Row your boat: These ASX lithium miners have plans to head downstream and produce lithium hydroxide

Lithium prices have contracted in China on short-term demand issues in 2023
Miners are focusing long-term on becoming chemical producers to capture more of the EV battery value chain
We profile a collection of ASX players with plans to produce lithium hydroxide

A spot of bother has crept into the minds of ASX lithium investors over recent weeks, as prices for chemicals in China have steadily crept down.

Demand for commodities was expected to rebound in China, the most important market for battery metals, after the end of Covid and the Lunar New Year.

But prices have continued to fall from the record highs we saw in 2022. Trading over US$80,000/t in early December last year, they are now around the US$60,000/t mark.

According to Fastmarkets, prices for lithium hydroxide fell slightly last week in China to ~US$61,200/t when converted from the local Yuan, while prices for carbonate fell further by around US$2500/t to US$48,900/t.

In the combined market for China, South Korea and Japan prices look a little better. Hydroxide is paying US$71,500/t, with carbonate at US$61,500/t.

Two clear trends are emerging. The first is that prices have come off record highs. Fastmarkets’ last spodumene assessment was down too from US$6750/t to US$6150/t.

The second is that hydroxide, once threatened for its status as the premium battery grade lithium chemical, is commanding a big premium right now over carbonate.

How long will these situations last?

Recovery could come in Q2: Analyst

Carbonate is traditionally used in lithium-iron-phosphate battery chemistries.

Those go into cars with shorter ranges and more affordable prices with a high market penetration in China.

“The gap is mainly down to weak demand and bearish sentiment in China, which is driving down demand from battery manufacturers and CAM producers who are currently operating at utilization rates of around 60%,” Fastmarket battery materials analyst Jordan Roberts told Stockhead.

“With LFP being the dominant chemistry in China, this has hit carbonate the hardest.

“However, LiOH still remains tight in the international markets, especially due to a lack of tier one qualified material and the predominance of NMC batteries. Because of this, sellers have been unwilling to reduce hydroxide offers in the Chinese domestic market, knowing they can get a high price in the international markets.”

Carbonate supply has also increased in China, with domestic sources of lepidolite, brine and spodumene production increasing, Roberts says.

But there could be respite for carbonate producers in the coming months.

“LFP production is due to recover slightly in March, and we expect a recovery in automotive demand sometime in April or May,” Roberts said.

“So although in the near term prices still look like they might soften, there should be some support from restocking and improving demand in Q2 23. Combined with more hydroxide supply coming online toward the second half of the year, we would expect the divergence to narrow.”

Low grade supply ramping up

Fastmarkets head of battery and base metals research William Adams said the likelihood of the current downturn in lithium prices was “well telegraphed” going back to the middle of 2022.

“It was clear that a supply response was underway with the increased output in South America, especially at SQM, the fact that DSO shipments from Africa and Australia were being made last year, ahead of spodumene lines being ramped up, and as China was rapidly developing/expanding lepidolite and spodumene operations,” he said.

The presence of “not-yet-qualified” material on the market offered cheaper feed for LFP CAM manufacturers, Adams said.

“So the temporary excess supply has weighed on Chinese prices, especially carbonate, as stronger demand for hydroxide outside of China is holding domestic hydroxide prices up, albeit all prices are likely to be pulled down to varying extents by the trends in China.

“Given environmental concerns in China and the higher cost of producing some of the lower grade lepidolite, we expect this low grade material will be very price elastic.”

It is worth noting these chemical prices remain extremely high, and well above the doomsday price crash predicted by Goldman Sachs last year.

Long term projections for EV demand remain strong. S&P Global projects “battery electric vehicles, plug-in hybrid electric vehicles and fuel-cell electric vehicles in new light vehicle sales in Europe, mainland China and the US will rise to 70%, 49%, and 47% in 2030, respectively, from an estimated 19%, 18% and 8% in 2022.”

And as the market matures we are seeing more miners look to move up the supply chain from sending material to converters to becoming producers of battery chemicals themselves.

Hydroxide producers lining up on ASX

In recent years it has been good business to stick to producing lithium raw materials.

Companies moving into processing for the first time, especially in Australia, have found the path longer, costlier and more complex than initially forecast.

And margins for spodumene producers have been far more attractive than those for chemical converters because the absence of investment in new mine capacity during the downturn meant raw material supply was outpaced by conversion capacity and EV demand.

