Priscila Barrera – December 26th, 2018
anaging director of Pilbara Minerals (ASX:PLS); Anthony Tse, CEO and managing director of Galaxy Resources (ASX:GXY); Keith Phillips, president and CEO of Piedmont Lithium; Ian Stalker, CEO and president of LSC Lithium (TSXV:LSC); Robert Mintak, CEO of Standard Lithium (TSXV:SLL); Greg Shafransky of Belmont Resources (TSXV:BEA) and Enertopia (CSE:TOP) President Robert McAllister all provided insight. Read on to learn their thoughts on the lithium forecast.
Lithium trends 2018: Bearish sentiment, but positive demand surprises
Despite a growing demand narrative, in 2018 the lithium market had to deal with concerns from investors worried about a “tsunami of supply” flooding the space. There was a lot of attention on declining Chinese prices and their impact on the rest of the world.
“[This year] everyone has been focused on the relative position of the Chinese domestic market as compared to what’s been happening in the rest of the globe,” Pilbara’s Brinsden said, adding that declining lithium carbonate prices in China were a concern for investors throughout the year.
“[That] dynamic has really not influenced the behavior of our customers and there’s still an incredible dynamic of growth in the lithium-ion supply chain,” he added.
Similarly, Galaxy’s Tse said that concerns about a “tsunami of supply” seen at the start of the year have not actually been realized, and many producers have not delivered according to plan.
“This year, demand has remained robust [even though] we’ve seen a little bit of volatility in pricing, in particular in China,” Tse said, noting that on the flip side, hydroxide pricing has remained strong in the last few months.
“I think that between now and the end of the year, and probably through the Chinese New Year, we will see some recovery in pricing, maybe not to the highs we have to date, but we will see some recovery in lithium carbonate,” he said.
Standard Lithium’s Mintak said 2017 had ended strong for the space, but “we should have seen that a correction was due, however the reports published by some of the banks [earlier this year] were some of the catalysts for that, which was unexpected,” he added.
At the end of last year, Piedmont’s Philipps expected continued rapid growth in EV demand and penetration in 2018, as well as continued strength in lithium prices.
“EV demand has grown through everybody’s forecast … and lithium prices have remained strong for the majors. There was a lot of volatility in China and the spot market, [but] I think that’s mostly noise and [I believe it] doesn’t have a lot of impact in the market,” he added.
LSC’s Stalker said the biggest surprise this year has been how soft the market is at the moment in terms of expectations, “[although] the demand drivers remain very, very large.”
Speaking about the disconnect between share prices and the optimistic demand outlook seen this year, Pilbara’s Brinsden said prices had perhaps run too hard at the end of 2017.
“I think the persistent theme is there’s still a healthy dynamic in terms of growth in the lithium-ion supply chain, there’s a significant requirement for growth in the raw materials supply base and that’s the opportunity Pilbara Minerals sees,” he explained.
Galaxy’s Tse also shared his thoughts on the disconnect seen between share prices and demand optimism from experts.
“I think the challenges investors are having are not limited to lithium; I think overall we’ve seen volatility [and uncertainty] at a global level,” he said.
For Standard Lithium’s Mintak, the most challenging aspect of the lithium space this year was the constant need to defend the rationale of why bringing a lithium project online is important.
Meanwhile, Belmont’s Shafransky said the lack of funding to move projects forward despite demand was difficult for the sector throughout 2018. Enertopia’s McAllister agreed, adding that early in 2018 speculative investors were “stampeding” into any and all cryptocurrency deals.
McAllister added he was expecting a stronger response from the equity markets with respect to lithium investments.
Piedmont’s Philipps agreed, saying the disappointment this year has been that despite the very strong fundamentals, equities have been crushed.
“One of the biggest challenges in 2018 was the perception of oversupply that was driven by the major companies all making pretty significant announcements about capacity increases, and by the large number of juniors developing projects. And that [wave of oversupply] has not happened,” Phillips said.
In fact, he added, “supply has been disappointing in every quarter at every company. But despite that, the market made the trade on the basis that [oversupply] would happen, and equities have been really negatively impacted.”
Galaxy’s Tse agreed, explaining, “the ability of lithium [suppliers] to respond is sometimes overestimated, and it will take time for both new mines and new conversion facilities to ramp up and be able to perform according to planned volume and planned quality.”
Lithium forecast 2019: Demand to remain strong
In 2019, Piedmont’s Phillips expects EV penetration to continue to surprise to the upside.
