COM­MOD­ITY FO­CUS: LITHIUM

The Australian Mining Review - - FRONT PAGE - CAMERON DRUM­MOND

Lithium stocks have been sub­jected to drops in value as plans to in­crease sup­ply in Chile and fore­cast drops in se­aborne spot prices for the com­mod­ity cause a wave of un­cer­tainty. How­ever, those in the in­dus­try be­lieve bear­ish anal­y­sis far un­der­es­ti­mates cur­rent and fu­ture de­mand.

A BEAR­ISH out­look for lithium from Mor­gan Stan­ley has drawn crit­i­cism from in­dus­try, af­ter the an­a­lyst group pre­dicted a 45 per cent fall in lithium prices by 2021.

Mor­gan Stan­ley was critical of Chile-based lithium pro­ducer SQM’s ex­pan­sion plans and be­lieved over­sup­ply would even­tu­ally de­crease spot prices in the global mar­ket.

“A host of lithium projects and ex­pan­sion plans — in­clud­ing in­creased pro­duc­tion by low-cost Chile brine oper­a­tor SQM — threat­ens to add 500,000 tonnes (t) to global lithium raw ma­te­rial sup­ply by 2025, swamp­ing fore­cast de­mand growth,” Mor­gan Stan­ley said.

SQM hit back at the pre­dic­tion in its Q4 earn­ings re­port in March, say­ing its pro­duc­tion past 2019 would be driven by global de­mand and the com­pany was not out to cause over­sup­ply is­sues.

It said it would only com­mit to spend­ing an ini­tial $US170 mil­lion to ex­pand its an­nual pro­duc­tion ca­pac­ity of lithium car­bon­ate from 48,000 tonnes (t) to 70,000t this year, and then to 100,000t by 2019.

“We will eval­u­ate the tim­ing for fu­ture ex­pan­sions in the Salar de Ata­cama based on mar­ket con­di­tions,” SQM chief ex­ec­u­tive Pa­tri­cio de Solmini­hac said.

Mor­gan Stan­ley an­a­lysts ex­pect lithium car­bon­ate prices to peak at about $US13,000/t this year, be­fore de­clin­ing to about $US7000/t by 2021.

They have also pre­dicted a sur­plus of 190,000t in 2022.

“We as­sume that the large premium that has opened up since 2015 be­tween China spot prices and Chile con­tract prices will en­dure only as long as the mar­ket re­mains tight – once large sur­pluses build, global prices will re­align.

“China’s lithium re­serves are es­ti­mated at 3.2 mil­lion tonnes (mt), and while ex­ploita­tion has been con­strained to date by high mag­ne­sium con­tent in brines and lack of hard rock de­vel­op­ment, this is evolv­ing.

“Bat­tery mak­ers we have spo­ken to in China re­port that do­mes­tic sup­ply is im­prov­ing ‘in leaps and bounds’.

“We see sig­nif­i­cant up­side risk to China’s do­mes­tic sup­ply by 2025 against our base-case fore­cast, and ex­pect costs to fall over that time pe­riod.”

How­ever, Aus­tralian near-term pro­ducer Pil­bara Min­er­als dis­agrees with the Mor­gan Stan­ley re­port.

“I am firmly of the view that ev­ery­one, in­clud­ing Mor­gan Stan­ley, is grossly un­der­es­ti­mat­ing how quickly the mar­ket is mov­ing on the de­mand side,” Pil­bara Min­er­als Ken Brins­den said at a min­ing con­fer­ence in Florida.

Re­search group Bench­mark Min­eral In­tel­li­gence man­ag­ing di­rec­tor Si­mon Moores, through Twit­ter, la­belled the Mor­gan Stan­ley fore­cast “ridicu­lous”.

“When you un­der­stand even the ba­sics of lithium, cath­ode and bat­tery plants, and auto ma­jors plans you re­alise the Mor­gan Stan­ley sce­nario has a 1 per cent chance of hap­pen­ing,” he said.

Aus­tralia’s Po­ten­tial

Aus­tralia is al­ready the world’s largest lithium pro­ducer, ac­count­ing for about 60 per cent of pro­duc­tion with sev­eral new hard rock lithium mines and pro­cess­ing fa­cil­i­ties un­der de­vel­op­ment.

Dur­ing 2017, it was also the top des­ti­na­tion for lithium ex­plo­ration with 26 per cent of ex­plo­ration spend­ing glob­ally.

