After a dismal earnings season, lithium and nickel miners are expected to face a wave of cost-cutting and potential consolidation over the next year, as the battery metals sector shows no signs of short-term relief.
Three Australia-based lithium miners—PLS Ltd. (formerly Pilbara Minerals), IGO Ltd., and Mineral Resources Ltd.—reported their largest H1 losses in over six years and all decided not to pay dividends to shareholders.
Meanwhile, Nickel Industries Ltd., which operates low-cost nickel mines in Indonesia, posted a full-year loss of $169 million, while South32 Ltd. announced it is weighing a potential divestment from its Colombian nickel project.
The profit decline is also reflected in the downward trend of lithium and nickel prices. Since 2022, lithium prices have plunged by more than 80%, while nickel prices have halved since the beginning of 2023.
In a report released on Monday, Nickel Industries warned, "If margins remain low for an extended period, further impairments to book value may be required."
The company's Managing Director, Justin Werner, mentioned in a conference call that the current environment is "extremely challenging" and that "the entire nickel market is at multi-year lows."
Barrenjoey Markets analyst Richard Knights echoed this sentiment, stating, "This has been ongoing since the decline in lithium and nickel prices, with every company trying to minimize the operations of these projects as much as possible."
As metal prices remain subdued, lower enterprise values could present opportunities for deals. Last year, mining giant Rio Tinto acquired Arcadium Lithium. Analysts believe that lithium asset acquisitions could enhance industry concentration and reduce the potential downside for lithium prices.
Barrenjoey's Knights noted that further consolidation is likely this year, particularly in the lithium sector. Whiteside commented, "M&A activity typically increases during periods of price stability. At current valuations, acquiring other miners is cheaper than building nickel mines."
