of the world’s supply.
He says the long lead time to get a new mine into production, 6-7 years even in a high-quality jurisdiction like WA, means the increased uptake of EVs will continue to see strong demand for lithium products.
“Probably by about 2035, there probably won’t be any countries in the world allowing combustion engines to be built,” Ellison said.
“We’ve only just started on this journey in the last couple of years, a lot of countries haven’t come out with their plans and what they’re doing, you’re going to see over the next 12-18 months a multiple of countries come out and go, we don’t want combustion engines on the road, probably around ’35 onwards, some of them are coming out sooner than that.
“Volvo are only a few years away. As this picks up momentum, there’s going to be more and more demand for lithium products. At the moment, there is way more demand than there is supply … if we’ve got seven years in the sun, we’re gonna have a lot of fun.”
MinRes, which celebrated its 30th birthday earlier this year including 16 as a listed company, has grown this year largely thanks to its lithium exposure into a $16 billion ASX50 giant.
As of this morning it was the 28th most valuable company on the ASX, surrounded by other battery metals players like Pilbara Minerals (ASX:PLS) who have become the darlings of the ASX mining sector in 2022.
Outside of that, MinRes is also progressing plans to head downstream into lithium hydroxide processing at the site of its Wodgina mine in the Pilbara (it currently boasts a 40% stake in the Kemerton plant with Wodgina JV partner Albermarle which it wants to water down to boost its Wodgina stake to 50%), develop a new gas discovery at Lockyer-Deep in the Perth Basin and build 70Mt of new iron ore capacity in WA.
Its existing iron ore operations in the Pilbara and Yilgarn regions of WA make it Australia’s fifth largest DSO iron ore player behind BHP (ASX:BHP), Rio Tinto (ASX:RIO), Fortescue Metals Group (ASX:FMG) and Gina Rinehart’s Roy Hill.
But they are currently marginal operations, with MinRes operating at a far smaller economy of scale and facing big discounts against the Platts 62% index for its lower grade iron ore.
Despite that, Ellison cooled talk, which emerged in September, that MinRes could seek a New York spinout of its profitable lithium arm, and said those iron ore mines would continue operating while it built its large new 35Mtpa Onslow hub because they were still generating cash.
Talk of the lithium spinout he put down to the media “coming up with some amazing ideas”. There was something about Trump running for president in there as well, but we, and Ellison digress.
“At this point in time, I am not in a position to say that I’m floating off mining service, or lithium or anything,” Ellison said in response to questions from shareholders.
“I mean, our strength comes from where we kept … all these beasts together. I’m not going to stand up here and say I’m not doing it either, by the way, because you just don’t know what’s going to happen.
“I’ll have a look in the crystal ball after Christmas and I can promise you this: If we go down the path of doing something other than what I’ve told you about today, we will get it out to the public very quickly.”
Ellison is also positive about the prospects of China ending its cycle of Covid lockdowns, which has depressed the price of iron ore through the second half of 2022.
“If you look at every economy that’s come out of COVID they all go out there and they just spend a lot of cash — cash that they can’t repay — but I’m highly confident that we’ll survive with the mines that we’ve got now and we’ll transition into the big ones,” he said.
He says all parts of the business have a positive outlook going forward.
“So we do have lithium, by the way, and it’s probably not going to separate from us,” Ellison said.
“The iron ore, by the time we get through to 18 months out from now, the iron ore will be producing a lot of cash. We’ve got the gas business coming on, the mining services has always been an absolute ball-tearer.
“Our balance sheet will keep growing. Our market cap I expect will keep growing, I am not going to do anything that is going to reduce the value of the business, I’m going to continue to grow it.”
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