To investors, it must be a paradox: all they hear about lithium is that the white metal is the future, on the back of its pivotal role in areas from electric vehicles (EVs) to renewable energy storage systems, not to mention its expanding use in consumer electronics, medical devices, glass and ceramics. It’s a one-commodity thematic of its own, when you consider the increasing electrification of transportation, the development of new lithium battery technologies, and the growth of the distributed energy market. Lithium’s light weight, high energy density and excellent electro-chemical properties position it at the forefront of all these trends.
But then, investors look at lithium prices – and scratch their heads.
Lithium carbonate and lithium hydroxide are both down 70% from their average 2023 prices, while spodumene (hard-rock lithium ore with 6% lithium, the key reference price for Australian miners), is down 75%.
How has that happened, if lithium demand is surging?
The answer is a combination of factors, with the bane of metal prices – over-supply stimulated by high prices – at the top. Also weighing on lithium is softer-than-expected demand, amid a stagnating EV market – particularly in the key markets of USA and China, which combined account for about 70% of the world’s EV battery market – and the emergence of sodium-ion batteries as a viable alternative to lithium-ion ones. Also contributing is China’s move to boost investment in extracting lithium from domestic lepidolite sources, which is a lower-cost lithium raw material than the imports on which China heavily depends.
Recently, US lithium giant Albermarle said that while its long-term demand projections for lithium were “just as robust as they’ve always been,” prices were concerning, and Albemarle was presuming “lower for longer” from a pricing perspective, and working to ensure it is able to operate through that downturn.
Broker Morgans says it still holds conviction in the long-term health of the lithium market and expects a lithium supply deficit to emerge towards the latter of the decade when supply is expected to trail demand as EV growth picks up.
At the moment, the lithium stock that I would rate the best on the ASX is Arcadium Lithium.
- Arcadium Lithium plc (LTM, $3.83)
Market capitalisation: $4.1 billion
12-month total return: n/a
3-year total return: n/a
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: 11.6 times earnings
Analysts’ consensus target price: $6.48 (Stock Doctor/Refinitiv, seven analysts)
Arcadium Lithium was formed from the January 2024 merger between Australian lithium producer Allkem and US chemicals giant Livent. Overnight, Arcadium Lithium became one of the world’s largest integrated lithium chemical producers, from producing lithium to chemical manufacturing, in strategic locations around the world. The shares that trade on the Australian Securities Exchange (ASX) are CHESS Depositary Interests (CDIs), with the primary listing being on the New York Stock Exchange (NYSE) trading under the code ALTM.
Arcadium is one of very few ASX stocks offering exposure to the downstream lithium sector. Alongside Albemarle and Sociedad Química y Minera de Chile (SQM), Arcadium is the third-largest producer of downstream lithium chemicals outside China, capturing the full value chain from lithium raw materials to battery-grade lithium chemicals. The company has strong exposure to high value-added lithium products and has a pipeline of advanced development projects that could potentially more than triple its lithium capacity by 2030.
Arcadium’s strength is that it has developed proprietary process knowledge that enables it to produce high-quality, low-impurity lithium carbonate and lithium chloride from its low-cost operations in Argentina, which are expandable, to meet increasing demand – when the lithium price recovers. It is one of a few lithium compound producers with global manufacturing capabilities, using lithium carbonate as feedstock to produce battery-grade lithium hydroxide in the US, China and Japan, and using lithium chloride to produce lithium metal, a key feedstock in the production of butyllithium products in the US, the UK and China, as well as in the production of high-purity lithium metal in the US, a core component of next-generation battery technologies. (Arcadium operates the only integrated mine-to-metal production facility in the Western Hemisphere for high-purity lithium metal.)
Its high-performance lithium compounds are essential for a range of applications, including EV batteries, energy storage systems, specialty polymers and pharmaceutical products and chemical synthesis applications. The company’s expertise and experience in lithium hydroxide, lithium carbonate, butyllithium and high purity lithium metal production processes and product applications gives it a competitive advantage in these markets.