But increasingly spodumene producers and new entrants to the market are making early plans to head downstream, whether that be at home or abroad.

As the market stabilises and matures, those companies closest in the supply chain to electric vehicle manufacturers and battery producers are likely to enjoy the best margins.

Because they will be integrated, they should also have a cost advantage on companies which operate purely as converters, who unlike mine owners will be giving up margin to the raw material supplier.

While just a handful are in production, more than 20 companies on the ASX have plans to enter the multi-billion dollar market of lithium chemical supply.

Hydroxide is the chemical of choice for nickel-cobalt-manganese lithium ion battery chemistries, powering pricier cars with longer ranges.

Commonly produced with spodumene feedstock, hydroxide often commands a premium to carbonate because it is often converted from lithium carbonate.

Australian companies have tended to focus on hydroxide as the main chemical they want to supply, with companies operating in WA, Europe and Canada all interested in moving downstream.

With that in mind, here are a few ASX companies looking to grab a share of the multi-billion dollar lithium hydroxide market.

PRODUCERS

IGO (ASX:IGO)

There were plenty of question marks when IGO put its steady, cash generating stake in the Tropicana gold mine on the market to fund a $1.9 billion deal to buy 49% of then struggling Tianqi’s crumbling WA lithium empire in 2020.

Including a 24.99% stake in the Greenbushes lithium mine, the world’s largest and highest grade operations, it turned out to be a prescient move by the board then headed by late managing director Peter Bradford, which has reimagined IGO as a purveyor of battery goods with nickel, copper and lithium on tap.

IGO became the first ASX company to open a lithium hydroxide plant in WA, reaching commercial production at the end of 2022 on its joint venture processing facility with China’s Tianqi (51% owner).

But the plant has been front and centre of the tough task companies outside China have staffing and ramping up conversion capacity. A decision on constructing the second of two 24,000tpa trains at the Kwinana plant is due this year.

The first will only hit 60-70% capacity by the end of this year after construction began all the way back in 2017.

IGO and Tianqi produced 585t of battery grade lithium hydroxide in the December quarter, generating EBITDA of $11.6m with sustaining and improving capex of $16.5m.

With spodumene prices at super high levels, Greenbushes by comparison delivered its owners — the Tianqi-IGO JV and US behemoth Albemarle — over $2 billion in earnings.

Mineral Resources (ASX:MIN)

Billionaire Chris Ellison and his mining services business move quickly, and MinRes is now an ASX 50 conglomerate with fingers in several pies including iron ore, gas and of course lithium.

For a few quarters now MinRes have bypassed the idea of selling spodumene to converters, instead choosing to get their own concentrate from the Mt Marion and Wodgina mines tolled by converters in China.

The lithium beast is moving a step forward, announcing a restructure of its WA lithium JV with America’s Albemarle which will see its stake in the newly opened Kemerton plant drop from 40% to 15% while it will become a producer of lithium chemicals in its own right with a 50% stake in new Albemarle plants in China.

Ellison’s dream is for MinRes to be a top four global producer of lithium hydroxide.

The near $1 billion investment would see MinRes grow its own lithium chemical lines to around 50,000tpa in the coming years.

Ellison remains keen on the idea of establishing a plant in WA, potentially co-located with its giant 50% owned Wodgina mine in the Pilbara.

But he told analysts on the miner’s half year results call in February government support would be needed to make investments in Australia attractive, admitting the returns promised by the fast to market Chinese plants outweighed concerns about investing in the Communist country.

“We do need government help otherwise we’re simply not going to get our joint venture partners in Australia, but it is incredibly positive to Australia, if we can get those plants down here,” he said at the time.

“We’re keen to do it ourselves but we can’t get it done on our own and the opportunities that are being offered by Europe and the US is very significant.”

Allkem (ASX:AKE)

Allkem is one of the world’s few large scale seaborne suppliers of lithium carbonate via its Olaroz brine operation in Argentina, where the $7 billion miner produced a record 7542t in the first half of FY23 and expects to see sales priced at US$53,000/t this quarter.

It also owns the Mt Cattlin hard rock mine in WA.

But it has stepped into hydroxide, diversifying its product offering by opening the Naraha conversion plant in partnership with a division of global auto giant Toyota in Japan.