Cur­rent pro­duc­tion comes from the world’s largest lithium mine, Tianqi Lithium/ Al­ber­marle’s Green­bushes; Galaxy Re­sources’ Mt Cat­tlin; Min­eral Re­sources/Jianxi Gan­feng Lithium’s Mt Mar­ion, and Tawana Re­sources/ AMAL’s Bald Hill, all in WA.

Two more mines are ex­pected to come on­line this year – the Pil­gan­goora projects be­ing de­vel­oped by Al­tura Min­ing and Pil­bara Min­er­als.

Cur­rently, these projects are, or will, pro­duce spo­dumene con­cen­trate be­fore be­ing shipped to off­shore re­finer­ies – the first stage in the lithium pro­cess­ing chain.

In its Fe­bru­ary re­port A lithium in­dus­try

in Aus­tralia, the As­so­ci­a­tion of Min­ing and Ex­plo­ration Com­pa­nies (AMEC) said there were sub­stan­tial value-adding op­por­tu­ni­ties along the trans­for­ma­tion chain from min­eral ex­trac­tion to end-prod­uct lithium, call­ing for fur­ther down­stream pro­cess­ing and re­fine­ment of con­cen­trates be­fore ex­port.

“As a re­sult of the chem­istry of lithium in con­cen­trate, the act of pro­cess­ing con­cen­trate fur­ther into bat­tery grade prod­uct de­liv­ers a more than six-fold ef­fi­ciency in trans­port and lo­gis­tics,” the re­port stated.

“Ac­cord­ingly, by build­ing this pro­cess­ing closer to the mine, value is also cre­ated by sig­nif­i­cant cost sav­ings.”

So far, the only lithium hy­drox­ide pro­cess­ing plant in de­vel­op­ment is Tianqi Lithium’s $700m Kwinana fa­cil­ity in WA, with Stage 1 ex­pected for com­ple­tion in late 2019.

“While a cur­rent hub lo­ca­tion is ef­fec­tively emerg­ing in Kwinana, it is in­ter­est­ing to imag­ine other pos­si­ble lo­ca­tions,” AMEC said.

“As an ex­am­ple for re­gional Aus­tralia, an es­ti­mate of the cost of con­struc­tion of a pro­duc­tion fa­cil­ity in the Pil­bara would be in the or­der of 1.3 times that of an ex­ist­ing in­dus­trial hub (ex­trap­o­lat­ing from Re­gional De­vel­op­ment Aus­tralia re­port on the cost of do­ing busi­ness in the Pil­bara).

“Ac­cord­ingly, a tar­get con­struc­tion cost of a 20,000 kilo­tonnes per an­num (ktpa) fa­cil­ity would be in the or­der of $US350m.

“This cost per ktpa would be on a par with large plants in Ar­gentina and Bo­livia, and well below smaller scale plants in Ar­gentina and Fin­land.”

An­other fac­tor sup­port­ing fur­ther value for lo­cal down­stream fa­cil­i­ties is Aus­tralia’s ac­ces­si­bil­ity to 13 out of the 14 typ­i­cal reagents used in the next phase of pro­cess­ing, which amount to about 40 per cent of plant op­er­at­ing costs.

Only Soda Ash is cur­rently im­ported since the clo­sure of Pen­rice’s Os­borne plant in 2013.

“The ev­i­dence in­di­cates that, pend­ing de­tailed cost and risk anal­y­sis, any suf­fi­ciently large bat­tery chem­i­cal plant in Aus­tralia will be glob­ally cost ef­fec­tive, and would likely have more pre­dictable per tonne op­er­at­ing costs (com­pared to brine-based lithium) due to the de­pend­abil­ity of hard-rock sup­ply,” the re­port con­cluded.

“As a re­sult of the chem­istry of lithium in con­cen­trate, the act of pro­cess­ing con­cen­trate fur­ther into bat­tery grade prod­uct de­liv­ers a more than six-fold ef­fi­ciency in trans­port and lo­gis­tics.” “I am firmly of the view that ev­ery­one, in­clud­ing Mor­gan Stan­ley, is grossly un­der­es­ti­mat­ing how quickly the mar­ket is mov­ing on the de­mand side.”

Im­age:Albe­marle.

Albe­marle’s Sil­ver Lake lithium brine project in Ne­vada, USA.

Im­age:Al­tur­aMin­ing.

Al­tura Min­ing’s Pil­gan­goora hard rock lithium project is tar­get­ing first sales in Q2 this year.

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