Where is the upper limit of lithium mineral energy growth under the stimulation of high prices? [agency Review]

From the perspective of enterprises: the comprehensive strength is enhanced, and the willingness to expand production is high.

At present, the business model of lithium-producing miners is single, the scale is small, the overall financial strength is weak, and the perception of the improvement of industry profits lags behind. Subjective will and objective strength have become the constraints of capacity expansion. In the future, with the acceleration of integration within the industrial chain and the cross-domain strategic layout of traditional mining giants, the comprehensive strength of enterprises in the industry will be significantly enhanced. Under the expectation of the scarcity of upstream resources, the voice of lithium miners will be enhanced, the increase in the proportion of lithium concentrate sales in the spot market and the closing of long order prices to the spot market will accelerate the transmission of industry profits to the upstream, and the enthusiasm of lithium miners to expand production will further increase in the future.

From the perspective of the project: the financial constraints are relaxed, and the objective restrictions still exist.

At present, the bottleneck of lithium supply side mainly lies in the lack of mining capacity rather than the scarcity of resources. The average development cycle of global metal mines is 16.9 years, and the capacity release corresponding to the lithium exploration tide of 2009-2010 is about 2025. Although the financial constraints have been alleviated and the enthusiasm of enterprises to expand production is also strong, the mine development cycle is still faced with the disturbance of objective factors such as warrants, community disputes and the completeness of supporting infrastructure, so it is difficult to significantly accelerate the pace of capacity release in this round.

Summary

Under the stimulation of high prices, the enthusiasm of lithium miners to expand production has obviously rebounded, but objective constraints have limited the pace of supply release, including the slow efficiency in the examination and approval of mining title certificates in North American countries. and the supporting infrastructure around the project in Africa is inadequate and so on. In the neutral scenario, the annual new capacity will be 21, 11, 18 and 250000 tonnes of LCE, respectively from 2022 to 2025. The global operating capacity will reach 1.058 million tonnes of LCE, in 2025 at an average annual growth rate of 36 per cent, compared with 41 per cent and 30 per cent in the optimistic and pessimistic scenarios.

The growth rate of demand in the field of new energy is lower than expected, and battery materials are replaced.

1 introduction

Since the beginning of this year, benefiting from the rapid increase in the permeability of new energy vehicles at home and abroad, as well as the electrochemical energy storage demand generated by carbon neutralization commitments of various countries, the upstream demand has led to a significant improvement in the supply and demand pattern of lithium. The prices of battery-grade lithium carbonate and lithium hydroxide have risen from 40,000 yuan / ton and 50,000 yuan / ton at the bottom to the current 259000 yuan / ton and 210000 yuan / ton, respectively, and the price of upstream lithium concentrate has also rebounded at the bottom. Spot prices climbed from less than US $400 per ton to US $2050 per ton, an increase of 413 per cent.

According to the law of capacity expansion of industrial metals, after the price rebounds, the improvement of profits will drive mining enterprises to build new capacity, and the growth rate of supply will gradually approach the growth rate of demand, thus reaching a new balance. As a result, after the rapid repair of industry profits, the market has paid more attention to when the new capacity will be released. We have specifically combed the lithium mineral energy expected to be put into production in the next two years, among which, the incremental production capacity in 2022 is mainly brought by the expansion of Greenbushes production, Wodgina and the resumption of production of Ngungaju (formerly Altura), while the commissioning of Manono will be the main increment in 2023. For the longer-term capacity investment, the current planning of the enterprise is relatively vague and uncertain, and the accuracy of the detailed project is in doubt. This report will try to analyze the influencing factors of lithium mineral energy expansion from the two dimensions of enterprises and projects, and then infer the pace of medium-and long-term capacity expansion.

2 from the perspective of enterprises: the comprehensive strength is strong, and the willingness to expand production is high.

At the enterprise level, the factors that affect capacity expansion can be roughly divided into two categories: capacity and willingness. In terms of ability, we think that we need to focus on the overall financial strength and profitability of the enterprise. From the point of view of willingness, the dynamic change of corporate profit is a relatively quantifiable indicator.

2.1. Capacity to expand production: the capital strength of lithium-producing miners is weak, and they rely heavily on external financing.

At present, among the lithium miners, the business model of most enterprises is relatively single, the cross-cycle anti-risk ability is weak; and the volume of business is small, it is difficult to meet the funds needed for the development of new projects only by their own management.

