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Mining
Is lithium going mainstream?
While it feels like it happened years ago for avid stock watchers, some of the world’s biggest companies still view a market largely known for medicinal uses and ceramics only a few years ago with suspicion.
That may be changing. Glencore, the world’s largest commodity trader and one of its biggest copper and coal producers, looks like it’s launching into the key electric vehicle metal — projected by industry leader Albemarle to see a fivefold increase in demand by 2030 — making an 11th hour bid to inject itself into the sale process for the Bald Hill lithium mine led by administrators McGrathNicol by taking up the debt of collapsed mine owner Alita Resources.
Chris Ellison’s MinRes (ASX:MIN) looks like it has won the day, securing a deal that administrators will put to the Supreme Court of WA in a liquidation process, though debt holder Austroid — knocked back in a DOCA attempt by the Foreign Investment Review Board in July — could yet prove a roadblock.
But Glencore’s unsuccessful attempt to stake its claim signals the strong interest from the mining industry’s blue chip players to get into the lithium business.
Yet not all of the big dogs of the mining world are convinced the sector is the Promised Land it appears.
Last year lithium stocks banked incredible margins as prices charged to unforeseen levels as a shortage of supply ran up against a 50% rise in electric vehicle sales.
Prices ran up to over US$80,000/t in China for downstream chemicals and US$8000/t for spodumene concentrate.
But they’ve since fallen to about US$30,000/t and US$3500/t respectively, still portending extraordinary margins for producers like Pilbara Minerals (ASX:PLS).
Majors who have been interested in getting a foot in the door in lithium now bemoan that valuations are too high for miners like Pilbara, which was worth just $600 million in March 2020 when lithium prices hit their floor.
It’s now worth $14.4 billion and even developers and explorers are tough to wrangle. Only an offer valuing Liontown Resources (ASX:LTR) at $6.6b ($3) has brought its Tim Goyder-led board to the table with Albemarle, having previously rejected a bid of $5.5b ($2.50) from its US suitor.
That will net Albemarle the $895m Kathleen Valley mine, due to enter production in mid-2024.
Azure Minerals (ASX:AZS), which has made the next major Pilbara lithium discovery at its Andover JV with Mark Creasy near Roebourne, knocked back major shareholder SQM’s roughly $1 billion offer for the pre-resource explorer.
So which global majors are making their own moves into lithium and who’s sitting on the sidelines?
Some muse that it comes down to embarrassment that they didn’t read the tea leaves earlier, but BHP’s (ASX:BHP) decision to focus its attention on future facing commodities has curiously left lithium on the sidelines.
The world’s biggest miner, worth some ~$220 billion, says the industry is too small and doesn’t have a steep enough cost curve yet to make it attractive for a company that thinks in terms of generations rather than years.
Instead its long-term growth initiatives and M & A are focused on nickel, copper and potash, where it says the markets are larger, diverse and not dependent on one source of demand.
“We are a very deliberate company. We want to make specific choices about what we choose to focus on and what not,” BHP big banana Mike Henry recently told The Australian.
“We believe that if we try to focus our efforts on too many things, we will become ineffective. We’ve made the call that we think that the long run fundamentals for copper, nickel and potash are better than they are for lithium.”
It’s an interesting call given how much companies are making shipping spodumene through the very same ports as BHP sells its iron ore, to effectively the same places.
Even oil majors are getting into the game, with ExxonMobil retooling its oil drilling expertise to tapping deep brines thought to contain lithium in Arkansas.
You know which other global supermajor likes lithium?
That’s right, the Ronaldo to BHP’s Messi, Rio Tinto, which has been engaged in the lithium business longer than most of the diversifieds after making the discovery that it could extract boric acid and lithia from mineral akin to Superman’s fictional kryptonite known as jadarite at the Jadar project in Serbia.
Unfortunately it was PR kryptonite for Rio, which saw the project halted by the Serbian Government amid a major community protest movement against the development of what would have been Europe’s largest lithium mine.
Instead it focused its attention on the Rincon brine project in Argentina, paying US$825 million to take on the development, where it plans to utilise a novel processing technology known as direct lithium extraction.
Rio has also assigned what is a bit of chump change for the big dawg to explore in farm-ins in Quebec’s James Bay region and Australia with a host of TSX and ASX juniors.
There have been hiccups. Jadar, obviously, and costs for a 3000tpa pilot plant at Rincon will more than double from US$140m to US$335m, while big acquisitions have proven elusive.
Making all the struggle worthwhile is an ultra-bullish demand outlook for the EV metal internally at the global mining house.
Gina Rinehart developed a taste for lithium a couple years ago, making a big investment in German geothermal lithium play Vulcan Energy (ASX:VUL) back when they were hot, curiously timed after the son she’s been in court with for yonks, John Hancock, piled into the same company.
Since then her investments have focused closer to home. Hancock recently inked a deal to explore for lithium on ground held by Indian-backed Legacy Iron Ore (ASX:LCY) and Hawthorn Resources (ASX:HAW) around Mt Ida, near the deposit of the same name owned by David Flanagan’s Delta Lithium (ASX:DLI).
