Post by
goodtoreadthis on May 23, 2018 2:28am
Galaxy view of LI market
Anthony Tse’s presentation
While noting the widely different projections by banks and others, AT expects lithium demand to at least quadruple by 2025 to a million tons of lithium carbonate equivalent (LCE). He noted the problems that analysts have had in understanding the various factors that determine the state of the lithium market. While they are coming to understand the demand side, they fall down in their understanding of the supply side. While there are many lithium resources around the world, there are very few that are ‘shovel ready’, with resources defined, staff appointed and permissions granted, so that they are ready to get into production within a couple of years of finance being secured. Obviously, GXY is well situated in that regard with Sal de Vida (SDV) and James Bay (JB).
For supply to satisfy the projected demand, AT said there has to be 70-90,000 tons of new LCE come onto the market each year, which means 3½-5 new projects come online and be in full production each year for the next seven years. He noted that currently there are only 3 hard rock projects in production in Australia, 4 brine projects in production in South America and 4 in China. Hence GXY’s confidence that supply and demand will be very tight until at least 2025.
AT noted that Chinese EV production keeps exceeding government targets and analyst estimates. He noted that the Chinese government is encouraging car makers to increase the range of their vehicles and hence the size of their batteries and the amount of lithium in each car. Thus, lithium demand will increase even faster than the increase in EV numbers.
AT predicted that energy storage was likely to surprise on the ‘up-side’ in demand for lithium.
AT noted the new supply that came on-stream in 2017 with 70,000 tons of LCE and yet the lithium price increased by 30%. This year, with even more coming on stream, AT expects another increase in price despite some softening in the price earlier this year. He noted that the price tends to firm in the second half of the year when EV demand is also strongest. He said that EV demand in China goes ‘gangbusters’ then, particularly in the fourth quarter. AT’s personal view was that the lithium price would be maintained at a five-figure number up until at least 2025, compared with the previous historical average prior to 2015 of $5-6k. He thought that the ‘floor’ to the lithium price over the next 6-7 years would be $10-12k. (My own view is that it will be greater than that, but DYOR)
AT noted that top car makers have committed $100 billion to EV development and much needs to be done by lithium producers and down-stream processors and battery makers for this to happen.
AT reminded the meeting that GXY had about $240m in debt about 3 years ago and now has no debt and many millions in the bank. He noted that GXY now ranks number 5 in the list of global lithium producers.
At Mt Catlin, the plant optimisation will be completed in the third quarter, which will increase recovery and lower costs. An exploration program at Mt Catlin will better define the existing resource and hopefully expand it.
On SDV, he noted the deal with JP Morgan to assess proposals by the large number of companies that want to cooperate with GXY on its development. In the interim, GXY will push ahead with test ponds and a pilot plant in readiness for the next stage following the conclusion of JP Morgan’s work later this year.
On JB, he reiterated that GXY was looking at ‘an integrated solution’ that would include a conversion facility in North America to supply customers in North America and Europe. By early next year, he expects the completion of a feasibility study into both the upstream and downstream components of that business.
The aim of the company, said AT, was to have all three projects (MT, SDV and JB) in production, at which time GXY will be producing about 100,000 tons of LCE, which will give GXY about 10-12% of market share in 2025. In doing this, AT stressed that the priority of the board was to maintain its financial discipline and get the right deals done for shareholders.
Question time
On Lepidco, AT said it would be ‘part of our overall R&D and technological development strategy’. Both AT and MR stressed that GXY was looking at all options, rather than just LPD, to get the best outcomes for its ore bodies.
On the volatility of the share price, AT noted the role that sentiment plays in determining the share price in such a ‘hot’ sector. AT suggested that the ‘fundamentals’ of GXY would see the SP come right in time.
On SDV, and the critics who claim it’s not being developed fast enough, MR said that GXY was more focussed on getting it developed in the right way. He went on to say that GXY was in an ‘exciting’ space because big car companies were looking for long term supply at the moment and GXY was in a position to provide it.
MR said that GXY would be looking in particular for ‘technical competence’ in deciding on a partner for the development of SDV. The financial side, he said, ‘was not such an issue’. In other words, there are lots of difficulties in developing a brine deposit and GXY doesn’t want to emulate the problems experienced by ORE.
MR noted that there were about 40 companies showing interest in partnering with GXY on SDV, including some ‘unusual’ ones and also including some big mining companies. JP Morgan and the board will cut that down to 3-4 companies, who will then go through the due diligence process with an aim to complete the transaction by September.
AT explained why the updated feasibility study for SDV, released that morning, requires more spending than the previous study. It’s because it needed to be more ‘robust’ and needed to cover all contingencies to satisfy future partners that everything had been accounted for in the budget. Some changes to the plans, such as the re-location of the ponds, were also more costly. He noted that some of the figures were based on actual quotes from suppliers. AT noted that the more prudent number would ensure that there would not be nasty surprises to the upside.
On the question of listing on a foreign exchange, MR intimated that it would depend on GXY attaining a market cap of $US2 billion and that his preference would be a listing on the US stock exchange. (This suggests that it won’t occur until there is a doubling in the SP to $6). MR noted that the analysts in North America are much more sophisticated than those in Australia in assessing the lithium market. AT noted that the listing of the FMC lithium offshoot would be a bellwether for GXY, with MR noting that FMC had originally spoken to him of their offshoot being worth $2½ billion and now they were talking of listing at $7-8 billion. (If that is achieved, the value of GXY would have to be somewhere north of that)
AT said that there was a three-year construction period for SDV, so it would take until late 2021/early 2022 before it’s in production. (This is about two years later than estimated at the 2016 AGM). As for JB, AT expects that it will probably be in production a year later than SDV – i.e. late 2022/early 2023.
On SDV, AT noted that, apart from all the companies wanting to partner with GXY, banks were eager to lend funds for its development. GXY has only got in this enviable position, said MR, because of the way in which the board had strengthened the financial position of the company over the last few years. As for what the board might decide in regard to SDV, MR noted that it might still decide to go it alone or it could even sell it off if there was a sufficiently generous offer – he mentioned a figure of $1.5 billion (presumably $US, which makes our present market cap look silly).
In regard to the companies interested in SDV, AT said there were companies with experience in brine and others that have experience in building complex projects. There were also some of GXY’s larger peers, along with cathode producers, battery manufacturers and leading car manufacturers. AT suggested that GXY is looking for a 5-10 year offtake agreement.
On MC, AT noted that there had been no real exploration at Mt Catlin for nearly ten years. This year it will begin a double-digit exploration program.
In discussion, the demand for MC product was emphasised when a customer couldn’t accept 5kt of one delivery, which was put out to tender and the company received offers for 80kt!
It was noted that some 30kt shipments should depart Esperance later this year, although some customers preferred 15kt shipments. Noted that the GXY facility at the port had the capacity to hold 20kt and the TAW facility at the port was separate from GXY’s.
AT noted the concern by shareholders about the need to publicly counter the poor analysis that has sometimes affected the SP of lithium companies. It suggests he’ll be out there a bit more in future.
Lastly, I can’t wait for the 2019 AGM.
NOTE – THESE ARE MY IMPRESSIONS FROM THE AGM. I HOPE YOU FIND THEM USEFUL BUT DON'T RELY ON THEM FOR YOUR OWN INVESTMENT DECISIONS. PLEASE DO YOUR OWN RESEARCH.