At present, 86% of the completed capacity of lithium mines in the world is located in Australia, and from the enterprise dimension, the capacity concentration is also high. the existing completed capacity of lithium mines is concentrated in ALB (49 per cent of Greenbushes and 60 per cent of Wodgina), Pilbara (wholly-owned Pilgangoora and Ngungaju mines), 40 per cent of, Mt Marion interests of MRL (Wodgina) and Tianqi Lithium Industry (26 per cent of 002466) (Greenbushes) and other enterprises.

From the perspective of main business composition, we find that the business of MRL and ALB is relatively diversified. 74% of the main revenue of MRL is contributed by iron ore, while lithium accounts for only 18% of the main composition of MRL. In addition to lithium, which accounts for 40%, bromine and catalyst business also contribute 35% and 25% of the revenue, respectively. In addition, the main composition of the rest of the lithium-producing miners is very simple, with lithium business accounting for more than 90%, which makes the overall profitability of the company highly tied to the industry cycle.

Due to the single business composition, the cross-cycle capacity of most lithium miners is weak, the operating difficulty of the industry during the trough is significantly increased, and the progress of capacity expansion is passively slowed down. For example, during the downward period of lithium prices from 2019 to 2020, the net profits of lithium miners shrank sharply, and the novel coronavirus epidemic since 2020 has further worsened their profits. The decline in corporate profits has forced it to passively reduce capital expenditure. For example, ALB announced in August 2019 that it had cut its capital expenditure plan by $1.5 billion over the next five years due to the collapse in lithium prices, while the construction period of the project was relatively rigid, and even if profits improved and capital spending increased in the later period, it would be difficult to fully recover the previous delays, delaying the release of capacity.

The trough of the industry will not only lead to the postponement of new capacity due to insufficient capital expenditure, but also increase the risk of withdrawal of existing capacity. In August 2019, Alita announced bankruptcy and restructuring because it was unable to repay its $40 million debt, and its Bald Hill mine was shut down for maintenance; Altura entered bankruptcy takeover proceedings in October 2020 and closed its mine in November. Bankruptcy liquidation and possible equity auction transfers will make the timetable for the resumption of supply of these capacity uncertain. If Pilbara announced the acquisition of Altura, in December 2020 and completed the acquisition in January of the following year, it plans to restart mine production by the end of 2021 and reach production by mid-2022, which will take 1.5 years. Alita mines have stopped production and maintenance for two years, during which Galaxy Resources, Austroid, Boadicea Resources and other enterprises have successively expressed their acquisition intention, but so far the enterprise has not completed the bankruptcy reorganization, and the road of resumption of production is still a long way off.

In addition, comparing the capital expenditure required to develop a lithium mine and a copper mine, we find that there is no significant difference in the intensity of capital expenditure per unit of production capacity, and even the intensity of capital expenditure of some lithium mines is relatively higher. However, at present, there is a significant difference in the financial strength between lithium miners and copper miners. Most lithium miners, like the lithium industry, are still in their infancy. The large-scale capital expenditure required for new production capacity has brought great financial pressure to existing lithium miners. For some enterprises that "start from scratch", it is even more difficult to have their own funds to meet the needs of mine construction.

In fact, from the cash flow statements of enterprises, it can be seen that the cash flow generated by their own operations alone is difficult to support the huge amount of funds needed for the development and construction of new projects. most of the capital expenditure for new projects comes from corporate financing activities rather than business activities. This model has both advantages and disadvantages. On the one hand, external financing provides enterprises with necessary financial support, but on the other hand, it makes the current capacity expansion of lithium mines highly dependent on external funds. Capacity expansion is limited to a certain extent by the external financing environment, as well as the investor's assessment of the prospects of the industry, and enterprises lack full autonomy to a certain extent.

In addition, the financing cost brought by external financing will increase the burden of enterprises in the next few years. If it is the way of debt financing, the high asset-liability ratio will also bring pressure on the cash flow of enterprises. For example, in 2009-2012, Galaxy Resources raised funds through debt financing, which led to the commissioning of the Cattlin mine and the Jiangsu lithium salt plant in 2010 and 2012, respectively. However, the subsequent industry downturn, so that companies continue to lose money, the asset-liability ratio once rose to 85%. In 2013, Galaxy set up a special management committee to reduce the asset-liability ratio through debt-to-equity swaps, debt extension and the sale of lithium salt plants, and has been operating without liabilities since 2017. Altura also went bankrupt because it borrowed heavily to build mines, had an asset-liability ratio of 81% in fiscal 2020, and was unable to repay its debts after the industry entered a trough.

