Monsters of Rock: Lithium sector runs past gold but iron ore juggernaut can’t stop, won’t stop
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A new order of things has emerged in WA’s dominant resources sector, where lithium has displaced gold as the second largest earner for the state’s mining-rich economy, clocking $21 billion in sales in FY23 after a stunning surge in prices that coupled with major production ramp-ups from three of the world’s largest spodumene mines at Greenbushes, Pilgangoora and Wodgina.
The lithium concentrate, which supplies around half of the world’s lithium raw materials and is essential to China’s massive lithium chemical and the world’s electric vehicle supply chain, became the second largest mineral commodity by sales after iron ore.
However, that was a distant second as stronger than expected prices and record output of 861Mt saw iron ore sales clock a historically high $125b, only behind FY22 and the record FY21 year in terms of earnings. The latter included a period in May 2021 when iron ore prices hit a record US$237/t, the only time they’ve ever been above US$200.
LNG sales also rose $18b to $56b off the back of the Russian invasion led energy boom, while gold pulled in a record $18.6b, nickel a 15-year-high of $5.7b, salt rose a record $714m and domestic gas hit an all time high of $2.5b.
It meant the state’s resources sales lifted $20b to $254b in 2022-23, employing 126,480 people full time.
“WA jobs are our number one priority, and our resources sector continues to underpin our state’s economic strength,” Premier Roger Cook said.
“Every Western Australian can be proud of the success of our resources sector, and the massive contribution it makes to the national economy.
“As the world moves to a low-carbon future, we’re positioning WA as a renewable energy powerhouse – and our record lithium sales show we’re on the right track.”
At this stage it remains unclear how this will shape up.
Lithium earnings are likely to pull back as prices tumble, down over 60% since the start of 2023 and at spot levels of around US$1650/t, spodumene is fetching far below the US$6000/t or so producers were pulling in from Asian customers at their zenith.
New production is coming online, but is unlikely to make up for fall in prices. SQM and Wesfarmers’ (ASX:WES) Mt Holland Lithium Mine should begin selling product next year.
Higher volumes are expected at Mineral Resources (ASX:MIN) and Albemarle’s Wodgina mine and MinRes’ Mt Marion JV with Ganfeng.
But IGO (ASX:IGO), Tianqi and Albemarle have flagged a potential slowdown in production at the 1.5Mtpa Greenbushes mine after the Chinese part owner Tianqi elected not to take up its full offtake allocation in response to lower lithium prices.
A ramp-up of Pilbara Minerals’ (ASX:PLS) Pilgangoora mine to 680,000tpa is only expected to complete in September, a year before its ramp up to 1Mtpa.
Gina Rinehart backed Liontown Resources (ASX:LTR) will only bring its 500,000tpa plus Kathleen Valley mine into production around the end of FY24.
Though it should be noted, lithium producers aren’t exactly looking at 2024 as their end game. They have bullish projections on long term demand from the EV sector, something inspiring them to put their foot on resources while prices remain uninspiring.
MinRes tipped into a $100 million raising from Wildcat Resources (ASX:WC8) today, the junior that’s made a potentially large discovery at the site of the old Tabba Tabba tantalum mine in the Pilbara.
The discounted 76c a share offer came after MinRes bought up a 19.94% stake in the junior, largely from Resource Capital Fund’s Global Advanced Metals, the previous owner of Tabba Tabba (and the firm run by MinRes chairman James McClements).
MinRes put its foot on yet more prospective lithium ground today, paying $60 million for the lithium, nickel, copper and cobalt rights at cash-strapped gold miner Pantoro’s (ASX:PNR) Norseman gold operations.
Of that, $30m will be paid out immediately in cash five days after the execution of a binding term sheet. Another $30m will be deferred for payment if MinRes makes a final investment decision on a nickel, copper or cobalt mining operation.
Those metals carry a 2% net smelter royalty, while lithium exports from the ground would net PNR a 0.75% FOB royalty, assuming MinRes can outline respectively 15Mt or more at equal or more than 1.2% Li2O grade or 10Mt of base metals ore.
As for gold and iron ore, they are off to strong starts in FY24 with gold prices hovering around US$2000/oz (over $3100/oz AUD), and far more of WA’s production now unhedged, and iron ore trading at US$127/t, levels well above analyst expectations.
The ASX materials sector meanwhile closed the week down 0.74% after a 0.15% drop on Friday with all the big battery metals stocks in the red.