“Lithium demand will grow, and I believe lithium supply will continue to be slow to catch up. [And prices] will remain very strong,” he said.
“I believe the equity market will turn violently and favorably when people come to the realization that actually the fundamentals are better [than what they believe].There’s going to be demand for more and higher prices, and then those [companies] that can get to production are going to make very strong profits,” he added.
In terms of prices, Pilbara’s Brinsden said, “there’s potentially a new normal emerging in the lithium world, that I’d like to think [market participants] will get comfortable with, which is price will probably stabilize at where it is.”
He added that it’s possible that pricing got ahead of itself, “but equally there needs to be a pretty significant incentive to continue to grow the lithium raw material supply base. Especially through the hydroxide lithium supply chain in support of more high-nickel cathode material.”
Similarly, LSC’s Stalker said he thinks there’s going to be “a sea change taking place in the perception of lithium.”
“With the coming demand from the Germans and the huge transition from ICE (internal combustion engine) to EVs in China, at one point lithium will get its turn,” Belmont’s Shafransky said.
Similarly, Enertopia’s McAllister pointed to how EV sales continue to come in at the top of expected sales targets.
“This should underpin current pricing and might even allow prices to creep up in 2019 as planned production increases continue to struggle to come online in a timely fashion,” he added.
Next year, Pilbara’s Brinsden expects investor optimism to return to the sector.
“I think the equities probably got too far disconnected from the reality of growth in the supply chain, so I’d like to think there will be a positive sentiment going back into the stocks as well,” he said.
Piedmont’s Phillips said he would suggest investors interested in lithium focus on conventional projects in good geographies.
For his part, LSC’s Stalker said all investors “have to decide what quality is the project, what is the reality on what I am looking at here, can it go to production. They have to compare that to the rest of the projects out there, but lithium — make no mistake — is a commodity that is in demand.”
Lithium forecast 2019: What’s ahead for companies
ASX-listed Pilbara had plenty of news in 2018, with a successful build, ramp up and now production at its Pilgangoora project in Western Australia.
Next year, the company will continue to maximize production for its stage 1 plant, and it will also develop its expansion case to more than double production, which is a customer-driven decision. Additionally, Pilbara is looking to formalize its participation in a downstream processing facility, which the company is undertaking with South Korea’s POSCO (KRX:005490).
Meanwhile, Galaxy has recently completed the sale of the northern tenements of its Sal de Vida project in Argentina to POSCO, and expects to continue to develop the project next year.
“We are also starting to evaluate an opportunity of forming a view of establishing our own downstream strategy off the back of our Mount Cattlin producing mine, in Australia,” Tse said.
For its James Bay project in Quebec, the company will be submitting shortly the relevant environmental and social impact assessment for an upstream and concentrator production facility, which will kick off the permitting process for the project.
For Piedmont, 2019 is also going to be a busy year, as the company will work toward a construction decision on its project a year from now.
“We’re aggressively advancing the permitting process, we’re doing exploration drilling with the purpose of extending mineralization along strike and extending mine life from 13 years to 20-plus years,” Phillips added.
For Belmont, the drill is turning down right now in Nevada at its Kibby Basin project, with the drilling of a fourth hole potentially becoming a game changer for the company.
“Should we find lithium brine there it would be the biggest discovery in the US,” Shafransky said.
Meanwhile, Enertopia expects results from its first drilling program to lead to a resource estimate for its lithium project in Nevada’s Clayton Valley. Additionally, the company will continue to work on solution testing with resins and membranes with industry partners.
LSC had a busy 2018, releasing a maiden resource estimate for its Pastos Grandes project earlier this year, following up with a positive preliminary economic assessment for its Pozuelos-Pastos Grandes project in Argentina.
“This important development milestone will be further supported by the environmental impact statement, which we intend to submit to the Salta mining secretary before the end of the year. We look forward to 2019, when further pilot testing and geotechnical work at the project will support further datafor a full feasibility study.”
For Standard Lithium, which is developing its flagship Smackover project, 2019 will be a busy one. After releasing a resource estimate for its 150,000 acre project in the south central region of Arkansas in November, Mintak said a second resource on 30,000 acres of separate brine leases in south west Arkansas will follow soon.
Looking ahead, the company, which has partnered with global specialty chemicals company LANXESS, expects to commission a pilot plant in Q1 2019 and will work on a preliminary economic assessment for its project in the next few months.