In addition to explicit financing costs, external financing often comes with an underwriting clause that forces miners to cede some of their profits during the upward phase of lithium concentrate prices, which we will discuss in detail in the next section.

Generally speaking, no matter from the perspective of overall revenue scale or business diversity, the financial strength and cross-cycle anti-risk ability of existing lithium miners are weak, and the cash inflow generated by their own operations alone is difficult to meet the huge capital expenditure required for the construction of new mines. High reliance on external financing will lead to problems such as higher asset-liability ratio and transfer profits. In the boom stage of the industry, it is easier for enterprises to raise external funds, and lithium prices often enter the downward channel after the completion of capacity construction. the deteriorating main income and persistent debt burden pose double risks to the operation of enterprises, and the stability of production capacity is on the low side as a whole.

But in recent years, some new changes have taken place among industry participants. Within the industrial chain, in order to ensure the supply of scarce resources upstream, more and more downstream lithium salt plants and battery factories expand to the upper reaches of the industrial chain by means of equity investment, and acquire or inject capital into the industrial chain. after the vertical integration of the industrial chain, the financial strength and overall profitability of enterprises have been significantly improved. In addition, in the context of the long-term positive demand for lithium driven by new energy, the traditional polymetallic mining giants have also begun to lay out the lithium track. In July 2021, Rio Tinto announced that it would spend US $2.4 billion to develop Serbia's Jadar lithium boron mine, which is currently one of the largest greenfield lithium projects in the world. It is expected to be put into production in 2026 and when it reaches full production in 2029, the mine will reach 58000 tons of lithium carbonate equivalent, which will make Rio Tinto one of the top 10 lithium miners in the world. In October 2021, Zijin Mining (601899) signed an agreement with New Lithium Company to acquire all issued and outstanding 100% common shares of New Lithium Company for C $960 million (RMB 4.939 billion). The core asset acquired is the Argentine 3Q Lithium Salt Lake project. at present, it has an annual production capacity of 20, 000 tons of battery-grade lithium carbonate. With the vertical integration within the industrial chain and the entry of traditional mining giants, we believe that the overall financial strength of enterprises in the lithium industry will be significantly improved than before, and the bottleneck brought by the capital side to capacity expansion will be gradually eliminated.

2.2. Willingness to expand production: redistribution of industry profits, enhanced voice of upstream miners.

Comparing the profits of lithium miners and lithium salt factories, it can be found that for a long time, lithium miners account for a relatively low proportion of profit distribution in the upper reaches of the industry, and the theoretical profit is lower than that of lithium salt plants in most periods. We believe that this is mainly due to the differences in the production characteristics of the two links. Relatively speaking, the technical content of lithium mining and separation is relatively low, and the product homogenization degree is high, while the lithium salt plant has high unit investment cost and high technical threshold. Products usually need 62 months of technical certification to supply downstream enterprises, the product unit added value is relatively higher. In addition, since the beginning of this year, the profit improvement rate of lithium miners has been significantly slower than that of lithium salt plants, and the upward revision of profits has been less than that of lithium salt plants, that is, the transfer of industry profits to the upstream is slow. From the point of view of profit-driven, the current profit distribution model and transmission mechanism of the industry have restrained the willingness of upstream lithium miners to expand production to a certain extent.

