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Four ASX lithium producers for your portfolio (and six hopefuls!)

Lithium prices have been on a tear on the back of booming demand for electric vehicle (EV) batteries and renewable energy applications. Here are four ASX lithium producers for your portfolio.

Most commodity prices are on the rise, but lithium is really on a tear, with the “white gold” in huge demand on the back of booming demand for electric vehicle (EV) batteries and renewable energy applications.

Chinese prices for battery-grade lithium carbonate, a crucial ingredient in many batteries, have doubled already in 2022, and have jumped fivefold over the past year, as demand from EV-makers has outstripped supply. Lithium hydroxide, used mainly in making high-nickel-content battery cathodes, is also surging – it has more than doubled in price so far this year.

The basic reason for this is that while there is plenty of lithium on the planet – it is not a rare metal by any stretch – producers have struggled to lift output because of COVID-19, and it takes five to seven years to bring a new deposit to a producing mine; and stocks of the battery material in the major consumer, China, are depleting fast.

Plenty of miners are developing and financing new projects, and developing new technologies to source lithium from brines, but they are not currently able to match higher demand. Lithium is currently in a supply deficit, with research firm Benchmark Mineral Intelligence (BMI) estimating that the deficit will expand to 26,000 tonnes of lithium carbonate equivalent (LCE) in 2022 to 300,000 tonnes by 2030.

Australia is well-served for lithium producers – at home and abroad – and there is a swathe of projects being quickly advanced. I looked at the lithium producers in June 2020 and again in November 2021.

Here is an up-to-date survey of the landscape.

 

Mineral Resources (MIN, $49.91)

Market capitalisation: $9.4 billion

12-month total return: 42.3%

3-year total return: 54.5% a year

FY22 Estimated Yield: 2% fully franked (grossed-up, 2.8%)

Analysts’ consensus target price: $60.21 (Thomson Reuters, 9 analysts), $57.14 (FN Arena, 5 analysts)

Stock price chart for Mineral Resources (MIN).

Source: nabtrade

 

MinRes is one of the world’s top five lithium miners. It owns 50% of the Mt Marion spodumene (hard-rock lithium ore) mine and processing plant near Kalgoorlie in Western Australia, with the other half owned by Chinese company Ganfeng, which is also the mine’s offtake partner.

MinRes also owns 40% of the Wodgina deposit in WA’s Pilbara region, one of the largest-known hard-rock lithium deposits in the world, with the majority owner being US-based chemicals giant Albemarle. Wodgina has an expected mine life of more than 30 years, shipping 750,000 tonnes a year of 6% spodumene concentrate to Chinese customers. The partners mothballed Wodgina in October 2019, to sit-out weak lithium prices: they have now committed to a restart, with Wodgina expected to be back in business fully during the third quarter of 2022.

The partners are also building Australia’s second lithium hydroxide plant, at Kemerton, southwest of Perth, which is on track to produce its first battery-grade product by the end of this year. It will have the capacity for 50,000 tonnes a year once in full swing, and the partners are targeting production of more than 100,000 tonnes a year of lithium hydroxide within five years of commissioning.

Then there is the iron ore, in which MinRes is transitioning from a low-volume producer to a high-volume, long-life producer, mainly through building its Ashburton hub in WA, which will be a state-of-the-art 30 million tonnes-a-year project, with the ore transported via “transhipper” barges to Cape-size carriers offshore. MinRes is aiming for the first ore on ship at the end of calendar 2023.

So, you have a significant producer of both iron ore and lithium, backed by one of Australia’s largest mining services contracting businesses, and with the bonus of a developing energy business, with a recent major gas discovery in the Perth Basin. At this point, MinRes is mainly talking about supplying energy to its own operations.

MinRes did not have a great first-half FY22 result, with earnings falling well short of expectations, but rising lithium prices are helping to offset iron ore price declines, and analysts are very bullish on MIN’s lithium business.

 

Allkem (AKE, $11.07)

Market capitalisation: $7 billion

12-month total return: 143%

3-year total return: 49% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $13.29 (Thomson Reuters, 11 analysts), $13.25 (FN Arena, 7 analysts)

Stock price chart for Allkem (AKE).

Source: nabtrade

 

Allkem was formed from the merger of ASX-listed lithium producers Orocobre and Galaxy Resources last August. The union brought together the two different kinds of lithium production, uniting the Olaroz brine lithium carbonate mine in Argentina and the Mt Cattlin hard-rock lithium mine in Western Australia.

Allkem is also planning a third lithium production centre, at its James Bay hard-rock lithium project in Canada. The feasibility study on James Bay has the proposed mine producing 321,000 tonnes of 5.6% spodumene a year for 19 years for the EV and battery industry, with an ore reserve of 37.2 million tonnes at 1.3% lithium oxide. Allkem puts a US$286 million ($381.3 million) to bring the project on stream.

