Lithium Australia forecasts revenue growth on rebounding battery mineral commodity prices

Lithium Australia Soluna ASX LIT Envirostream 2020 COVID-19
Lithium Australia continues its COVID-19 driven cost savings but expects stronger demand for battery minerals and energy storage systems in the near future.

Lithium Australia (ASX: LIT) is anticipating strong revenue growth from its Envirostream Australia lithium-ion battery recycling business this financial year, underpinned by improved commodity prices since March.

The company also expects positive cash flow from its 50%-owned battery-based energy storage joint venture Soluna Australia by the December quarter.

Lithium Australia today provided an update on its COVID-19 strategy and its progress in maintaining operations during such a volatile period.

It noted the recent price increases of copper, nickel and steel and said although lithium and cobalt “will likely take longer to recover”, demand for batteries remains strong.

“An increase in demand for all battery minerals is anticipated in the medium to longer term,” the company stated.

However, Lithium Australia has announced it will further cut costs and focus on the business units closest to positive cash flow (Soluna and Envirostream) as it continues to ride out the COVID-19 storm.

Significant revenue growth expected for Envirostream

Lithium Australia reported its 90%-owned subsidiary Envirostream has now added new copper and aluminium recovery circuits at its battery recycling plant as prices have improved for those commodities recently.

The subsidiary has noted a reduction in stock levels as spent battery supplies diminish and said it is focusing on widening its battery collection initiatives in order to strengthen revenue.

According to Lithium Australia, Envirostream’s revenue is expected to grow in in the near future with the Melbourne operation (which continues to operate as an ‘essential service’ during the currently renewed lockdown measures) moving to positive cash flow during the second half of FY21.

This forecast is supported by a nationwide spent battery recovery scheme expected to be introduced by the Australian Battery Stewardship Council during the current financial year, which should “significantly” increase Envirostream’s volume of collected spent batteries.

Envirostream has also signed non-disclosure agreements with potential partners for the establishment of recycling facilities in both Australia and offshore.

Positive cash flow soon anticipated for Soluna

Soluna, a 50/50 joint venture between Lithium Australia and Chinese battery manufacturer DLG Energy, last month secured Clean Energy Council accreditation for its battery energy storage systems which was expected to pave the way for retail sales.

Although global supply chains were disrupted in April and May, Lithium Australia said these were now at near-normal levels again.

“For FY21, Soluna Au anticipates strong demand for its energy storage systems and good sales growth, with the business expected to be cash-flow positive from the December quarter,” Lithium Australia stated.

COVID-19’s impact on the group’s activities

At the start of April, Lithium Australia announced an initial strategy in light of the COVID-19 pandemic that included staffing and rental cost reductions as well as decreased spending on exploration.

In today’s announcement, the company noted its business, which spans Europe, Asia and Australia, is affected by travel restrictions and many service providers and other stakeholders have curtailed their operations.

As a result, Lithium Australia said it will further reduce outgoings in activities that will not provide a positive near-term financial outcome.

“Lithium Australia has taken significant measures to refocus its business on its revenue-generating battery recycling and battery sales businesses, which it expects will generate significant revenue during FY21,” Lithium Australia managing director Adrian Griffin said.

He said the company has had to cut workforce numbers in order to reduce its cash burn but is “striving to minimise direct impacts on employees”.

“Funding has been refocused on the group business units with the most capital efficiency, in an effort to drive value for shareholders,” Mr Griffin added.

In particular, activities have been scaled back at the company’s VSPC cathode powder research facility in Queensland with the pilot plant placed on care and maintenance.

Exploration activities are also on hold at Sadisdorf in Germany and the company has relinquished its involvement in an exploration project in Mexico.

Lithium Australia also reported making use of Australia’s federal and state government initiatives to help maintain employment levels including the JobKeeper program, Pay-As-You-Go subsidies and payroll tax relief.

The company has adopted a cautious stance despite the recent resurgence in capital and commodity markets, considering what appears to be a second wave of COVID-19 outbreaks around the world including Melbourne, Victoria.

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