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[SMM Analysis] falling Lithium Price leads to Private Equity seeking to deal Capital is actively laying out Lithium Mining Industry

iconNov 25, 2019 15:25
Source:SMM

SMM11, June 25: in the past, the price of lithium battery raw materials has fallen by more than 50%, hitting producers' profits and wiping out most of the share prices that have risen since 2016.

As lithium prices hit rock bottom, private equity and other investors have become bolder, planning to invest billions of dollars in mining projects to develop battery metal for electric cars.

Lithium prices have fallen by more than 50 per cent since 2018, unsettling industry executives, exacerbating the decline in capital spending and halting the pace of expansion. As a result, stocks of major lithium producers fell and anxiety among retail investors grew.

Traxys Projects, of Carlyle investment group (Carlyle Group), and other non-traditional investors and lenders say they are bullish on the long-term development of electric vehicles with the popularity of electric vehicles and the phasing out of fossil fuels in more and more countries.

"now is the time to invest," said Erez Ichlov (Erez Ichilov), executive director of Traxys Projects. " Traxys Projects set up a $2 billion fund with Pallinghurst Group earlier this month to invest in electric vehicle supply chain companies. "when you look at the underinvestment in the industry's supply chain, $2 billion is not much."

Ichlov told an industry conference earlier this month that the Pallinghurst-Traxys Battery Materials Fund plans to focus on lithium projects as well as copper and graphite in developed economies to reduce the risk of investment.

"the amount of money needed for mining far exceeds the amount of investment received," said Sam Jaffe of Cairn Energy Research Advisors. " He estimates that more than $100 billion will need to be invested in battery mineral supplies, including materials such as lithium, nickel and graphite.

Texas-based private equity firm Centaurus Capital bought a stake in Pioneer Ltd in late November, an implicit bet on strong demand for lithium projects in Nevada in the coming years.

CEZ, the Czech utility, is finalising a deal to convert a loan of 2 million euros ($2.2 million) into majority control of Europe's Cinovec lithium and tin project, which is said to be Europe's largest lithium deposit, a deal of vital importance to utilities.

Transamine Trading SA, a commodities trader, said earlier this year that it would provide nearly C $10 million (US $7.5 million) in loans to CAT Strategic Metals Group, a Canadian mining company, for the Karmati tailings lithium project in Zimbabwe.

"given the strong demand in the future, lithium mining is still unable to get more investment from its own sector," said Ernie Ortiz, president of Lithium Royalty Corp, a subsidiary of Waratah Capital Advisors. " Lithium Royalty Corp invested A $8.1 million (US $5.5 million) earlier this year to buy a 2.5 per cent licence for Core Lithium Ltd's lithium project in Canada.

SMM believes that as the current industry demand for lithium products gradually changed from short-term expectations to long-term expectations, companies have different judgments on the bottom of lithium prices. Generally speaking, the investment cycle of lithium mines is about 1-2 years, and capital investment is expected as the current industry believes that lithium prices are gradually approaching the bottom. Once the follow-up downstream marginal demand has been repaired, the current production reduction and shutdown of mature mines is also expected to quickly repair within half a year, the future lithium industry supply and demand relationship is difficult to return to the 2017 level, the price may be stable in the long run around 60, 000 yuan / ton.

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