Lithium – Lifting the Spirits
You don’t get to hear a specialty metal mentioned often in a Woody Allen movie, but Lithium has managed to score a mention more than a few times. Of course it’s not that the gnomic director has suddenly been converted to a new variety of battery but rather that so many of his characters (and maybe his audience) need a pick-me up of some Lithium to cure (or ameliorate) what ails them. Then again until 20 years ago the only mention the public ever heard of Lithium was in reference to its medical properties, even though its ceramic applications were massively more important volume-wise. Indeed Lithium was the word on everyone’s lips pre-1950 when it was a standard ingredient in 7-Up (the “up” being literal) and farther back it went into Lithia Coke (give me that over Cherry Coke any day!).
Indeed, it has been speculated (and even tried in some places) that putting Lithium into water supplies might lift people’s mood and reduce suicides. In 1990, a study in 27 counties in Texas found lower rates of not only suicide but also homicide and rape in those where the drinking water contained lithium. In 2009, research in Japan found lower suicide rates in areas with lithium in the water.
If mood enhancement is a side effect then I humbly suggest that they run some through the Toronto water supply just a little bit ahead of the next PDAC. It may not improve stock prices but fewer would care!
Lithium has long been ruled by a Cartel, though the members would ferociously deny it. There is nothing as broken as a cartel once it comes unglued. They can go dysfunctional and yet survive (e.g. OPEC, Potash). However, once production outside the cartel exceeds that within discipline starts to break down.
Cartels require that:
- All big players must be within
- If there is a major player outside then the cartel breaks down
- Price discovery is the enemy of cartels
- Lithium being quoted (e.g. LME) would start cartel erosion
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Therefore there is a prospect that stealth erosion may occur with spodumene players converting into lithium producers. There may also be increased price discovery (LME et al.) while vertical integration will evolve with trade buyers securing exclusive offtake.
The takeover of Talison by Tianqi looked like a break-up of the Cartel then, lo and behold, Rockwood bought half of the asset. A very unsubtle and rather desperate showing of their hand by the Cartel.
However, there could very well be a sweet spot for lithium pricing where everyone can be happy. The cartel thus far has maintained prices that reward themselves handsomely. They may yet sabotage (or have been sabotaging) prices to deter new entrants. If a “right price” is established then demand may expand faster and alternative technologies may be permanently thwarted (or delayed for a long time). Recycling has not taken off massively but would do if prices were kept too high for too long.
Below can be seen the Lithium Carbonate price trend.
As per our long-held thesis, we expect (smart) end-users in most metal-consuming industries to seek out secured supply i.e. vertical integration.
A key truism behind this vertical integration theory is that the Japanese and Koreans do not want to have control of mining projects elsewhere (in absolute contrast to the Chinese attitude). Thus JVs, sizeable percentage offtake agreements and large minority stakes (as well as funding agreements) are going to be the norm. However, neither Japan nor Korea have done much to secure their supplies while the Chinese groups have eagerly positioned themselves in the Australian lithium scene by taking over Talison and taking a sizable stake in Neometal’s (ASX:NMT) Mt Marion. End-users tying up new mines should erode the cartel, removing some of its best clients.
The Lithium Lifecycle
The lithosphere is divided into two parts, the salares operators and the Hard Rockers. The former are almost all in South America, but with a few isolated examples in the USA. The latter are scattered all over the globe, and mainly are spodumene deposits. In the past the interesting combo of tin/tantalum/lithium was widely exploited but went into retreat with the rise of brine. Now though there is a resurgence in this type of deposit with the two places richly gifted in this being Spain and the mountains on the Czech/German border region.
Below can be seen our update on the Lithosphere and its timeline to production. Interestingly on the most advanced side we have two mines that have been stopped dead in their tracks with the other operating mines being those in the “Cartel” (remembering that Talison is part-owned by Rockwood). Neometals’ (ASX:NMT) Mount Marion has been edging forward and now has Ganfeng motoring the project along. Rincon was ahead of the pack in 2010 and has been marking time and Orocobre seems to have lost forward momentum as well.
Lithium Australia’s (ASX:LIT) Cinovec project in the Czech republic has its fate tied with the development of the tin assets there (of which the Lithium will be a by-product). In the meantime they are pushing ahead steadily with the pilot plant at Lepidolite Hill in Western Australia. Nemaska Lithium (TSX:NMX) are in the hunt for a partner to fund the build but that is essentially ready to roll. International Lithium have the same partner as Neometals (ASX:NMT) but that only goes to reinforce that Ganfeng will push ahead with Mt Marion which is way more advanced.
We should not be surprised to see Mt Cattlin get back into operation with its new owner, General Mining. The Quebec Lithium asset is currently mired in the Debtor in Possession sale process, which gives us no clear sign of future direction.
The space is no longer as overcrowded as it was. There has been a drastic reduction in the number of serious players caused partly by financing but also by promoters running off in search of shinier objects.
The overarching trends to look for would be:
- Expect Australian (spodumene) players to become mine-to-market, probably in next two years
- Hopefully a transparent spot market for Lithium will evolve (though hopefully not in China)
- Expect that recycling (probably driven by German interest) will evolve faster when a large enough pool of used lithium products is available (but only if prices are high)
In a monolithically grim mining scene the lithium space stands out not just for a healthier price for the mineral in question, a secular upward trend in demand and a number of projects attracting big buck investments. Talison’s sale to a Chinese group (and then part resale to Rockwood) set the bar high. Followed by Neometals (ASX:NMT) success in attracting Ganfeng, the lithosphere is one of the most happening places in the minerals space.
An advantage that has come from the intervening years since the high-point of the lithium boom in 2010 is that the numbers of players have been winnowed down to a more manageable number and the projects have been coming to market in a more orderly fashion. This is more by accident than design but it is certainly a contrast to what has happened (or rather not happened) in the Rare Earth space.
The lithosphere is starting to look like one of the healthier parts of the mining space, with a good distribution of producing mines, through realistic mines in development and finally doable projects at the more formative end of the spectrum. This should create a virtuous circle that leads to the best projects getting financed and those in the space being able to, hopefully, distance themselves from the travails of the wider mining sector.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>