Lithium 2018 - An Early Look - Joe Lowry
I know Q4 just started so why am I writing about 2018 already? The bottom line is I think 2018 will dwarf prior years in terms of meaningful events happening in the lithium cosmos. Many significant open issues – among them:
·How serious are ALB’s often masked issues in the Atacama? Spoiler alert: weather isn’t the problem. The LaNegra II production volume in 2018 is critical for Cool Hand Luke.
·CORFO & SQM – resolution of open issues hopefully clearing the way for SQM to expand the Atacama beyond their current plan with a reasonable royalty.
·How fast can financed juniors (PLS/AJM) get into production?
·Development of new projects in Argentina beyond Cauchari.
·EV sales growth trend.
·Does FMC do a spin-off and get their lithium assets into more competent hands?
First a flashback to my January 17th post which mentioned what I thought were key themes for the lithium industry in 2017:
1) the need for consolidation and alliances
2) the rise of Argentina as the next great lithium province joining Chile and Australia.
So, what happened?
We saw three important projects (one in Argentina and two in Australia) funded and progressing. Probably more importantly we saw SQM make it clear the lithium “by-product” mentality is gone and they are “all in” on being the world’s foremost lithium company by expanding in the Atacama, moving forward at Cauchari and investing in hard rock in Australia via a deal with KDR.
On the other side of the world we saw Ganfeng benefit from their ownership in Mt Marion and make additional investments in Argentina (Cauchari) and Australia (Pilbara). Ganfeng is no longer dependent on others for raw material and has a real shot at becoming #1 or #2 in total LCE production.
DSO proved how wrong poorly informed analysts can be. The predicted price crash never happened and prices moved up to prior highs.
SQM and Ganfeng are clearly in position to eclipse the uneasy “allies”, ALB and Tianqi, in both production and global influence in the coming half decade. No I don’t think Luke and company or Tianqi are going to rollover; but I do believe SQM, Ganfeng and their affiliated companies have better operations and projection execution abilities that will be key to bringing the Lithium Age into full bloom.
Ok – so maybe my themes for 2017 were kind of obvious rather than great insight. Let’s a take a look at 2018.
What happens at Galaxy in 2018 is significant. The Perth based company is in the process of moving ahead of FMC in LCE production from Mt Cattlin production alone but in my opinion their real future lies in developing the Sal de Vida brine projection. Beyond that they also have another hard rock resource at James Bay in Quebec. Do they partner or go it alone? One next year’s more interesting questions.
FMC is currently the clear leader in the second tier of lithium companies. Although they have slipped to number 6 in LCE production, Hombre Muerto is a significant asset producing high quality carbonate and chloride. Unfortunately, the current management only puts out “teasers” about expanding the resource in Argentina rather than actually moving forward. Their ill-conceived hydroxide strategy (aka “The House of Card”) to expand to 30K MT without access to feedstock for the majority of the new capacity is increasingly viewed by the battery world as a significant misstep by the former global hydroxide leader. Hopefully their “on again-off again” spin-off talk results in new leadership that moves this fading lithium business forward.
Nemaska still requires massive funding to move forward with a commercial size plant. I like the idea of new technology in hydroxide but their current struggle to bring just a 500 MT plant online with on spec crystallized product rather than just a hydroxide solution they can ship to neighbor Johnson Matthey is question that needs be answered hopefully in early 2018. New technology always takes time – taking a wait and see attitude on Nemaska. Don't look for production >10K MT in this decade.
The North American Lithium saga drags on. A tainted Chinese SOC owner has been a barrier to several US based investors wanting to bring proper corporate governance to the mess north of the border. Despite China battery giant CATL curiously throwing a lifeline to entrenched management, any former optimism I had for NAL is gone. But then again, you never know.
It is beyond the scope of this post to mention every junior so please don’t send me a private message asking why I didn’t mention Bolivia, Portugal, etc, etc. I will be clear on one point – the Congo is not going to become the new Saudi Arabia of Lithium
In 2017, we saw people finally believe that rapid lithium demand growth is real and the future debate will be on things like speed of EV penetration (spoiler alert – I am still on the low end at < 5% but even with that lithium demand in 2025 is 3X demand in 2016.
I can’t write about 2018 without giving Elon his due. Clearly Tesla’s aspirational production goal of 500K cars in 2018 isn’t going to happen when they are currently making the model 3 literally by hand. Likely Tesla will be forgiven for the continued misses and remain an important story but the recent announcements by German automakers regarding massive investments in electric models and batteries will be more significant to the lithium world going forward. Who knows if VW will really invest $84 billion as they recently stated but it is clear electrification is going mainstream. Based on my recent expert calls, it seems automakers finally realize they may be forced to make investments in lithium resources. Unfortunately, it takes huge bureaucracies a long time to make decisions but it seems the review process has started in earnest.
Next year is going to be an extremely interesting one in the lithium world with ramp-ups to follow including the ongoing sagas of LaNegra II and ORE as well as the projects in Oz and the matching capacity in China. Hopefully SQM will put their CORFO issues behind them and be able to focus on the projects they have in three countries.
My expectation is Galaxy will have either financed or done a partnership deal to move Sal de Vida forward. I am more doubtful about the goings on in Quebec. On the demand side, although I am increasingly bullish on the electric transportation story my numbers still tend to be conservative.
Many pundits said 2016 was the year of lithium and 2017 would be the year of cobalt. I tend to ignore such musings given my total focus is lithium related matters. That said the best days for lithium are in the future no matter what other “flavors of the day” emerge.