Arcadium’s raw material portfolio includes both brine and hard-rock assets. It wholly owns the Salar del Hombre Muerto brine operation in Argentina, which currently has two additional staged expansions expected to increase capacity by 150% by the end of 2030. Arcadium also owns a 66.5% stake in a similar Argentinian brine project, Olaroz, which began production in 2015. Finally, the company is developing another brine project in Argentina, Sal de Vida, which is scheduled for first production in the second half of 2025. The hard rock-assets include the Mt Cattlin spodumene mine near Esperance in Western Australia, which entered production in 2010. It also owns a handful of assets in Canada that are set to enter production in the next couple of years.
Given the downturn in the lithium market, Arcadium has had to make changes: it has paused investment in its Galaxy hard-rock lithium mining project in Canada and is looking to bring on a strategic investment partner. It has also revised the development timeline of its lithium carbonate expansion projects at Salar del Hombre Muerto. Arcadium says these actions will shave US$500 million from its capital spending plans over the next 24 months. There is at least the risk that Mt Cattlin may have to be mothballed if weak spodumene prices persist; like most spodumene operations, it needs to see a four-figure price.
From a 2023 average of US$3,712 a tonne, spodumene has sunk to about US$920 a tonne on the spot market, and broker Goldman Sachs sees it tracking down to US$800 a tonne over 2025, before rebounding slowly to the broker’s long-term target of US$1,150 a tonne. Mt. Cattlin is still cash-flow positive, but it’s under pressure: that potentiality has to be factored-in to Arcadium.
At the moment, higher lithium carbonate and lithium hydroxide sales are being offset by lower spodumene concentrate sales, due to reduced production at Mt. Cattlin.
Arcadium is projecting a 25% increase in combined lithium hydroxide and lithium carbonate sales volumes for 2024 compared to 2023. It also expects a further 25% increase in 2025 compared to 2024, with both increases driven by already-completed expansions in Argentina.
The asset portfolio, consisting of both operating assets and development projects, gives Arcadium global reach, scale, and product flexibility. That’s why I think Arcadium is the stand-out lithium stock on the ASX. It’s right up there with the leading lithium stocks in the world, like Albemarle and SQM, but the caveat there is that while its two big NYSE-listed peers are strong dividend payers, there’s nothing on that front from Arcadium – the focus there is all on the upside potential, as the lithium price recovers.
There is also good value at the moment in Pilbara Minerals and Mineral Resources.
- Pilbara Minerals (PLS, $2.90)
Market capitalisation: $8.7 billion
12-month total return: –37.1%
3-year total return: 9.6% a year
FY25 Estimated Yield: 0.9% fully franked (grossed-up, 1.3%)
FY25 Estimated P/E ratio: 45.3 times earnings
Analysts’ consensus target price: $3.25 (Stock Doctor/Refinitiv, 18 analysts)
Pilbara Minerals is one of the biggest spodumene (hard-rock lithium ore) producers in the world, from its flagship Pilgangoora project in Western Australia’s Pilbara region. The Pilgangoora ore body is one of the largest hard-rock lithium deposits in the world, according to the company; the operation has two processing plants, one (Ngunjau) producing a spodumene concentrate and the other (Pilgan) producing a spodumene and tantalite concentrate, the latter being a source of tantalum metal.
The 2 million tonnes-a-year mining and processing operation produces approximately 360,000–380,000 tonnes a year of spodumene concentrate. PLS has two expansion projects underway, P680 and P1000, which will in turn lift the capacity to 580,000 tonnes a year (P680) and then to 1 million tonnes a year (P1000). P1000 is targeting first ore in the March quarter of 2025 and full production at the end of the September quarter of 2025; the expansion is fully funded.
PLS’ June 2024 quarter was impressive, with spodumene production up 26% on the March quarter, sales shipments up 43%, costs down 12%, and revenue up 58%, to $305 million. The June quarter production lifted the FY24 total to 725,000 tonnes of spodumene, beating the FY24 production guidance of 660,000 tonnes–690,000 tonnes, while the cost of production, at $654 a tonne, came in within the guidance range of $600–$670 a tonne.
In FY24, Pilbara Minerals’ average realised price fell 74%, to US$1,176 a tonne, which flowed into a 69% fall in revenue, to $1.25 billion. In FY25, PLS should be able to get up to around 840,000 tonnes a year, as the P680 and P1000 expansion projects produce ore.
