Lithium set for higher pricing after Chinese crackdown

Recent price and stock movements suggest there may still be life in ‘white gold’ - the critical battery mineral and former market darling lithium. Spurred by China’s push to reduce excessive supply, the price of the previously white-hot mineral has rallied to its highest point this year – and pushed a renewed interest in some local lithium stocks.

The price of the industry standard 6 per cent spodumene concentrate surged from its recent nadir near US$575 (A$882) per tonne to a reinvigorated US$970/t (A$1485/t), according to leading commodity price website Shanghai Metals Market.

As well as enforcing export bans, Chinese authorities have cracked down on illegal lithium mining activity and companies operating without the correct permits, after several enterprising mining firms exploited a legal loophole by obtaining kaolin mining permits to extract lithium.

This month’s closure of global-leading electric vehicle (EV) battery manufacturer CATL’s huge Jianxiawo lepidolite lithium mine for a minimum of three months removes a chunk of supply from the market. Lepidolite is a lower grade spodumene substitute.

Ore from Jianxiawo is usually converted into lithium carbonate and provides for about 8 per cent of China’s production of the material, according to leading investment bank UBS. Ultimately, lithium carbonate is converted into lithium hydroxide, which is said to provide a larger battery capacity and greater power density than carbonate.

Jianxiawo ore currently accounts for up to six per cent of the world’s refined lithium supply.

News of CATL’s closure sent the price of the commodity surging on Monday last week, boosting the price of many ASX-listed lithium players along with it. Nearly all the lithium boats on the bourse - both big and small - rode the wave.

Some giant lithium producers had memorable days, including Pilbara Minerals which jumped 19.7 per cent, Liontown Resources went up 18.3 per cent, Mineral Resources rose 12.2 per cent and IGO moved 8.6 per cent.

The move was mirrored on the day by several smaller players, including developers Lake Resources, which saw its share price rise 10.2 per cent, and Galan Lithium, whose shares went up 10.7 per cent. Former producer Core Lithium, which has plans to transform its lithium project into an underground mining operation, saw its stock jump 15 per cent.

The precipitous drop in lithium pricing since late 2022 caught many investors off-guard, and the commodity’s supply-demand dynamics have not changed course since.

Though demand for lithium supplies and its price soared when the EV industry gained early traction, followed by continued elevated growth in EVs sales, especially in China and Europe, the increase was no match for a ramp-up of supply from the world’s leading producers.

Triggered by China imposing export restrictions on critical minerals used in high-tech applications, semiconductors and defence, some smaller industry players pivoted to more flavour-of-the-month commodities - think antimony and gallium. Alternatively, they moved to gold, which has undergone a rapid re-rating due to central banks gobbling up the supply of the precious metal.

But some lithium explorers and producers have stuck to their guns, and ploughed on with progressing their still attractive projects even as they grapple with continued soft demand for the commodity. Among current producers, Liontown recently announced that United States vehicle giant Ford Motor Company will reduce the amount of spodumene it plans to purchase from the underground miner.

This brings us to the current price movement, which might be a signal the cycle is slowly turning back into positive territory for the valuable critical mineral. Could there be sustained better pricing days ahead?

Commonwealth Bank’s mining and energy commodities strategist Vivek Dhar says the rapid increase in lithium pricing is a result of China’s recent move to curtail intense price competition and reduce over-capacity. He adds that if China’s crackdown on supply continues, the worst of the latest lithium bear market will have passed.

Meanwhile, Cannacord Genuity’s lithium expert Reg Spencer says increased demand for EVs in China, Europe and other countries outside North America has exceeded the car companies’ expectations for EV sales. He said their view of an anticipated slowdown in global EV markets, along with its sales forecasts, was too conservative.

If the wheel is going to start turning in a more favourable direction, the next logical question is how that’s starting to play out for ASX-listed lithium explorers and producers.

For example, Core Lithium is looking to reinvent itself and its Finniss project by firing-up the Northern Territory lithium operation in the future targeting a 20-year mine life as an underground mine to work its BP33 and Grants deposits.

The company had expected Finniss to be profitable in a balanced supply-demand pricing environment, but shuttered it due to the falling price, terminating its open-pit mining contract at Finniss in February last year.

Management says new plans to double Finniss’ mine life, reduce mining costs by 40 per cent by exploiting large continuous stopes, and lift productivity by 20 per cent relative to an open-pit scenario, justify going all-in on underground operations at the site.

The advantages of the project’s tier-one location close to the Port of Darwin with all major approvals locked in, proximity to key Asian and Middle Eastern markets and a modern processing plant with associated infrastructure in place means Finniss appears primed for a restart should the pricing conditions continue to improve.

Though Core is still working through its restart study and has no planned date for recommencing operations, the market responded to its potential for lithium production within the next few years. The company’s share price has motored 128 per cent since April 7 from 5.7 cents per share to touch a 13c high on August 12.

Another player with near-future production aspirations is ASX-listed, US-focused Anson Resources, which is moving its Utah Green River lithium brine operation closer to production. The company’s share price has also been on a tear lately, racing from a low of 4.2c per share on June 26 to a high of 12.5c on August 1 for a more-than-handy 197 per cent gain in five weeks.

Anson revealed a tie-in with South Korean steel and resources giant POSCO Holdings on June 30, signing a memorandum of understanding to develop a direct-lithium-extraction (DLE) demonstration plant at Green River.

POSCO plans to conduct due diligence on the brine project and then build a DLE demonstration plant, as a scaled-up version of a pilot plant. If it succeeds, it will pave the way towards a commercial-scale facility.

The company plans to fully fund the plant and cover all the required infrastructure and operating costs, and will also explore an investment in Anson’s project. Green River has the advantages of access to water from a nearby river, existing infrastructure within the region and access to a skilled workforce.

ASX-listed Galan Lithium is another to benefit from the improved lithium sentiment and saw its share price jump from a low of 8.7c on June 3 to reach a calendar year high of 16.5c on August 11.

The company appears hell-bent on bringing its Hombre Muerto West project in Argentina into production. It waved away an unsolicited, non-binding proposal from the Renault Group, working in conjunction with Chinese firm Zhejiang Huayou Cobalt Co, for the project and its smaller Candelas brine project, for US$150 million cold hard cash.

Galan has since pushed ahead, securing a binding funding package for initial production at the site and executing an offtake agreement and operating agreement with US firm Authium Limited.

Authium will purchase up to 45,000 tonnes of lithium carbonate equivalent, as lithium chloride concentrate, over six to 12 years. It will also provide US$6 million in offtake pre-payments for the lithium concentrate and fund, supply and operate processing equipment at Hombre Muerto West. This will enable Galan to kick off production with a lower upfront capital cost.

A final piece of the production funding puzzle may have now fallen into place after Galan secured a US$20 million injection from shareholder The Clean Elements Fund. The company says it will allow for phase one production of lithium chloride concentrate in the first half of next year.

Apart from the current changes in market forces, some pundits believe the expected growth in energy storage systems over the coming decades will also boost the demand for lithium.

Lithium-ion batteries are widely used in energy storage systems, due to their high energy density, long cycle life and charging efficiency. Lithium’s properties make it ideal for storing and subsequently releasing energy efficiently when demand is high.

The critical mineral is considered ideal for use in grid-scale energy storage systems, especially when integrating sources of renewable energy, and for peak shaving when necessary during times of high demand.

The lithium market might just be set for a sustained rebound and companies that stayed the course, instead of pivoting to gold and high-tech metals now regarded as the new market-darlings, may be well rewarded in the coming years.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au