In its first result since the merger, Allkem posted record half-year revenue for the December 2021 half, of $US192.3 million ($267.9 million), with $US114.9 million ($158 million) coming from Mt Cattlin and $US65.6 million from the Olaroz lithium operation. At Olaroz, which was part of the old Orocobre business, revenue surged 142% to US$65.6 million ($91.4 million), with a 218% jump in the average FOB (free-on-board) pricing of its lithium carbonate to US$11,095 per tonne.

The planned stage two expansion of Olaroz will enable Allkem to produce an additional 25,000 tonnes per year of lithium carbonate. First commissioning is expected in the second half of 2022.

Allkem is also constructing the Naraha lithium hydroxide plant in Japan, with first production expected in the first half of this year.

I had been a bit more wary of the Orocobre side of Allkem, because of ESG concerns over the water demands of the brine operations in low-rainfall areas of South America, but in fairness, if Australian Ethical holds the stock, I think that concern might have been misplaced.

Analysts are mostly positive on Allkem, with the most positive being Bell Potter, which wrote in February: “AKE is a go-to stock for multi-project exposure to lithium markets. AKE will realise significantly higher prices from 2022, driving material operating cash flow growth. Looking ahead, AKE has a portfolio of growth projects to materially lift production over the next three years.”

 

Pilbara Minerals (PLS, $3.28)

Market capitalisation: $9.7 billion

12-month total return: 246%

3-year total return: 73.2% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $3.60 (Thomson Reuters, 5 analysts), $3.275 (FN Arena, 4 analysts)

Stock price chart for Pilbara Minerals (PLS)

Source: nabtrade

 

Pilbara Minerals (PLS) produces spodumene and tantalite concentrates from its flagship Pilgangoora project in Western Australia’s Pilbara region. The Pilgangoora ore body is one of the largest hard-rock lithium deposits in the world, according to the company; the operation has two processing plants, one producing a spodumene concentrate and the other also producing a tantalite concentrate.

PLS has been a great story on the ASX in recent years: it entered 2021 trading at 29 cents and has been a quickfire “ten-bagger” from there, surging to $3.31.

In the December 2021 half-year, Pilbara Minerals said it achieved an average selling price of about US$1,250 per dry metric tonne (dmt) – since then, analysts think that spot spodumene concentrate has rocketed into the range of US$3,750–US$4,500 per dmt.

PLS is restarting its Ngungaju plant, which will turn the company into a producer of 580,000 dry metric tonnes-a-year operation when at full capacity. Planned upgrades to the Pilgan plant – Pilgangoora’s first plant – will then target one million tonnes a year. However, in the near term, higher exploration and finance costs saw Pilbara Minerals downgrade its FY22 production guidance in its half-year result to 340,000 tonnes –380,000 tonnes. PLS is a great lithium expansion story, but not surprisingly, the huge recent share-price gains have taken a fair bit of value out of the share price.

 

IGO Limited (IGO, $13.74)

Market capitalisation: $10.4 billion

12-month total return: 124.6%

Three-year total return: 46.1% a year

FY22 estimated yield: 0.7%, fully franked (grossed-up, 1%)

Analysts’ consensus price target: $13.00 (Thomson Reuters, 11 analysts), $13.55 (FN Arena, 4 analysts)

Stock price chart for IGO Limited (IGO).

Source: nabtrade

 

Diversified miner IGO has a portfolio of high-quality assets with exposure to nickel, copper, cobalt and lithium both upstream and downstream. IGO’s flagship asset is its wholly-owned Nova operation (360 kilometres southeast of Kalgoorlie, in Western Australia), with revenue generation currently split across nickel (77%), copper (19%) and cobalt (4%). In December 2020, IGO diversified into the lithium business, buying a 25% stake in the world’s largest hard-rock lithium mine, the Greenbushes mine in WA, and a 49% stake in a lithium hydroxide plant being built at Kwinana, south of Perth. IGO is more of a nickel story, but lithium will become a higher priority over the near-term future. In any case, analysts think it has bypassed value.

 

The Best of the Lithium Hopefuls

 

Piedmont Lithium (PLL, $1.01)

Market capitalisation: $1.6 billion

12-month total return: 6.3%

3-year total return: 109.7% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $1.55 (Thomson Reuters, 1 analyst)

Stock price chart for Piedmont Lithium (PLL).

Source: nabtrade

 

Piedmont Lithium owns the Piedmont Lithium project, located in the Carolina tin-spodumene belt in North Carolina. PLL hit the headlines in September 2020 when it signed a five-year deal with EV giant Tesla, to supply spodumene concentrate to the carmaker from its North Carolina deposit. The supply deal must commence between July 2022 and July 2023.

