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January 20, 2019 4

LITHIUM 2018 – A Turning Point

2019-altura-mining

The Lithium market in 2018 left many investors confused. In one of the most disruptive periods for batteries and EV’s, the share price tanked across the whole sector.

A Chinese move.

The real story for 2018 began in early Q2 when we first called limited over-supply. We were aware of a number of changes occurring in China, including the ramp up of Qinghai and concerted attempts at processing high mica materials. In addition, while the west was talking breakthrough’s in recycling, in typical Chinese style, they were actually producing.

New supply from Australia.

These moves within China were substantial, although not enough to call oversupply in a growing market. Much of the material China was betting on was sub-standard and borne more out of the slight desperation of late 2017.
The real difference for us was the start of production at Altura Mining and Pilbara Minerals in Western Australia. These two new mines would prove substantial in the market but were often overlooked by reporting houses largely based in the U.S and concentrating on news from South America. While production began in earnest towards the end of Q3 the promise of additional supply was a contributor in nullifying much of the panic from late 2017.

Oversupply or rationalisation?

The word “oversupply”, while technically correct was far from the real story. What really happened in 2018 was much more than oversupply. It was more a case that the word “Lithium” was no longer one size fits all. While the whole lithium industry moved into a pricing down cycle the truth was far less simplistic and quoting a “lithium price”, no longer accurate. In effect while we had oversupply in some areas a more accurate description would have been rationalisation.

Inaccurate Reporting?

I think everyone in the lithium space is aware of the “tsunami of oversupply” and other similar comments from investment banks and others. Although we believe many of these reports have been proven as nonsense in the past, the reality is that they do affect the market. I have no idea why, and quite honestly wouldn’t bother reading what they have to say. Bloomberg NEF reports are about the only ones I read with keen interest.

South America or Australia?

2018 was a monumental shift from a largely South American focus towards Australia as a major producer. While much of the reporting largely ignored Australia, the reality was that there was a new kid on the block. Even the big names from South America recognised that the move to Hydroxide and consistent supply was going to be a game changer for Australia. While both regions have a genuine and undeniable place in the market, that market changed forever in 2018.

Why Australia?

Australia produces a Spodumene concentrate and China has processed Spodumene for many years. As the epicentre of the battery industry, they were very comfortable users of SC while the North Asians were not. However, the major suppliers from Japan and Korea had been coerced by the Chinese government into manufacturing in the Mainland. Hence SC in the mainstream processing market became a reality. In simple terms, the South American suppliers have not lived up to the promises of huge increases in supply. Projects have been delayed and, in my opinion hard rock has proven itself as having more reliable exponential growth.

What does China want?

I’m quite sure that having dabbled in much of the purported new supply, the Chinese are under no illusion that consistent and high-quality feed was going to be essential moving forward. Equally, the Chinese are well aware of the massive growth ahead and they are now planning years ahead while investors are checking the daily share price. There has become a disconnect between share prices, investor expectations, and reality.

Who will be the winners?

We do not like discussing specific stocks. Whether you believe in lithium from brine or hard rock, quality and consistent supply is going to break away from the lithium pack that formed in 2017. If there is an oversupply, the reality is that quality producers or resources should not be considered in the same negative light as others.

For SC we look for battery grade at over 6.0%, iron content at 2% or below and low mica etc. We also consider grain size and moisture content in the basics. In addition, you naturally need to look at mining efficiencies such as grade, strip ratios, depth, jurisdiction, distance to port etc.

Immediate supply of SC will come from a select few in Australia. The future may see Africa and Canada come into play and we’ll discuss those more in future.

Setting the stage for 2019

2018 was certainly a turning point for lithium. The word “lithium” has been hyped from as far back as 2015 onward and many of us made extraordinary gains. The game has now changed forever, and a new era is upon us. An era where price, quality and consistency are now inextricably tied together. It’s a time for producers to take centre stage. For those new resources and hopefuls that tick all the boxes, it’s a time for patience knowing your day will eventually come.

Our confidence in the lithium market from Q2 2019 onward has grown for those high-quality resources and we’ll take a close look at 2019 in our next article. However, 2018 has set the ground rules and they’re here to stay.

END.

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