The plant delivered first production in the December quarter with the quality of the product “exceeding expectations”. 200t were produced during the December quarter and sold to third party customers.

Naraha will have an eventual nameplate capacity of 10,000tpa.

UNDER CONSTRUCTION

Pilbara Minerals (ASX:PLS)

Pilbara Minerals has been the poster child for the primacy of the miner in the recent lithium boom, with converters obliterating their own margins just to get their hands on lower grade spodumene from its Pilgangoora operation in auctions on its Battery Material Exchange platform over the past two years.

Prices lifted to over US$8000/t on a 6% Li2O basis at one point last year.

But Ken Brinsden’s retirement and replacement by understudy Dale Henderson paved the way for its transition to a new phase of life with an eye to the longer term outlook for the lithium market.

With plans to ramp up its Pilgangoora mine to 680,000tpa approved and an expansion to 1Mtpa in the works, PLS has begun construction in South Korea on a downstream JV with early backer POSCO.

The industrial giant is building the 43,000tpa Gwanyang plant, which will utilise around 315,000tpa of PLS concentrate as its feedstock.

PLS has an initial 18% stake with an option to increase its ownership to 30%. The first 21,500tpa processing train is expected to begin commissioning and ramp up late this year, with a second train of equal size to ramp up early next year.

Wesfarmers (ASX:WES)

It feels like ancient history now, but in a sign of how long these things actually take to get to market, by the time the Mt Holland mine and associated 50,000tpa Kwinana plant is in operation it will have been almost nine years since junior Kidman Resources made the surprise discovery of a giant lithium deposit beside an historic gold mine in WA’s Yilgarn region.

Kidman was bought out by Australian corporate giant Wesfarmers (ASX:WES) in 2019 in a $776 million payday for the one-time minnow’s shareholders.

A 50-50 JV with Chilean lithium monster SQM, the project represents Wesfarmers’ return to the mining game after making the decision to divest its coal assets several years ago.

The conglomerate is best known as the owner of Bunnings and Kmart Group, and runs a major chemical and fertiliser business.

And its foray into lithium has already delivered plenty of headaches. At a combined capex of $2.6b the Covalent Lithium JV is well over budget, with an update in February pushing the timeframe for first concentrate back six months to the first half of 2024, with first lithium hydroxide due H1 2025.

STUDY PHASE/LONG TERM

Liontown Resources (ASX:LTR)

The next cab off the rank when it comes to large scale lithium producers in WA, Liontown Resources expects to develop the world’s first underground hard rock lithium mine at Kathleen Valley in WA by mid-2024.

But it has not been without its challenges, with LTR announcing late last year the construction bill for the 500,000tpa operation had soared by $350 million to $895m.

A second stage expansion to 700,000tpa was initially planned from the Tesla-supplying Ford backed mine’s sixth year, with a downstream scoping study in late 2021 anticipating the construction from 2027 of a lithium hydroxide plant producing the equivalent of 86,000t of lithium hydroxide monohydrate annually.

On Roskill projections quoted in the scoping study that would position LTR as the world’s third biggest supplier of LHM globally by 2031, though how scope changes and cost blowouts since the release of its mine and concentrator DFS have affected the downstream remains to be seen.

European Lithium (ASX:EUR)

Chaired by well known West Australian businessman Tony Sage, European Lithium has set its sights on becoming the first domestic supplier of lithium hydroxide in Europe at its Wolfsberg project in Austria.

A planned underground mine with an integrated lithium hydroxide plant down the road, the firm has positioned itself with a supply deal to luxury German car brand BMW, one of many miners to head into offtake deals directly with OEMs.

According to a DFS released last week, the project would deliver 8800tpa of lithium hydroxide monohydrate for 14.6 years at an operating cost of US$17,016/t and 2025 sale prices of US$48,600/t, a 39% discount to recent Antwerp spot prices of US$79,500/t.

At a capex of US$866m and post-tax NPV of US$1.5b, the study says the project carries an internal rate of return of 33.3%.

Vulcan Energy (ASX:VUL)

Turning to another player in the race to bring lithium hydroxide production to Europe, Vulcan Energy wants to produce what it calls “Zero Carbon Lithium” from geothermal brines using wells that also generate non-fossil fuel geothermal energy.

One of the hottest stocks on the ASX a couple of years ago, the $900 million market capped Vulcan has to prove to investors its unique extraction method actually will work, and at the costs designed.

