Monsters of Rock: Investors refresh their bets on lithium in hopes for the bottom

Counter-cyclical M&A shows big pocketed investors are betting on lithium for the long term
AustralianSuper moves to 5% holding in MinRes, upping its gamble on the battery metal with prices near a cyclical bottom
Materials drags ever so slightly as gold holds the fort ahead of more China stimulus updates

Last time lithium prices bottomed out they fell to the trough of the Mariana Trench.

This time around the trampoline appears to have been set around US$800/t for spodumene concentrate and US$10,000/t for carbonate.

At those levels few if any producers are making serious money. Only Pilbara Minerals’ (ASX:PLS) Pilgangoora and the Greenbushes mine have shown the grade and/or scale to weather the storm comfortably.

While those mines and others are still cash flow positive – we haven’t seen the US$380/t depths of the 2020 crash when a lithium miner would probably sell tonnage to a cold caller with a Belorussian number if they dropped a deposit – profits at the mine gate are being eaten into by capex to grow and sustain operations in anticipation for a demand boom to come when the West catches up to China in electric vehicle production.

Lithium stocks remain heavily shorted, though negative bets have been trimmed in recent weeks in particular on PLS.

But big-pocketed investors are starting to pile in to the sector in a counter-cyclical dance that suggests they see price rises on the horizon, even if experts think we’re a number of Chinese production cuts away from reality there.

Rio Tinto’s (ASX:RIO) $10 billion offer for Arcadium Lithium (ASX:LTM) (and to a lesser extent PLS’ $560m scrip punt on Latin Resources (ASX:LRS)) is the most glaring slap you in the face example of the trend.

But the repositioning of Super giant portfolios tells a similar story.

Friend indeed

Much like the woman Ray Charles has got, Australian Super has emerged as a kinda friend indeed to Australia’s big lithium stocks.

MinRes (ASX:MIN) shares rose 1.5% as of 3.15pm AEST, closing back in on Monday’s month high of $53.34, and around two-thirds up on their September lows of $30.29, after a notice yesterday afternoon revealing that AustralianSuper – one of Australia’s most influential investors with $341bn of member assets at June 30 – had picked up a substantial 5.11% stake in Chris Ellison’s lithium and iron ore miner.

That stake was built via a string of buy and sell order placed through JPMorgan dating back to June, the largest a parcel of 648,834 shares purchased at $37.49 on September 18.

It’s not the only lithium company where Aussie Super is building its stake.

The super giant and retirement savings ark piled deeper into Pilbara Minerals as well, boosting its stake from 9.4% to 10.49%, the third material lift in its holding since March.

In January, Australian Super held ~6% of the Pilgangoora producer, up from 5.1% in November last year, with the fund boosting its stake with each leg down in lithium sentiment.

And around the grounds

The materials sector dropped 0.15% in a mild trading day as the big iron ore miners trailed their junior cousins and the gold sector despite Singapore prices rising 1.6%.

Most of the games came from the yellow metal as prices gained 0.5%, running to US$2645/oz and A$3921/oz.

US inflation numbers for September which came in at a 43 month low helped boost gold by suppressing the US dollar.

But small iron ore players and copper stocks are also being bought as Bloomberg reports more stimulating economic Houdini acts could be delivered by China’s Politburo over the weekend after investors were disappointed by the National Development and Reform Commission’s inaction this week.