Lithium sector springs back to life amid acquisition deals and price rises

Lithium sector acquisition deals price rises 2021 ASX
US lithium major Albemarle Corporation has cautioned there may not be enough lithium to meet demand by 2025.

Lithium carbonate (LCE) prices in China have begun the year in robust mode — a dramatic turnaround from the situation in mid-2020 when Chinese prices for LCE were dragging down the global market.

From the global perspective, the big news is that Chinese prices for LCE are at their highest since September 2019, hitting 60,000 yuan (US$9,276 per tonne), and up 12,000 yuan (US$1,855/t) since January 2020.

Chinese producers are reported to have already sold all their output for January and February, and buyers are looking to stock up before Chinese New Year.

On top of that, there are warnings of lithium supply shortfalls by 2025.

That is one sign that the worst may be over for the lithium sector, one of the key components of the battery metals sector.

Australian companies pick up new projects

Another is that two lithium players have this week expanded their operations with new side investments.

First, we had Piedmont Lithium (ASX: PLL) taking a 19.9% interest in Sayona Mining (ASX: SYA) and its Quebec spodumene project.

The US$12 million (A$15.5 million) deal has an attached offtake agreement which will see Piedmont taking the greater of 60,000t or 50% of output from Sayona.

Sayona has been working to breathe new life into Quebec’s lithium sector which has seen poor management and high costs leading to the closure of two major lithium mines there.

Meanwhile, Piedmont has just announced additions to its management team as it progresses its lithium hydroxide project in North Carolina. Four new executive appointments have been made.

The other corporate move of the week came from Galan Lithium (ASX: GLN), which is already getting closer to developing its flagship Hombre Muerto West lithium brine project in Argentina.

It will now acquire 80% of the Greenbushes South spodumene project in Western Australia from Lithium Australia (ASX: LIT).

This ground is 3km south of the world-class Greenbushes mine and the new project is located on the same geological structure.

Galan already holds a 43sq km exploration licence 15km south of Greenbushes.

Virus panic disrupted 2020 plans

Part of the lithium problem is that investors seem to have been judging the sector by what happened in 2020 (including the COVID-19 panic).

In early 2020, demand for lithium-ion batteries from manufacturers fell substantially as supply contracts were terminated due to the global pandemic.

Perhaps now, especially with Elon Musk becoming the world’s richest man and a new Biden administration in Washington ready to launch a huge and expensive new green (read: batteries) deal, investor eyes may have been lifted to look toward 2030.

The Biden green plan alone has been priced at US$2 trillion (A$2.58 trillion).

By 2030 much of the world will be driving electric vehicles, on top of which all sorts of new battery applications — there is already talk of electric-power jet airliners.

Billionaires now in the lithium game

Just this week, too, plans were announced for two massive battery plants in NSW on the site of coal-fired power plants.

Furthermore, PayPal founder Peter Thiel revealed he had invested in a Canadian-listed play, Rock Tech Lithium, which is planning a US$400 million (A$517 million) lithium factory in Germany to support the planned European battery industry.

Another deal sending out large ripples through the sector is between Mr Musk’s Tesla and China’s Sichuan Yahua Industrial Group which will see the Chinese company supply up to 17,600t per year of lithium hydroxide for the batteries in the US-made electric vehicles.

It has been a long, slow climb back from 2018 when lithium prices collapsed due to oversupply and a rush of exploration companies into the space.

Two years ago, the market judged that all the hype about lithium demand and batteries had been overdone and the growth in demand had been underwhelming.

LCE and lithium hydroxide prices fell by more than 50%, taking the ASX-listed lithium companies down with them.

Serious shortfalls predicted

But industry analysts are now predicting a serious shortfall in lithium carbonate and lithium hydroxide supply beyond 2027

Just this week, too, US lithium major Albemarle Corporation warned that, unless lithium prices rebound to a level which will encourage miners to develop and expand projects, there may not be enough lithium supply to meet demand by 2025, at which time electric vehicle battery demand is expected to have tripled from its present level.

ASX players ramp up lithium action

Other ASX players are also revving up their lithium action.

AVZ Minerals (ASX: AVZ) has locked in a five-year offtake deal with China’s largest lithium compound producer, Ganfeng Lithium.

The agreement will see Ganfeng purchase up to 160,000t of spodumene concentrate per annum from AVZ’s Manono lithium-tin project in the Democratic Republic of Congo.

The agreement with Ganfeng is set for an initial five-year term, with an option for a further five years at the Chinese giant’s discretion.

This week Lake Resources (ASX: LKE) kicked off a definitive feasibility study at its Kachi lithium brine project in Catamarca province, Argentina, with the results anticipated in the first quarter of 2022.

Kachi’s big advantage is that the brine is very low in impurities and the company has already delivered 99.97% pure lithium carbonate samples.

The company has been working with Lilac Solutions at Oakland, California, with a pilot plant.

Lake will be using Lilac’s sustainable direct lithium extraction technology.

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