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Mining
IGO (ASX:IGO) managing director Ivan Vella says analyst reports ‘feel like gossip’, questioning the credibility of headlines that suggest lithium is oversupplied and Chinese EV demand is slowing.
Speaking at the WA Mining Club yesterday, the recently appointed head of the part-owner of the Greenbushes lithium mine in WA – the world’s largest producer of lithium raw materials – said recent trips to the globe’s top EV market gave him confidence mainstream penetration was closer than the average punter assumes.
Vella, previously the head of Rio Tinto (ASX:RIO)’s aluminium division, the west’s top producer of the second biggest metals trade by volume, said the still young lithium battery market and electric vehicle supply chain remained so opaque that real data is obscured.
The market has been characterised by wild swings in recent years, with prices rising 15 times over between 2021-2023 before crashing around 90% last year due to oversupply. Stocks were hit last week when Wood Mackenzie forecast spodumene prices of US$1000/t, a touch below current levels, until 2028.
And while prices have been stagnant for months at both the lithium chemical and concentrate level, sentiment for miners has been dropping into bear territory.
“I read all the analysts’ reports and … it just feels like gossip. You’re reading someone so and so went so and so and heard that this particular lithium conversion factory shut down,” Vella said.
“It’s like, yeah, they’re doing maintenance. That doesn’t mean there’s a supply disruption up or down.
“I think we’re all so starved of real facts that we’re reacting to a lot of small little granules of data. I was in China three weeks ago, and I didn’t hear of full supply chains.
“And in fact, the latest EV numbers (that) came out of China, (and) they’re still increasing, there’s still more demand. So I think there’s just a lot of uncertainty, and that creates this anxiety and then sentiment can drive, of course, equities.”
Shares in $4.5bn capped IGO are down around 35% this year, with its closest peers Pilbara Minerals (ASX:PLS), Mineral Resources (ASX:MIN) and Arcadium Lithium (ASX:LTM) down 18%, 20% and 52% respectively.
A self-described motorsports fan who has driven Germany’s iconic Nurburgring track twice, Vella says electric vehicles are taking major strides to match the performance of internal combustion engine cars.
A sports car designed by Nio, designed to compete with $2 million McLarens, provided an example to the mining exec on a fact-finding mission in China of the advancements being made.
“An average car doing a sensible going hard run (on Nurburgring) you’re probably 12-14 minutes,” he said.
“A world class race driver in a GTR or Porsche or something like that, it’s in the seven and a half to eight minutes.
“That car does it in 6:45, it’s just insane performance. The real takeaway is that car beats a $2 million McLaren and guess what it costs them to build? US$150,000.”
Citing one company losing as much as US$3 billion a year, he said competition between EV producers in China was driving major innovations to reduce the costs of battery-powered cars, previously sold only to a luxury market.
But Vella thinks North American carmakers were making more progress also than the general public gave them credit for.
The cost of EVs has driven perceptions around their exclusivity, while a return of demand for hybrid EVs both in China and outside, as well as range anxiety and a shortfall in charging infrastructure have all driven concerns consumers will not support EVs without government pressure.
But Vella thinks the market is maturing, with new lithium-iron-phosphate battery chemistries and increased competition making them more accessible to the average punter.
“That take up’s coming at the moment largely because of government pressure. There is, I guess, a segment of the world that believes strongly in trying to make their contribution towards climate and they’re buying even a higher price, higher-cost vehicle to do that,” Vella said.
“I think the early take up for Tesla was a mark of that. But I think we’re gonna see mass market moves simply because it’s a better, cheaper product and that’s coming very soon.
“And the big benefit, the follow-up will be 10% of our global emissions for vehicles will be addressed in time. And if the tariffs in in the US slowed down?
“There’s 400 million in North America but we’ve got plenty of other billions of people that want cars in many other sectors that I think can stand back and think how do we want to get there.”
IGO has long been unique as a diversified mid-tier miner in the Aussie market, boasting gold exposure as well, until late former MD Peter Bradford drove the sale of its 30% stake in the Tropicana gold mine to Regis Resources (ASX:RRL) to fund the acquisition of 49% of Tianqi’s Australian lithium business.
That gave it a 24.99% share of Greenbushes and 49% of the, thus far misfiring, Kwinana lithium hydroxide conversion plant.
Greenbushes is a unique asset. A former tin and tantalum operation, the Bridgetown mine was the first to sell Australian spodumene concentrate to China and at a grade of around 2% Li2O (lithium oxide) – double some peers – the orebody is the cheapest hard rock asset to operate in the world.
Only South American brine assets with long lead times to get into production sit lower on the global cost curve.
But while Greenbushes, where an expansion is taking its capacity up from 1.5Mtpa to ~1.9Mtpa, is a generational asset, there are question marks over its other commodities nickel and copper.
A dive in nickel prices linked to Indonesia’s rapid rise as the world’s top supplier saw IGO decide to pause the near $1 billion development of the Cosmos mine earlier this year, just three weeks after Vella’s arrival in his post.
Its world class Nova mine has just three years of life remaining, with a lack of exploration success leaving the company’s nickel and copper cupboard empty from 2027.
Having abandoned plans to acquire the CSA copper mine in New South Wales, the role of both energy transition metals in IGO’s future are under a cloud, unless it can make a new find or pounce on an asset in a competitive M&A market.
While much has been made of Indonesia’s ‘dirty nickel’ by some in the Australian industry like Wyloo Metals boss and iron ore billionaire Andrew Forrest, calling for a green premium, Vella said he does not support the idea of bifurcated prices, saying all producers should look to make their products as green and cost effective as they can.
Nickel demand is also facing headwinds from a shift, flagged also by Vella, towards cheaper LFP lithium ion battery cathode chemistries that are safer but less energy dense than nickel, cobalt and manganese rich models.
Read > High Voltage: EVs are still selling but LFP growth cuts nickel and manganese deep
At the same time Vella remains interested in having nickel and copper as commodities within the IGO portfolio, even if China’s control of another EV metal, rare earths, has Vella less than enthusiastic about stepping into that market.
Meanwhile he says WA, which produces around half of the world’s lithium raw materials, can continue to grab market share in the face of international competition.
“If we get on our bike, and we chase it hard, we can be big in lithium,” Vella said.
“We can be bigger, we can be far more influential and then we can probably start to have some impact on that market and drive into China in a way that has real influence.”
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