Pilbara paints picture of impending havoc in under-supplied lithium market

Barry FitzGerald

Independent Journalist

A second spot market auction later this month could put the extent of the spodumene shortage on full display. Plus, Beament goes green as Klein fights for gold, Brazilian hydro power could make Centaurus greener than a rain forest and Boss highlights why decarbonisation will fuel a run in the uranium price.

The big mining news of the past week landed just as 2500 mining and monied types were winding their way to the Diggers & Dealers bash in Kalgoorlie.

It was the flash from Pilbara (PLS) that the winning bid in the first of its online auctions of spodumene on its nascent Battery Material Exchange was an amazing $US1,250 a tonne.

Compare that with index prices of about $US500/t as recently as April and it has got to be wondered just where the scarcity factor for the lithium raw material is going to take prices.

After making his escape from Kalgoorlie back to Perth, Pilbara CEO Ken Brinsden is in no doubt where it’s headed: “It’s only just started”.

The BMX spot sales platform is new to the industry, one that is so opaque, it’s not funny. Sales of spodumene and the end products of lithium hydroxide and carbonate are traditionally done under offtake contracts.

But the initial success of the BMX auction means that the potential for a deep and transparent spot market could be with us. Brinsden said another auction was likely before the end of the month.

Tonnages aren’t big at this stage – the first one was for 10,000t – but Pilbara is giving thought to the potential for batching up a bunch of cargoes for delivery in the March quarter next year on a futures basis.

Pilbara’s big-time spot sale capacity comes from the Altura operation, acquired earlier this year for a song. The company’s existing and adjacent Pilgan operation is committed under offtake agreements until 2024.

Pilbara is working at getting the Altura operation up and running again in the December quarter, with a ramp-up to an annual rate of 200,000t in the first six months of 2022 the plan.

That material is available for spot sales on top of Pilgan’s 380,000t committed capacity.

While the scarcity factor in spodumene came through loud and clear in the BMX auction, Brinsden reckons that it could be the same for lithium hydroxide and carbonate.

While the build out of spodumene convertor capacity has outstripped the raw material supply, supply of lithium hydroxide and carbonate is falling behind the build out of battery capacity. Expect havoc is the message.

So while it is OK for US auto makers to be heading off to Washington this week to say they will spend $US300 billion over the next five years electrifying cars, they had better start looking over their shoulders at just where the battery raw materials are going to come from.

Beament goes green

This year’s D & D was in the grip of the decarbonisation thematic. Companies both big and small were falling over themselves to display their green credentials.

Copper and battery metals good, other mineral commodities bad, is the Orwellian summary of proceedings at the conference, long-known for its gold bent more than anything else.

Gold was not spared though. Highlighting that was Bill Beament, of all people, declaring that gold is not green. “Sorry, but it is not,” he said.

Wow, did the guy who turned Northern Star (NST) from a penny dreadful to a $12 billion gold juggernaut in the space of 14 years, actually say that?

Yes, he did.

At his Monday presentation for copper-zinc developer Venturex (VXR), some five days into his new gig as its MD, Beament declared he loves everything that’s green – green copper, green nickel, green zinc.

He could have gone on to add lithium, graphite, manganese, silver, or any other commodity with particular exposure to the global decarbonisation push.

Others did that for him, such was the dominance of the thematic at D & D around the metals needed to support the electrification of everything.

There are three strands to Beament’s new focus on “clean metals to help decarbonise the world,’’ and growing Venturex (VXR) – to be renamed DEVELOP – into something bigger than the $550m company it is today.

Moving its Sulphur Springs copper-zinc project to bankable status by the end of the (calendar) 2022 is the obvious one.

The other two are not so obvious – leveraging off the underground mining DNA within Venturex to provide a mining services-type revenue stream and to access additional projects by leveraging off its financing/M&A DNA.

It was too early to expect much hard news around any of those given Beament has just arrived at Venturex. But his record at Northern Star – one full of M & A and the development of an in-house contracting arm that kicks goals – suggests it won’t be long before he strikes.