It should be noted that when we calculate the profits of lithium miners and lithium salt plants, we use the spot price of lithium concentrate. As we mentioned in the previous section, because of their weak financial strength, most lithium miners often obtain external financing on the condition of signing long-term underwriting agreements to ensure the smooth completion of the project. At the same time, due to the weak cross-cycle anti-risk ability of lithium miners, the signing of long-term underwriting agreements can also enhance the cross-cycle ability of enterprises to a certain extent and ensure that their products can be sold smoothly in the surplus stage of the industry. For example, Ganfeng Lithium Industry (002460) injected equity into Mt Marion, in 2015 and invested A $50 million to subscribe for 77.63 million shares issued by Pilbara in 2019, thus obtaining the underwriting right of Mt Marion 100% and Pilbara 160000 tons / year lithium concentrate. For example, in order to establish a stable lithium concentrate supply relationship with Pilbara, Tianyi Lithium, a joint venture between Ningde Times (300750) and Tianhua Super Clean (300390), provided an interest-free loan of US $15 million to Pilbara for the first phase of the Pilgangoora expansion project. In fact, in the current production mines, lithium concentrates are mostly sold in the form of underwriting, only Pilbara's Pilgangoora and Galaxy (Allkem) 's Mt Cattlin still have some lithium concentrates sold in the form of bulk orders.

In this case, there is a deviation between the theoretical profit calculated by the spot price of lithium concentrate and the actual profit of the enterprise. In fact, because the price change under the long order pricing mechanism lags behind the spot market, the actual price of lithium concentrate is often lower than the spot market price in the same period. For example, compared with the quarterly average selling price of Mt Cattlin lithium concentrate disclosed in the Orocobre financial report, we find that it has been lower than the spot market average price for a long time, with a difference of $63 to $150USD / dry tonne. The latest quarterly report data show that the actual selling price of the mine is $779 / dry tonne, which is $87 / dry tonne lower than the spot market average price.

In other words, in order to obtain the necessary financial support at the initial stage of the project construction and to ensure that the sales of products during the industry trough are guaranteed, most mining enterprises have signed a higher proportion of lithium concentrate underwriting agreements, but as a price, the agreement also means that enterprises have given up part of their profits during the price upward period, which makes the improvement of mining profits slower than the theoretical downstream-to-upstream transmission process. The lag of profit improvement may restrain the willingness and capacity of mining enterprises to expand production at the initial stage of the recovery of industry prosperity.

But the situation is gradually improving. Since the beginning of this year, lithium miners represented by Pilbara have gradually realized this problem and responded to it. Specifically, Pilbara launched the BM X-ray online auction platform in July this year, and held three online auctions of lithium concentrate in July, September and October, and the final transaction prices were 1250 US dollars, 2240 US dollars and 2350 US dollars per dry ton respectively, which are far higher than the spot prices of the current period and even higher than the long order sales prices signed with underwriting customers. Pilbara also mentioned in the second quarterly report that the sharp disconnect between spot prices and long-term prices is a new phenomenon worthy of attention. In response, on the one hand, Pilbara plans to expand the sales volume of the auction platform, including the full production of Ngungaju after the resumption of production, in order to maximize the revenue from the rise in spot prices as much as possible; on the other hand, Pilbara plans to negotiate with underwriting customers to consider adding the spot price influence factor to the long-term Association pricing formula, and is expected to increase the long-term Association price to US $1650800 / dry ton (SC6,CIF China).

Generally speaking, considering that the current supply bottleneck lies in the upstream resource side, we believe that industry profits will continue to be transmitted upstream in the future, while with the increase in sales of lithium concentrate in the spot market and the gradual closing of long order prices to the spot market, the profits of lithium miners continue to improve. In addition, the vertical integration of the industrial chain will also make the profit improvement of supply-side enterprises more direct and rapid. Driven by profits, we believe that the enthusiasm of lithium miners to expand capacity will gradually pick up in the future.

2.3. Summary

From the perspective of the strength and willingness of enterprises to expand production, due to the problems of single business model and small scale of lithium-producing miners, the overall financial strength is weak, and the high reliance on external financing on the one hand increases the debt burden of enterprises in the next few years. on the other hand, they are also forced to cede the profits of some industries during the rising period, which makes the upstream miners' perception of the improvement of industry profits lag behind and the subjective willingness to expand production is also limited.

However, in recent years, the comprehensive strength of industry participants has gradually increased: the internal integration of the industrial chain is accelerated, the upstream tends to expand its business downstream in order to thicken profits, while the downstream accelerates the layout of the upstream for the sake of ensuring the supply of core resources. equity investment in the industry is frequent, and the financial strength and profitability of enterprises are significantly improved after integration. In addition, the value of lithium as an energy metal is highlighted, and some traditional mining giants have also begun strategic layout to further enhance the comprehensive strength of enterprises in the industry. From the point of view of profit distribution, under the expectation of the scarcity of upstream resources, the voice of lithium miners will be enhanced, the proportion of lithium concentrate sales in the spot market will increase, and the price of long orders will move closer to the spot market, which will accelerate the transmission of industry profits to the upstream. In the future, the enthusiasm of lithium miners to expand capacity will further rise.

