Multiple lithium producers in Australia have operational or strategic updates this week, adding to their recent earnings calls, many of which stress the importance of cautious plannings, near-term flexibilities, and long-term optimism in this lithium cycle downturn.
On 7 March, the joint venture between Wesfarmers and SQM, Covalent Lithium, officially opened the Mt Holland lithium mine and concentrator, expecting spodumene concentrate production underway. The plant is on track ramping up to deliver 100,000 tonnes of concentrate this financial year. Once the Covalent refinery in Kwinana is complete, Covalent Lithium will be producing 50,000 tonnes of battery-grade lithium hydroxide per annum with fully-integrated facilities.
On 11 March, Pilbara Minerals announced a three-year offtake agreement with Sichuan Yahua for the supply of spodumene concentrate, starting from 2024. Pilbara Minerals will supply 20,000–80,000 tonnes of spodumene concentrate to Sichuan Yahua in 2024, 100,000–160,000 tonnes in 2025 and 2026 with options for additional supply.
On 12 March, Liontown announced a new AU$550 million (US$364 million) debt facility to fund its Kathleen Valley lithium project aiming to commence first production in mid-2024 and targeting on producing 500,000 tonnes of spodumene concentrate per annum. The debt has fewer commercial lenders and is more conservative compared to previous deals that Liontown had negotiated on.
We have witnessed some emerging trends among these high-profile Australian lithium players.
- No more lower lows, but cost review is of priority.
Many executives are cautious about making lithium price predictions, yet they broadly share the view that there should be no more lower lows, and even there is a little room to bounce back to a certain level. Mineral Resources' managing director Chris Ellison is confident about the price outlook and convinces that MinRes can thrive in the current market condition with its cost at US$455 to $600 per metric tonne of spodumene concentrate.
Yet, cost saving measures and operational reviews are the top agenda for almost all companies. Capital expenditures are cut, and non-essential projects are postponed to ensure financial resources can be deployed with optimal efficiency.
- Flexibilities are valued more in company strategy for the next 2-3 years.
While being more conservative about operation and financing, companies like Liontown and Pilbara have options for upward flexibilities to stretch for more once the lithium market shows signs of further recovery.
For Arcadium Lithium, the CEO also discussed the flexibilities in lithium chemicals offtake contract structures, especially when the company is holding very diversified assets after the merger between Livent and Allkem.
- Downstream expansion becomes increasingly visible for major lithium producers who have a strong balance sheet and are optimistic about long term.
When Wesfarmers' CEO Ian Hansen was asked about the costs and earnings of the Mt Holland's lithium hydroxide refinery, he clarified that the company would not expect immediate contribution to divisional earnings this year. Rather, they would remain optimistic about its long-term competitiveness and value creation starting from 2025. Furthermore, Liontown is considering a downstream expansion and progressing a joint feasibility study with Sumitomo.
With price pressures and operational uncertainties, the current environment for lithium producers is challenging.These strategic choices indicate a long-term optimism and prepare for the growing demand in lithium products for the next decade.
Author: Hongqiu Su | Battery Metals Analyst Associate | London Office, Shanghai Metals Market
Email: lilysu@smm.cn
