In a research note designed to put the spotlight on Millennial Lithium (CVE:ML), one of its clients, UK broker Liberum recently gave a succinct summary of the dynamics behind the recent recoverin in the lithium market.
“Market wastes no time on upcycle”, ran the header.
“The last tough couple of years in lithium have been quickly forgotten and share prices across the space are running hard once again,” the broker continued.
The broker highlighted in particular strong moves from Millennial, Lithium Americas (NYSE:LAC), Neo Lithium Corp (CVE:NLC), Galaxy (ASX:GXY), Bacanora (LON:BCN), Albermale (NYSE:ALB), Livent (NYSE:LTHM), SQM (NYSE:SQM), and Orocobre (TSE:ORL)(ASX:ORE).
“Lithium prices hit a cyclical low in 2020, driven by low capital intensity hard rock projects in Australia springing up and overwhelming the market,” said Liberum.
“However, in recent months, lithium carbonate and lithium hydroxide prices have been surging higher. Battery grade and technical grade lithium carbonate prices began to rally strongly as Chinese producers paid up, given a difficulty in sourcing materials.”
Currently, battery and technical grade carbonate prices sit at just over US$10,000 per tonne, whilst hydroxide prices are somewhat lower at US$8,811 per tonne.
Spodumene concentrate remains the laggard, with prices down at $430 per tonne. At these prices, most high cost Australian producers will be making minimal profits or be loss making.
In response to the overall recovery, there have been a large number of equity raises since mid-2020, including US$188mln raised for Ganfeng Lithium (SHE:002460), two raises totalling US$500mln for Lithium Americas, and US$124mln for Galaxy Resources.
Much of this money is being used to progress development projects, and interest is now percolating down into the more junior end of the market too.
Cornish Lithium recently put together a £5mln raise for its brine project in the UK, and projects across Europe, from European Metals Holdings (LON:EMH) Cinovec project in Czech Republic to Savannah Resources PLC’s (LON:SAV) Minas dos Barros project in Spain also attracting attention.
One other new project that has been making waves in more ways than one is the Vulcan Energy Resources Ltd (ASX:VUL) project in Germany. Vulcan’s shares have also been on a stellar run, fuelled in part by the additional attraction of the company’s green credentials.
Like Cornish Lithium, Vulcan plans to extract lithium from brines using geothermal energy, making it an overall net-zero carbon emitter. That’s a plus in itself, of course, but one that looks all the more startling when set against data provided by Vulcan on the likely carbon emissions of a fully-firing industry producing lithium from hard-rock spodumene.
According to Vulcan, the “approximate carbon emissions resulting from producing and refining lithium from hard rock mines” amounts to around 1.05bn tonnes, equivalent to the combined annual emissions of the UK, France and Italy combined.
Is that one reason why the spodumene price hasn’t quite kept up with other types of lithium? It might not be a major factor at this stage, but with Europe set to become the world’s biggest market for lithium, and European automakers extremely sensitive to carbon in the supply chain, companies like Cornish Lithium and Vulcan look set to be able to jump ride to the head of the queue.
So, like men, not all lithium projects are created equal. Having said that, though, at the moment all boats seem to be rising, and even the least profitable of the Australian producers look like they’ll be able to wash their faces in the current environment.
What’s more, many commentators noted in the wake of Tesla’s (NASDAQ:TSLA) recent results that the real constraints for growth in the electric vehicle market lay on the supply rather than the demand side. Electric vehicles, powered by lithium batteries, are now getting to be as cheap as their old-fashioned gasoline-powered forebears. People want them – it’s now up to companies like Tesla and the European carmakers to supply them, and for the miners to supply the required lithium.