But Pilbara Minerals knew that it needed to diversify further, and the fruit of that was seen earlier this month, when the company announced a $560 million deal to acquire ASX-listed Latin Resources, signalling its entrance into the South American lithium market. The reason for the acquisition is Latin Resources’ flagship Salinas lithium project, located in Minas Gerais, Brazil, in that country’s ‘Lithium Valley’. Pilbara Minerals looked at more than 100 projects around the world and chose Salinas as the best undeveloped, low-cost, hard rock Tier 1 asset in the world.
Salinas will be Pilbara’s second 100%-owned hard-rock lithium asset in a Tier 1 country, and could contribute significantly to Pilbara Minerals’ future production, potentially adding up to 30% to the company’s production, at a competitive cost base. It gives Pilbara Minerals not only new supply, but the opportunity to diversify away from supplying lithium to China, and into new growth markets for lithium, such as Europe and North America.
Salinas is potentially a cracker of a deal, and there is definitely a case for holding your lithium exposure through PLS – you just don’t get the vertical integration that you get with Arcadium.
- Mineral Resources (MIN, $45.91)
Market capitalisation: $9 billion
12-month total return: –26.5%
3-year total return: –6.4% a year
FY25 Estimated Yield: 1.1% fully franked (grossed-up, 1.6%)
FY25 Estimated P/E ratio: 42.3 times earnings
Analysts’ consensus target price: $63.50 (Stock Doctor/Refinitiv, 16 analysts)
Mineral Resources is a diversified resources company, with extensive operations in lithium, iron ore, energy and mining services across Western Australia. As well as operating world-class iron ore and lithium production projects, it is the world’s largest crushing contractor, and one of Australia’s leading “pit-to-ship” mining services providers
Its diversified nature will appeal to investors who like the lithium thematic, but don’t necessarily want a pure-play lithium exposure; the mining services business gives the company stable base of cash flow and profits, and more recently, dividends.
In FY23, lithium generated just over two-thirds of revenue, with mining services contributing 24%, and the rest from the iron ore operations.
MinRes owns 50% of the Mt Marion spodumene mine and processing plant near Kalgoorlie in Western Australia, with the other half owned by Chinese company Ganfeng, which is also the mine’s offtake partner, and also owns half of the Wodgina deposit in WA’s Pilbara region, one of the largest-known hard-rock lithium deposits in the world, US-based chemicals giant Albemarle owns the other half. Wodgina has an expected mine life of more than 30 years, shipping 750,000 tonnes a year of 6% spodumene concentrate to Chinese customers. The partners mothballed Wodgina in October 2019, to sit-out weak lithium prices, but in late 2021 they committed to a restart, and Wodgina resumed production in May 2022.
In November 2023, MinRes added the Bald Hill lithium mine to its world-class lithium portfolio; located in WA’s Goldfields region, Bald Hill has an annual production capacity of about 150,000 tonnes of spodumene, in a 5.5% concentrate.
In May, MinRes delivered first ore on ship ahead of schedule from its Onslow Iron project, conceived to unlock six billion tonnes of “stranded” iron ore deposits in the West Pilbara region, and create a new iron ore mining region for Australia. MinRes designed, built and is managing the innovative mining and transport infrastructure unlocking iron ore deposits in the West Pilbara that would otherwise remain undeveloped; Onslow is MinRes’ flagship $3 billion project, leading the company’s transition to low-cost, long-life iron ore operations. It will ship 35 million tonnes a year, with an expected mine life of more than 30 years.
While Onslow comes on-stream, in June, MinRes announced the decision to shut its Yilgarn iron-ore mine, in Western Australia’s Goldfields region, at the end of the year.
The resource at Wodgina is 217 million tonnes, and current capacity is 900,000 tonnes a year, based on three “trains,” or processing units; but earlier this year the lithium supply crunch forced MinRes to pull back on the full ramp-up of the third train, with decisions on a fourth train – and studies of the business case for Trains 5 and 6 – also delayed. But MinRes and Albemarle, while cautious in the current environment, are also keen to maximise the potential of this world-class deposit. A decision on the ramp-up of Train 3 should come soon.
But for FY24, MinRes managed record shipments from Wodgina (201,000 tonnes, up 41% on FY23) and Mt Marion (218,000 tonnes, up 46%.) Production at Mt Marion increased 40%, to a record 328,000 tonnes, while Wodgina production topped 212,000 tonnes, up 44%. Underground production is planned to begin at Mt Marion in 2025.
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