Carolina is the only spodumene deposit in the US. Under the Tesla agreement, Piedmont will supply its spodumene at a fixed price, with the option to extend its sales agreement for a further five years. The deal will cover one-third of the miner’s planned spodumene concentrate production of 160,000 tonnes a year for five years: additional quantities of spodumene concentrate may be delivered “at Tesla’s option”. The Tesla sales will generate 10-20% of Piedmont’s total expected revenue from its mine-to-hydroxide project.

This month, Piedmont raised $130.8 million to cash itself up to restart operations at North American Lithium in Quebec, in conjunction with its partner Sayona Mining (ASX: SYA), of which Piedmont owns 25%. In March, Sayona Mining doubled its Quebec lithium spodumene resource estimate to a total of 119.1 million tonnes at 1.05% lithium oxide. The partners hope to produce SC6 (6% lithium oxide), from 2023, complementing Piedmont’s planned lithium hydroxide production. 

 

Core Lithium (CXO, $1.22)

Market capitalisation: $2.1 billion

12-month total return: 481%

3-year total return: 181% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $1.00 (Thomson Reuters, 1 analyst) 

Stock price chart for Core Lithium (CXO).

Source: nabtrade

 

Core Lithium is bringing to market its Finniss Lithium Project, located near Darwin in the Northern Territory: the company made its final investment decision (FID) on the project in September 2021, and has since commenced construction. Core has underpinned the project by signing an offtake agreement with Chinese lithium giant Ganfeng, which will take 75,000 tonnes of spodumene concentrate a year from Finniss, over four years, and it backed this up earlier this month with a deal to supply EV heavyweight Tesla with 110,000 tonnes of spodumene concentrate over four years, starting before 31 July 2023. Subject to further agreements, Tesla will assist Core Lithium in its potential Stage 3 expansion at Finniss.

Core Lithium continues to deliver high-grade lithium intersections at Finniss; a resource update is expected during the second quarter of 2022 and the project remains on schedule to produce the first concentrate in the fourth quarter of 2022. Again, a surging share price appears to have pushed Core Lithium past value territory.

 

Liontown Resources (LTR, $1.89)

Market capitalisation: $4.2 billion

12-month total return: 403.3%

3-year total return: 376.5% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $2.50 (Thomson Reuters, 3 analysts), $2.50 (FN Arena, 1 analyst)

Stock price chart for Liontown Resources (LTR).

Source: nabtrade

 

Liontown Resources (LTR) expects to be producing lithium-rich spodumene concentrate at the $473 million Kathleen Valley project in WA – one of the largest lithium development projects in the world –  before June 2024. In January, Liontown signed its first offtake agreement for Kathleen Valley, signing a deal with South Korean global battery manufacturer LG Energy Solution; expected to commence in 2024, the initial five-year agreement will see Liontown supply LG with up to 150,000 dmt a year of spodumene concentrate produced from Kathleen Valley, about one-third of the project’s start-up capacity of about 500,000 tonnes a year.

In February, Liontown strengthened Kathleen Valley’s global Tier-1 credentials with another offtake agreement, this time with Tesla, a five-year agreement expected to commence in 2024. Tesla will buy 100,000 DMT of concentrate in the first year, increasing to 150,000 dmt a year in subsequent years, conditional on Liontown commencing commercial production at Kathleen Valley by 2025.

Liontown has now contracted more than half of its expected production from Kathleen Valley during the first five years of operation. Under the definitive feasibility study (DFS), first production is expected to flow in the first half of 2024. Liontown says the DFS “confirms the potential to develop a state-of-the-art, second-generation lithium-tantalum mining and processing operation at Kathleen Valley”.

On Liontown’s numbers, it should be a 2.5 million-tonne-a-year operation, with a mine life of 23 years, generating life-of-mine free cashflows of $12.2 billion – with payback coming in just 2.3 years.

It looks to be an exceptional project – and analysts still see good value in the stock.

 

Vulcan Energy Resources (VUL, $9.96)

Market capitalisation: $1.3 billion

12-month total return: 63%

3-year total return: 289.7% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $20.00 (Thomson Reuters, 3 analysts)

Stock price chart for Vulcan Energy Resources (VUL).

Source: nabtrade

 

Vulcan Energy’s proposition is that it has developed the world’s first (and only) zero-carbon lithium process and plans to produce battery-grade lithium hydroxide from hot sub-surface geothermal brines, pumped from wells with a renewable geothermal energy by-product. Vulcan says it will do this from its combined deep geothermal and lithium brine resource in the Upper Rhine Valley of Germany, which is Europe’s largest lithium resource. Vulcan’s 1,000-square-kilometres of licence package in the Upper Rhine Valley has a total resource (probable, inferred and indicated) of 15.85 million tonnes of lithium carbonate equivalent (LCE).