Hancock, which counts the 60Mtpa Roy Hill iron ore mine in which it holds a 70% stake and its share in Rio’s Hope Downs mine as its main breadwinners, also holds a stake in Delta.
Andrew Forrest’s Fortescue has bigger fish to fry as wrangling over the direction of its green energy business has seen the departure of its short-lived CEO and CFO in the space of a week.
But it has dabbled in lithium before and since Forrest stated at last year’s AGM that the $65b iron ore miner was interested in moving into ‘rare earth metals’.
The company is known to have drilled for lithium out at its Tabba Tabba tenements, next to the old tantalum mine now being explored by hot junior Wildcat Resources (ASX:WC8).
What FMG found there is a matter of speculation and it’s never been reported, though Fortescue has certainly not claimed any success in its early stage lithium endeavours to date.
Stockhead revealed a couple months back that Fortescue had been doing a little pegging out in the Mid-West near Delta Lithium’s Yinnetharra discovery, where the company confirmed it was undertaking some early stage exploration for the magical fruit.
Fortescue’s attitude towards lithium, which it will be a major consumer of in electric trains and vehicles as it seeks to decarbonise its iron ore ops in the Pilbara, has been a little confusing at times as well.
Echoing similar comments as Tesla’s Elon Musk, as lithium prices skyrocketed last year, Forrest told analysts he saw no shortage in lithium.
“Look lithium, I’m just not seeing a shortage. There is so many lithium projects we get offered,” Forrest said at the time.
“It’s just one of those things which is just not keeping me awake at night at all. But to get specific about FFI and lithium … Fortescue Metals Group is a fantastic both explorer and developer, but also acquirer of assets.”
$16 billion capped South32 is engineering a pivot from what was its big money spinner in coal towards investing in assets within its portfolio which stand to benefit from the energy transition.
So far that is centred on copper and zinc, two metals Kerr loves the look of.
MD Graham Kerr has been more open than most of the big miners about the BHP spinoff missing the boat on the lithium craze.
“When it comes back to other commodities, we’ve been very clear that we do like nickel, we do like zinc, we do like copper. We think they are going to play an important role in how the world decarbonises,” Kerr said on an earnings call in February.
“We’ve made a comment previously that look, lithium was probably one that we underestimated. There’s been less supply come to the marketplace and demand has probably been stronger than we expected three or four years ago.
“So we do like lithium, but at the moment would probably make the comment that we think the majority of lithium stock is overpriced,” Kerr added.
“We’ll have a look at it, but we think the value is probably not there for our shareholders at the moment purely from a buying perspective.”
Not only did Glencore make a play to buy the debt and relist Australian-Singaporean lithium company Alita Resources, as reported by The Australian last week, but it has paid France’s Eramet US$400 million to market the product from a proposed lithium brine project in Argentina.
The prepayment will be covered by the delivery of 50,000t of lithium sold at market prices over the first five years of the project’s life.
It also produces recycled lithium and has a small trading desk. While it is relatively immature, the lithium trading and futures market is beginning to emerge.
Price agency Fastmarkets reported that open interest on the Chicago Mercantile Exchange (CME) lithium hydroxide contract broke through the 5000 lot barrier on Wednesday for the first time and hit a record of 5231 lots on Thursday.
It also hit a reporting barrier, featured in the Commodity Futures Trading Commission’s commitment of traders report for the first time on August 25, which includes contracts where 20 or more traders hold positions above reporting levels.
It should be noted it pales in comparison to contracts for commodities like gold (442,806 held in open interest on August 29) and copper (190,629).
Like BHP, global copper mining giant Freeport, owner of the Grasberg mine in Indonesia, has decided it wants to stick to its guns.
Septuagenarian boss Richard Adkerson, one of the leading voices on the copper sector, has regularly indicated he has no plans to diversify, as noted in an interview with Fastmarkets in April.
The company is the world’s second biggest copper producer behind Chile’s State-owned Codelco, while it is also the world’s largest individual producer of molybdenum and a major force in gold.
The US$60 billion miner seems to be sticking to its well-maintained guns fed by a network of mines across the US, Indonesia, Peru and Chile.
Brazil’s Vale is the only iron ore producer with the heft to compete with the diversified miners out of Australia, running against Rio for the title of the world’s largest miner.
It also has a massive nickel, cobalt, manganese and copper base metals business, including being the world’s second largest producer of EV ingredient nickel, which includes operations in Canada, Brazil and Indonesia.
Vale has yet to announce any moves into lithium but could branch out after securing a US$3.4 billion investment from the Saudis, who are taking a 13% interest in its base metals business.
Ma’aden, the Saudi State miner, is known to be keen on the battery metal.
The investment from Manara Minerals and Engine No.1, vehicles sponsored by Ma’aden and the Saudi Public Investment Fund, will help bankroll what Vale says is going to be a US$25-30b investment program to become one of the world’s dominant battery metals players.
Vale wants to grow its copper output from 350,000tpa to 900,000tpa and its nickel business from 175,000tpa to 300,000tpa.
Given its incumbency in Brazil and Canada, the New York-listed giant could have a leg up as spodumene production grows in those jurisdictions, but it would likely have to pay a pretty price to belatedly make a move into the space.
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