June 20, 2018
Earlier this week we published Part I of our Lithium CEO Roundtable which consisted of conversations with heads of lithium miners around the globe. As promised, we’ve published the second half of their insightful thoughts below. Once again, we’d like to thank the following CEOs for taking part in the inaugural Lithium CEO Roundtable:
- Guy Bourassa (pictured bottom left): President and CEO, Nemaska Lithium
- Richard Seville (top left) : Managing Director and CEO, Orocobre Limited
- Ken Brinsden (bottom right): Managing Director and CEO, Pilbara Minerals
- Calvyn Gardner (top right): CEO, Sigma Lithium Resources
What is the most frequent question you get asked when meeting with investors? What do they tend to be the most confused about?
Nemaska: I hope that we have communicated our strategy effectively and clearly and so I hope the confusion is minimal. Right now I think this general myth of oversupply is causing a lot of confusion among investors and that are considering investing in Nemaska Lithium or any lithium stock. Our discussions with end users suggest that the market is very tight and looks to remain that way for some time to come.
Orocobre: Difference between hard rock and brine operations – while both hard rock and brine are viable lithium production methods, brine operations are more straight forward and usually have lower cost and higher returns. For example, Orocobre’s cost of lithium chemical production is around US$3,500-4,000 per tonne and we expect that to reduce to $3000/tonne.
Hard rock sourced lithium spodumene concentrate (not chemicals) is reportedly US$800-900/tonne of concentrate. The concentrate has to be converted to lithium chemicals at a cost of $2,000 – $3,000/tonne (which currently is almost all done in China) and it takes 8.5 tonnes of concentrate to make one tonne of lithium chemicals. Taking the mid points, hard rock sourced lithium costs around $10,000/tonne ($850 *8.5) +$2500 + freight = around $10,000/tonne).
Our brine-based production capabilities give us a significant cost advantage, making us one of the lowest cost producers of lithium. However, we believe there is a place for both hard rock and brine producers, but experience, capabilities and cost of production will determine which projects are successful.
Pilbara: Much of the investment community is still stuck in the old paradigms of the lithium raw materials market, when demand was driven by industrial and technical grade demand. In our view, the rise of battery demand is resetting the quality parameters and when combined with the rise of Hydroxide demand, hard rock becomes the preferred lithium raw materials supply base for its stability of supply (both volume and quality), mined in stable/proven jurisdictions and ultimately the lowest cost.
Sigma: It really depends on how informed the investor is, less informed investors in the sector ask about oversupply concerns while more informed investors are interested in time to production and production costs. For us, we are building a green and sustainable mining business, appealing to mining and sustainability investors alike. We have found significant quantities in Brazil and want to contribute to the development of clean energy in the country and abroad without subsidies.
What is the biggest hurdle you have to overcome when meeting with new investors interested in the lithium space, but perhaps not as well informed?
Nemaska: The lithium space does require that the investor do some reading and become educated in the space. Not all lithium companies are equal and investors should do their own due diligence to cut through the noise to decipher who has quality assets, experienced management teams and the ability to create shareholder value.
Orocobre: That the supply side of lithium is capital intensive, technically complicated, and most importantly it takes time for production to get off the ground. Even the lithium majors have had challenges in ramping up.
In the most recent quarter, major Chinese producers Tianqi and Ganfeng prices were reportedly stable at H2 levels with no un-committed volume available as both experienced an imbalance between spodumene concentrate supply and lithium salt production due to longer than expected maintenance or completion and commissioning of expansion volume. Similarly, another significant conversion plant Yahua conceded it had temporarily ceased production to improve plant equipment (Benchmark Minerals, April 2018). Meanwhile, no information could be sourced to confirm that Shandong Ruifu’s product line installed to convert direct shipping ore was completed on time.
Further investment is required in downstream conversion capacity to address the existing bottleneck for spodumene conversion. In response, many of the existing conversion plant operators announced expansions of varying scales and timeframes. Historically, actual effective conversion capacity has been significantly less than claimed nameplate capacity. Therefore, the actual conversion capacity realised in the short to medium term will lie somewhere between the existing capacity and claimed new nameplate capacity. We continue to see significant headwinds for new production and supply.
Pilbara: It started with how real the overall demand equation was, then moved to the validity of the respective supply bases and can’t the brines just swamp supply? (still some laggards thinking along these lines). Overall, I think the weight of numbers has started to win the day and in our view will continue to do so for a couple of years to come. Demand growth (especially from China) will continue to underwrite the broad story with global car makers capitulating and rolling out more EV product. Energy storage should also not be underestimated. Li Ion batteries become the lowest cost rechargable batteries and as such become a bit subset of supply to this market.
Sigma: Trying to inform them of the difference of battery-grade production and ceramic grade especially for the production of carbonate and hydroxide, and that the growth is in battery grade hydroxide Financial markets analysts are failing to distinguish the difference between the types of lithium being produced worldwide today, suggesting all lithium is the same whether it be for ceramic, technical or battery grade. For Brazil, Sigma expects to attract lithium battery manufacturers and the ensuing buildout of a lithium value chain, which will contribute to the future of the country’s auto manufacturing industry, which is one of the biggest in the world.
If we think of investor awareness on the lithium space in terms of an S-curve, in your experience of interacting with investors, where would you say the market is right now- early adopters, growth phase, or maturity? And any anecdotal stories to go with that?
Nemaska: When we first started talking about lithium to investors on lithium back in 2009 to 2010 we were actually asked to give them our resource estimate in gold equivalent numbers. Those days are behind us now and investors are more aware of lithium assets and the lithium market. The institutional investor base has also broadened from mining to include generalist and clean tech funds. One fund manager recently told me that he has to start doing his work on the lithium space because to not understand it and not have it in his portfolio would be negligent on his part. That is a big statement and so I think we are in the growth phase right now with many of the early adopters benefiting from the growth in lithium stocks. I see a lot blue ski upside for investors in Nemaska Lithium and lithium stocks in general.
Orocobre: The lithium story itself is still becoming mainstream. It’s really only in the very recent past that the long-term energy solutions that lithium can facilitate has come to be realized. And we are still seeing a lot of emerging research and development regarding power and battery storage and electronic vehicle applications becoming more accepted wisdom, so in this sense, investor awareness of the lithium space is likely still in the early adopters phase.
What is undeniable is that Government mandates will provide support for continued growth in electric vehicle penetration rates. On top of this, battery manufacturing capacity could quadruple by 2020 with ~230GWh of capacity additions expected from 15-20 battery facilities at a cost of ~US$10billion. EV growth rates are currently ~40% and many expect this to reach 45%-50% by 2020. At this rate, this would result in 3.4% EV global penetration rate by 2020. And a growing number of industry participants believe penetration rates of at least 4.5% are possible given recent momentum and supportive government initiatives.
However, any growth above 4.5% EV penetration OR further upside to ESS growth (>30%) would require battery capacity above the current forecasted ~305 GWh figure.
Pilbara: Growth Phase. Investors requesting meetings have started to move towards the generalist’s, whereas historically most of our meetings with investors were with specialists in the mining and/or tech fields.
Sigma: China is in the growth phase and the rest of the world in early adoption. We believe miners need to do more to raise awareness globally about the intricacies of the lithium story to help investors better understand the opportunities that this sector will provide from investments to a greener planet. Back in Brazil, we are finishing the construction of our pilot plant before starting mining and sending samples to potential customers. Our goal is to be in our first full year of production in 2020. Again, we are backed by green investors and we want to do our part and make a difference.