(3) from the perspective of the project: the financial constraints are relaxed, and the objective restrictions still exist.

In terms of the static exploitable life of mineral resources (the ratio of global resource reserves to annual output), the current static exploitable life of lithium is as high as 256 years, while horizontally comparing other metal minerals, copper, nickel, iron ore and zinc are 44, 38, 35 and 21 years respectively. This shows that the bottleneck of the current lithium supply side mainly lies in the lack of mining capacity rather than the scarcity of resources.

Although lithium is called a "rare metal", it is actually the 27th abundant element in nature, with about 0.0065% in the earth's crust, which is not rare in nature. Reviewing the changes of global lithium proven reserves, the most obvious increase in lithium reserves from 2009 to 2010, from 4.1 million tons to 13 million tons, during this period exploration activity increased sharply or mainly due to the rise of demand for lithium-ion batteries in the field of consumer electronics. From 2019 to now, stimulated by the demand for power batteries, the global lithium resource reserves increased and then increased. By the end of 2020, the proved reserves of global lithium resources have reached 21 million tons, but the current global annual output of lithium is only about 82000 tons, and the mining capacity is seriously insufficient.

We think that this is an unavoidable problem in the initial stage of industrial application of metal minerals. It takes a long time for a mine to be put into production. According to the statistics of Sipp, it takes an average of 16.9 years for the world's top mines to be first discovered and put into operation, and the average time for copper and gold mines is about 18.5 and 15.4 years respectively. The mining cycle of lithium ore is also a long process. For example, the Jadar lithium boron deposit was first discovered in 2004 and is currently expected to be completed and put into production in 2026, taking 22 years. This long development cycle is particularly prominent in the initial stage of metal mineral industry application or the stage of sudden increase in demand, which constitutes a significant supply bottleneck.

3.1. Overview of mine development cycle

Specifically, from the first discovery to the actual production, the mine needs to go through two stages: the stage of exploration and feasibility study, and the stage of construction.

The average time of the investigation and research stage is about 12 years, accounting for almost 3/4 of the total development time, far exceeding the actual construction period of the mine. From the point of view of investigation, the work of this stage can be roughly divided into four stages: pre-survey, general survey, detailed survey and exploration. The focus of work in each stage is different, and the requirements of exploration accuracy are gradually increasing. At the same time, the feasibility study also runs through the latter three stages, which can roughly correspond to the general study (Scoping study), the pre-feasibility study (Pre-feasibility study) and the final feasibility study (Definitive feasibility study),. The accuracy of the research results is also increasing step by step. Among them, the accuracy of the general study is only about 30-35%, and enterprises tend to give relatively optimistic estimates based on limited exploration results, in order to promote the follow-up work; The purpose of the final feasibility study is to eliminate all major uncertainties, comprehensively consider the engineering, policy, market environment and other factors, give a detailed technical and economic evaluation of the project in different situations, and guide the final investment decision (FID,Final Investment Decision)). Compared with the follow-up construction stage, the time-consuming flexibility of this stage is relatively larger, which is mainly determined by the subjective will of the enterprise. in the stage of high market prosperity, the active mining willingness of enterprises will accelerate the progress of exploration, while financial constraints and ownership changes will objectively slow down the progress of exploration.

After the final feasibility study of the project is completed, it will take about 1.8 years on average to enter the mine construction stage, but some mines will be shelved at this stage for several years. The hidden risks at this stage can be summarized as follows: 1) the processing of government-related warrants, such as licenses, mining permits and approval by UNEP, depends on the efficiency of the local government and the degree of support for mineral development; 2) community disputes such as residents' protests are often caused by the damage to the environment caused by mining; 3) funds, miners need to solve the funding problem during the construction period at this stage to avoid shelving the project in the middle of the project, which we discussed in detail in the previous chapter; 4) the completeness of the infrastructure around the mining area, including power facilities and road traffic, to ensure the smooth implementation of the project construction and the smooth delivery of finished products. The time-consuming flexibility of this stage is also relatively large, but compared with the exploration stage, the degree to which enterprises can control independently is reduced, and more limited by objective factors.