On that score, it was notable that at D & D, Beament was the only MD that spent time sitting in the auditorium listening to the presentations by other companies over the three days of conference.

Presumably, he wasn’t bothering to take notes on the gold companies.

Klein on gold’s fightback

Beament’s old sparring partner for investor attention, Evolution (EVN) executive chairman Jake Klein, couldn’t make it to Kalgoorlie because of Sydney’s COVID lockdown.

But he did beam into the conference, opening up with a few bars from Jailhouse Rock, such is his frustration with the way Australia has gone from leading the fight against the pandemic to being a laggard.

He also sent out a warning on the green metals boom, the one that has fired up Beament.

“New so-called ‘green’ metals are the rage. Companies with assets in these commodities are being priced a lot like internet companies. It’s all about their potential and their future earnings. It all seems almost too good to be true. And just maybe, it is.’’

A gold producer would say that of course. Klein acknowledged that it had been a tough 12 months for the gold sector.

A year ago the gold price was at record levels because of fears around COVID. But this year the goldminers are in the “doghouse,” even though the pandemic is far from over.

He reckons gold’s time is coming though as its store-of-value credentials shine through against a world hooked on printing and borrowing money to fund economic recovery from the pandemic.

Centaurus:

Back to green metals. BHP made a bit of a splash at the conference talking up an expansion of its WA nickel business – the same one it tried to dump in 2015 before deciding to pivot from supplying the steel industry to battery makers.

BHP was also at pains to highlight that it was out to reduce emissions from its collection of mines, and its concentrator, smelter, and refinery, by going down the solar farm route for its power requirements.

The move underscores the situation that while nickel is very much a “future facing” metal as BHP likes to call it because of its battery applications, producing the stuff can be emissions-intensive.

BHP didn’t say just what its current nickel emissions are. But being a sulphide producer, they would compare favourably with the industry average of more than 30t of CO2 emissions per tonne of nickel equivalent.

If it were able to hook into a grid where the supply is 80% renewables, it could do a lot better. That’s the reason for the solar farms.

But if a nickel project is in Brazil where an 80% renewables power supply already exists thanks to hydro, the owner is going to be producing truly “green’’ nickel, which is what the fund managers and their investors increasingly want to see.

That’s all to the good then for Centaurus (CTM), with CEO Darren “Flash” Gordon telling D & D that a commissioned report from Skarn Associates on the company’s planned 20,000tpa Jaguar project in Brazil found it would have just about the smallest carbon footprint in the industry at just 4.69t of CO2/tonne of nickel.

That would be lower than 97% of existing global nickel production, or 85% lower than the industry average of 33t of CO2/tonne of nickel (production weighted). It’s just what the auto groups and battery makers want to see.

Uranium:

Given the decarbonisation thematic got such a big airing at D & D, it was kind of funny that only two uranium stocks made presentations – Boss Energy (BOE) and Paladin (PDN).

Fair enough. The uranium price continues to languish in the low $30s/lb, leaving it well short of the $US60/lb price considered necessary to incentivise new production.

Boss and Paladin have coiled up projects in South Australia and Africa respectively ready to go when the market inevitably turns. That their projects are restarts of past operations, with the down time used for optimisations, helps with their speed to market.

In a rapid-fire presentation to the conference without a single pause, Boss CEO Duncan Craib said things were brewing in the uranium market.

“All of the indicators we are seeing currently point to the start of a new (price) cycle. When the commodity price moves it can be sudden, it can be violent, and we need to be quick to seize upon it,” Craib said.

“As they say, the longer the base, the higher the space. Prices can and have gone ballistic (previously at any rate).”

History shows that when the uranium price moves upwards, it can do so in big licks. So if Craib’s call that uranium will start moving in a meaningful way by year end is on the mark, the uranium stocks could be the talk of 2022.


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Principal
Independent Journalist

One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.

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