By using renewable geothermal energy to drive the lithium production, without using evaporation, mining or fossil fuels, Vulcan says it can produce the lowest carbon dioxide-emissions-footprint lithium hydroxide for electric vehicles in the world. Renewable electricity will be a second source of revenue, in addition to lithium hydroxide sales. The definitive feasibility study (DFS) on the project is scheduled for completion in late 2022: on the basis of the DFS, Vulcan is projecting that commercial operation could start by mid-2024.

In January, Vulcan signed a binding lithium hydroxide offtake agreement with Korea’s LG Energy Solution (LGES) for the supply of battery-grade lithium chemicals, with delivery set to start in 2025. LGES will buy up to 50,000 tonnes of battery-grade lithium chemicals over the duration of the agreement.

If all of Vulcan’s plans come to fruition, ESG-oriented investors will love it, because lithium extraction is usually high in carbon-dioxide emissions – as a zero-emissions technology, in fact one with the bonus of renewable energy production, Vulcan could have the world at its feet, as the Biden Presidency brings US emissions efforts into line with the rest of the world.

Vulcan has risen like a rocket – but analysts still think it’s worth buying.

 

Firefinch (FFX, 98.7 cents)

Market capitalisation: $1.3 billion

12-month total return: 370%

3-year total return: 82% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $1.90 (Thomson Reuters, 1 analyst)

Stock price chart for Firefinch (FFX).

Source: nabtrade

 

Firefinch’s two major assets are in the African nation of Mali – the Morila gold mine and the Goulamina lithium project.

Morila (of which FFX owns 80%) has produced 7.5 million ounces of gold since 2000 and has historically been one of the highest-grade gold mines in the world. The company’s mission is to increase gold production (currently 40,000 ounces from tailing treatment) via open-pit mining from Morila’s main large pit, its satellite pits and Firefinch’s Koting discovery on its adjacent Massigui project.

The Goulamina lithium project is one of the world’s largest undeveloped high-grade spodumene deposits and has the potential to be one of the lowest-cost producers. All permits are in place, a definitive feasibility study is complete and a global resource of 109 million tonnes at 1.45% lithium oxide with 1.57 million tonnes of contained lithium oxide has been declared.

In August 2021, Firefinch announced the formation of a 50:50 joint venture with Ganfeng (see above) to develop and operate Goulamina: Ganfeng will provide up to US$390 million ($519 million) in funding, equity and debt. In January, Firefinch announced that a final investment decision (FID) for the Goulamina project had been approved.

Firefinch is planning to demerge its interest in Goulamina into a separate ASX-listed lithium-focused entity, which will be called Leo Lithium – the only way to get access to that listing is through owning FFX.

 

Lake Resources NL (LKE, $1.77)

Market capitalisation: $2.2 billion

12-month total return: 463%

3-year total return: 224.4% a year

FY22 forecast yield: no dividend expected

Analysts’ consensus target price: $1.50 (Thomson Reuters, 5 analysts)

Stock price chart for Lake Resources NL (LKE).

Source: nabtrade

 

Lake Resources is active in the “Lithium Triangle” of Argentina, where 40% of the world’s lithium is produced at the lowest cost, from brine evaporation. Lake has four projects covering 2,200 square kilometres in the area, including its flagship Kachi project. But Lake’s special sauce is that its technology partner, California-based Lilac Solutions Inc. has developed efficient and disruptive clean technology to produce sustainable high-purity lithium from brines – Lake says it will be able to return virtually all water (brine) to its source without changing its chemistry (apart from extracting the lithium). The high-quality product, together with the environmental and social benefits, should attract the attention of ESG-conscious EV and battery makers.

Tests have shown very high-purity lithium carbonate samples (99.9%) have been produced from lithium brines from Lake’s flagship project. The pre-feasibility study (PFS) on Kachi has shown the potential for a large, long-life low-cost operation, with competitive production costs at the lower end of the cost curve.

But the stock appears to have shot past what analysts are prepared to cite as fair value.

 

 

All prices and analysis at 28 March 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.


About the Author
James Dunn , Switzer Group

James Dunn is an author at Switzer Report, freelance finance journalist and media consultant. James was founding editor of Shares magazine, and formerly, the personal investment editor at The Australian. His first book, Share Investing for Dummies, was published by John Wiley & Co. in September 2002: a second edition was published in March 2007, and a third edition was published in April 2011. There have also been two editions of the mini-version, Getting Started in Shares for Dummies. James is also a regular finance commentator on Australian radio and television.