General Markets Talk

Remove this Banner Ad

Log in to remove this ad.

(Log in to remove this ad.)

Jadar just the start for Rio as it plays lithium catch-up

The mining giant says lithium demand will grow 25-35% a year for next 10 years. Meanwhile, Pilbara Minerals is cleaning up in the here-and-now as spodumene shortage forces buyers to pay-up for spot cargoes.
Another Eastern States-lite Diggers & Dealers bash kicks off on Monday beneath Kalgoorlie’s big blue sky.
Big blue sky perhaps but the weather forecast is not great.
Just as well then that the biggest and the best, the mighty west, remains COVID-free because the delegates will need to get up nice and close to rub whatever they can to keep the late night chills at bay.
Swagger rights among the delegates this year goes to the lithium companies, of which three are down to make formal presentations – Peter Bradford from the newly-arrived lithium producer IGO (ASX:IGO), Ken Brinsden from the expanding spodumene producer Pilbara Minerals (PLS), and the newly-arrived CEO Tony Ottaviano from Liontown (LTR).
Because gold dominates proceedings, it would have been nice if the gold companies had swagger rights at the bash. But the sideways drift in the gold price has not helped. Nor has the capex spike detailed in the June quarterly reports, which have reminded investors that it’s not exactly harvest time for the sector.

Minerals exploration of all types is not buzzing like last year either. Presentations by De Grey (DEG), Chalice (CHN) and Stavely (SVY) will command attention but there isn’t a more recent discovery to fire up the imagination, not just yet anyway. It’s probably held up in a choked-up assay lab.
So why do the lithium stocks get this year’s swagger rights? Because the boom is back for the battery metal after the two years of misery between 2018-2020 when supply overtook demand because of a shortage of chemical conversion capacity.

Rio Tinto (RIO), which is not presenting this year at D & D, put some polish on the boom-is-back thematic this week with its message to Serbia that, but for formal approvals and community support, it is ready to pump $US2.4 billion into developing its Jadar lithium-boron project.
Its CEO Jakob Stausholm said the market fundamentals for lithium are strong, with 25% to 35% demand growth per annum projected over next 10 years, driven by the global energy transition. Tellingly for those Rio shareholders now hanging out for Rio’s monster interim dividend, the commentary on the group’s earnings mainstay of iron ore was not as flattering.
“The iron ore price more than doubled in the first half of 2021. However, with tightening credit conditions and a softer housing market in China, coupled with expectations for rising seaborne supply, it seems unlikely that such elevated pricing will persist,” he said.
Jadar will produce battery-grade lithium carbonate, enough of it to power more than one million electric vehicles a year on Jakob’s numbers. The development is exciting stuff for Rio as it improves its ESG credentials big-time after the hit it took over Juukan Gorge.
But while Jadar is a large-scale development in the lithium world, it is small time stuff for Rio at its stated annual output of 58,000t of lithium carbonate, along with 160,000t of boric acid. That’s why Jadar is expected to be the start of the Rio’s lithium story, both at Jadar itself and by Rio increasing its exposure through acquisitions.
By the time Jadar gets into production, the two big boys of the industry, US group Albemarle and Chile’s SQM, will be well ahead of Rio at 325,000t and 230,000t of lithium carbonate equivalent respectively.

Interestingly, Rio had a chance to take SQM under its wing but passed. It also passed on acquiring the ASX-listed Kidman, letting Wesfarmers acquire it as its entry point in the business through its WA joint venture with SQM.
Any acquisition moves by Rio to grow the lithium business into something more meaningful will have a market diversification angle. Europe is covered with Jadar, leaving the US and Asia to be covered.
ASX-listed Ioneer (INR) has a shovel ready project to go in the US and like Jadar, will also be producing boron. As for Asia, Rio will again be running the numbers over the independents with scale like Pilbara and Liontown.

Pilbara Minerals:
Pilbara CEO Ken Brinsden is not the sort of bloke prone to a swagger. But it won’t surprise if he does at Diggers given the recent events in the market for spodumene.
The market for the stuff – a hard-rock lithium ore which is concentrated and shipped off to chemical convertors which produce the finished lithium hydroxide battery material – is on fire.
Speaking on an investor call during the week after the release of the group’s June quarterly, Brinsden said that after the pain of 2018-2020, there was now “a lot more chemical conversion capacity than can be filled by merchant spodumene supply”.
“Stated plainly, that means there is a spodumene shortage,” he said. Contract prices have come up $US500/t in April to more than $US650/t while the spot price has taken off $US925/t (FOB Australia).
Importantly for a merchant seller of spodumene like Pilbara, the action in the emerging spot market creates what Brinsden termed an “interesting dynamic”.
He was pointing to the disconnect between the pricing of spodumene under the usual pricing mechanisms and where the spot market is at.

The last time spodumene was at $US925/t under the usual pricing mechanisms was late 2017, early 2018, when the headline chemical (converted) price was $US22,000-$US24,000t. But today’s chemical price is “only” $US12,000/t-$US14,000/t.
“They are the salient facts to describe the effects of what is happening in the market today. Spodumene is fundamentally short and as a result, chemical convertors are forgoing some of their margin for the purpose of obtaining a spot cargo,” Brinsden said.
“It is a very, very interesting dynamic and represents an important change in the market.” No argument there.

Fortuitously for Pilbara, it set out a while back to increase its participation in what is still an emerging spot market for spodumene. So much so that it has established the Battery Material Exchange with Perth’s GLX Digital as a trading platform.
It is meant to be a sales channel to access the “multitude” of potential spot buyers of spodumene in China that have popped up in recent times in line with the country’s build out of spodumene conversion capacity.

Brinsden said that the BMX platform was now “live” and that it has screened 30 potential buyers. He said that was a “pretty extraordinary number in comparison to when we commenced in the industry in 2015”.
“It is order of magnitude higher. Our first auction is imminent.”

So too is Diggers.
Click to expand...

https://www.livewiremarkets.com/wires/jadar-just-the-start-for-rio-as-it-plays-lithium-catch-up
 
download.jpg


Every single share I own at the moment. Might plunge a heap into ASIA just for the hell of it.
 
Hello fresh floated today.
I rekon they have a great product with lots of growth potential
 
rare earths might be starting to heat up again

Most of my specs are seeing more volume which is a good sign but it's been a really boring 4-5 months. Slow bleed down about 15% overall

Some my own fault not cutting losses early enough. be nice if gold started to run a bit more

Anyone in cannabis/psychedelics etc? EMD to anyone's liking?
 
burge13 said:
rare earths might be starting to heat up again

Most of my specs are seeing more volume which is a good sign but it's been a really boring 4-5 months. Slow bleed down about 15% overall

Some my own fault not cutting losses early enough. be nice if gold started to run a bit more

Anyone in cannabis/psychedelics etc? EMD to anyone's liking?
Click to expand...
I'm in LGP since pre IPO, very happy with how they have gone, although off about 15% since an insto cap raise (money from Gina Rinehart). They are selling and seem to have decent channels into Europe. I haven't looked into EMD.

Having said that, I think the sector has a few too many charlatans making themselves rich. Some consolidation is probably needed before it really kicks.
 
Might have a look at adding some RVR next week, small cap base metals miner in QLD but maybe a bit out of favour being unsexy in this bull market. Gold mine they are bringing back into production with a 1Moz resource in NSW as well that they acquired for peanuts a while back.
 
You must log in or register to reply here.

Remove this Banner Ad

Back
Top