After the problems of warrants and funds are solved, mining enterprises can choose the opportunity to enter the construction stage when the surrounding facilities are perfect. The average construction time of global mines is about 2-3 years. After combing through the major lithium mining projects in the world, we find that the construction time of most lithium mines is slightly shorter than this, with an average of about 1-2 years, and only a few super-large projects take a little longer, such as the construction period of Jadar is expected to be about 4 years. The actual time-consuming of this stage is often longer than expected, but there are few cases faster than expected, mainly because the construction period of the project is relatively rigid. The main constraint at this stage is also on the financial side, such as the impact of the epidemic since 2020 has caused most of the world's mining companies to reduce capital expenditure, making the actual production progress of a large number of projects less than expected.

3.2. Meso-microscopic discussion on the landing of exploration production capacity of lithium ore.

For lithium deposits, if we refer to the average development cycle of 16.9 years in global mines, the lithium minerals corresponding to the exploration tide from 2009 to 2010 can be released on a large scale around 2026, and the average construction period of medium-sized lithium deposits is about 1-2 years. This time will be slightly ahead of schedule. As confirmation, we have roughly combed the lithium mining projects around the world that have entered the pre-feasibility study stage (considering that the estimation accuracy of the scope study stage is only about 30%, and the expectations for the future are relatively optimistic, the future production of the project is uncertain, so here we will not count the projects in the scope study and the previous stage). At present, the projects of the final feasibility study have been completed. Considering the average waiting period of 1-2 years and the construction period, it is expected to be put into production in 2024-2026, which is roughly corresponding to the above estimate.

Even if the project enters the pre-feasibility study stage and the enterprise has given a relatively clear schedule, there is still a certain deviation between the actual production schedule and the expected planning of the enterprise, and the actual progress is often lower than expected. the main reasons for this deviation can be summarized as funds, warrants and community disputes, and the completeness of supporting infrastructure. Specifically:

Capital side: in the whole cycle of mine development, capital is a necessary condition throughout. Whether in the early stage of exploration or in the later stage of construction, the lack of funds will force the project to be shelved. This makes the enterprise capital situation, the prosperity of the industry and the abundant degree of macro-liquidity will affect the length of time required for mine development. Based on the analysis in the previous chapter, we believe that from the perspective of the industry as a whole, the financial constraints on project development in the future will be significantly weaker than before. However, in specific cases, whether the source of corporate financing is solved or not is still a key factor affecting the progress of the project. For example, Prospect Resources acquired the Arcadia lithium mine project in Zimbabwe in 2016, completed the updated DFS, in November 2019 and completed the environmental assessment and mining license processing in 2017 and 2018 respectively, but due to lack of funds, it is still selecting suitable long-term partners and has not yet given a specific construction plan.

Mining certificate, environmental assessment and community dispute: after completing the exploration work and feasibility study, miners still need to obtain mining certificate and environmental impact assessment before they can start construction, while the time-consuming of mining certificate and environmental impact assessment mainly depends on the support of the local government to mineral development. The Australian Government's assessment is much faster than in other developed countries. In Western Australia, for example, the evaluation of exploration plans and mining proposals is completed within an average of 30 working days, while the (EIA) is completed by the applicant and submitted to the relevant agency for assessment, thus shortening the entire application process. However, at present, the degree of lithium development in Australia is already high, and the future increment of Australian projects is limited, while the approval time for projects in the United States, Canada and other countries is relatively long. For example, EIA, which has been submitted by Sayona to Mt Authier in January 2020, is still waiting for approval, which has taken nearly two years. In addition, the tolerance of residents in developed countries to environmental pollution in the mining industry is also relatively low, and community disputes are also a potential risk in the future.

Supporting infrastructure in mining area: this risk is mainly aimed at green space projects in Africa and other places, and some projects are lack of supporting power, road transportation and other infrastructure, which brings additional interference to the project development. New projects in such areas, or the need to communicate with the local government to improve infrastructure, or companies to finance their own construction, will bring additional time and capital costs and slow down the progress of the project.