It is targeting production on the Insheim licence by the end of 2025 for the first phase of the project, with operations at a demonstration plant in Landau due to commence in mid-2023 following two years of pilot testing.

According to the company, which has a supply deal with Euro-American carmaker Stellantis, it will target 24,000tpa of lithium hydroxide monohydrate and over 300GWh/a of renewable power with a near 1.5 billion Euro capex bill and estimated opex of 4539 Euros per tonne of LHM (US$4577/t).

That would be towards the bottom of the global cost curve, Vulcan claims, because unlike Chinese converters it would not need to purchase feedstock and unlike South American brine producers it will use a limited volume of reagents.

Infinity Lithium (ASX:INF)

The third of our European hopefuls, Infinity Lithium has successfully produced battery grade lithium hydroxide as part of testwork in studies on its San Jose lithium project in Spain’s Extremadura region.

An underground scoping study in 2021 projected the mine would deliver 19,500t of lithium hydroxide annually over 26 year mine plan at life of mine C1 cash costs of US$6399/t.

It has initiated a mining licence and EIA permitting process after receiving approval to lodge an exploitation concession application for the San Jose project in January.

Leo Lithium (ASX:LLL)

Leo Lithium is the 50% owner and operator of the Goulamina mine in Mali, a 506,000tpa monster poised to be the first to open in West Africa as part of a joint venture with China’s biggest lithium company Ganfeng.

The operation, which will initially sell spodumene for conversion into lithium chemicals by Ganfeng in China, is expected to open by the middle of next year, around the same time as Liontown’s Kathleen Valley mine opens its doors in WA.

The US$255 million mine is around 12 months into a 27 month build, one which boss Simon Hay told Stockhead last month remained on time and on budget.

A second stage would cost a comparatively cheap US$70m to add 325,000tpa of SC6, thanks to the installation of critical infrastructure in the initial build. A scoping study is expected this year with a front end engineering design phase to begin before New Year’s.

A study meanwhile on a downstream processing facility to produce refined lithium chemicals in Mali is expected to start in the first half of 2023.

“We have discussions underway with Ganfeng around Stage Two, and where we potentially convert that together, or with a third party,” Hay said.

“So they’re early stage discussions but we aim to progress those discussions this year to the state that we can start talking about something concrete.”

Piedmont Lithium (ASX:PLL)

Piedmont Lithium has been stuck in a community relations quagmire at its Carolina lithium project in recent years, but has the support of the US Government via a conditional US$141 million grant for a proposed 30,000tpa lithium hydroxide plant in Tennessee.

First production is projected in 2025, though a study on the Tennessee plant’s financial metrics are yet to be released to the ASX or NASDAQ, where PLL is also listed.

If it can’t produce its own primary supply, Piedmont plans to use a network of supply agreements to service its downstream needs.

It holds a 25% stake in Sayona Mining’s (ASX:SYA) recently producing North American Lithium operation, where it is the main offtaker.

Piedmont is also a backer and the main offtake partner for Atlantic Lithium’s (ASX:A11) Ewoyaa project in Ghana.

Accusations Atlantic had engaged in “textbook corruption” to obtain mining rights in Ghana and was unlikely to receive ratification for its mining licence lit up a report by US short seller Blue Orca Capital on Piedmont last week, claims refuted by both Piedmont and Atlantic in response.

A previous study on the Carolina Lithium project in late 2021 suggested it would produce 30,000tpa of lithium hydroxide at average all in sustaining costs of US$4,377/t over its first decade.

Green Technology Metals (ASX:GT1)

Green Technology Metals controls a suite of assets in Ontario, Canada, including the Seymour project, which boasts a total mineral resource of 9.9Mt at 1.04% Li2O, 53% of which is in the indicated category.

Spodumene production at Seymour is targeted for the second half of 2025, according to company presentations, but the Canadian focused explorer has designs on going a step further with the construction of a lithium hydroxide plant around 2027.

Concentrate is now being sent for test work on conversion to lithium hydroxide, with a 99t bulk sample extracted from Seymour for the pilot test work program to be used as feedstock.

Lithium hydroxide hopefuls share prices today:

At Stockhead, we tell it like it is. While European Lithium, Green Technology Metals and Infinity Lithium are Stockhead advertisers, they did not sponsor this article.