3.3. Summary

Lengthening the time dimension, we find that the deficiency of the current lithium mining capacity is mainly due to the long development cycle of the mine, which limits the rhythm of capacity landing. On average, it takes about 157 years from the first discovery to the final production of the mine, including the stage of exploration and research, the waiting period for approval and the period of mine construction. Among them, the average time of the pre-exploration stage is the longest, and the time required for this stage mainly depends on the enthusiasm of the enterprise, and the progress of this stage can be significantly accelerated in the industry business cycle. With the progress of the project, objective factors such as examination and approval and the duration of the project will constitute a relatively rigid constraint, and the space for accelerating progress will gradually narrow.

As for the incremental production capacity of lithium ore in the next five years, we believe that it will mainly be contributed by the green space project that has completed DFS and has given a clear production schedule. Taking into account the increase of objective constraints in the later stage of project construction, the probability of the actual production schedule being significantly ahead of schedule in the future is not large, on the contrary, it may be limited by external factors and the risk of delay. For projects currently in the research stage of PFS or DFS, as enterprises speed up the exploration process, the overall development process may be accelerated, but considering the time required for approval and construction, the actual large probability of this part of production capacity will not be put into operation until after 2025.

4 Summary

Since the beginning of this year, the prosperity of the lithium industry has rebounded significantly, the profits of existing enterprises have improved significantly, the pricing mechanism of the industry has changed, and profits have continued to be concentrated at the end of resources. At the same time, the integration within the industry has accelerated, the traditional polymetallic mining giants are also competing to distribute lithium resources, the overall strength of enterprises in the industry has been significantly improved, and the subjective willingness to expand production and financial strength of enterprises have been significantly improved than before. However, in addition to financial constraints and the subjective will of enterprises, the mine development cycle is also faced with many objective constraints, which may slow down the progress of the project more than expected. Specifically, the efficiency of the government's examination and approval of mining licenses and environmental impact assessment will objectively restrict the actual progress of mine development; environmental pollution caused by mining may also trigger protests from surrounding residents, forcing the construction of projects to be suspended; and projects located in less developed areas may also face the problem of inadequate supporting infrastructure around them.

Therefore, we believe that while predicting the long-term investment rhythm of lithium minerals in the future, in addition to paying attention to the funds and profits of lithium mining enterprises, we also need to specifically evaluate the objective constraints that may be faced by each project. it includes the examination and approval efficiency of mining industry-related warrants in various countries and the degree of completeness of infrastructure construction around the mining area. After considering all kinds of factors, we try to estimate the energy release rhythm of lithium minerals in the next five years.

In the short term, for the incremental projects from 2022 to 2023, most of them have entered the stage of construction preparation or construction, and the enterprises have basically given a relatively definite production schedule. For this part of the production capacity, we think that the certainty of its production rhythm is relatively strong, and we can get a relatively accurate estimate by the way of several projects. The potential risk lies in the epidemic situation, the post-epidemic cycle, the logistics and transportation of technical equipment and the cross-border flow of technical personnel are all subject to certain restrictions, and the progress of the development and construction of many metal mines is slower than expected. at present, the overseas epidemic situation has not been obviously controlled, and the construction of lithium mining projects may face a similar situation in the next 1-2 years.

From the medium-term point of view, for the more long-term new production capacity, most of them are in the stage of DFS research or waiting for the approval of warrants, the funding problems of some projects have not yet been solved, and the follow-up uncertainty is greater. On the basis of the estimated production date given by the enterprise, we comprehensively consider all kinds of factors, and give the production capacity estimate in the case of neutral, optimistic and pessimistic. Qualitatively speaking, the longer the prosperity of the industry and the faster the concentration of profits upstream, the stronger the subjective enthusiasm of enterprises to put into production, and the pace of production will be closer to our optimistic assumptions, but considering that 31% of the production capacity of these green space projects is located in North America, the government's support for the mining industry is not as strong as that of Australia, and the low efficiency of project approval may slow down the progress. In addition, 24% of the production capacity is located in Africa. The construction of supporting infrastructure will also slow down the construction progress of the project. In the neutral scenario, the annual new capacity will be 21, 11, 18 and 250000 tonnes of LCE, respectively from 2022 to 2025. The global operating capacity will reach an average annual growth rate of 1.058 million tonnes of LCE, in 2025, while the average annual growth rate in the optimistic and pessimistic scenarios is 41 per cent and 30 per cent, respectively.

(5) the growth rate of demand in the field of new energy is lower than expected, and power battery materials are replaced.