SGML - 2024 Potential New Lithium Producers To Consider

2023-06-21 08:21:17 ET

Summary

• A snapshot from Trend Investing's lithium demand vs. supply model forecasts we will need about 400,000t LCE of new lithium supply in 2024.
• 2024 potential new lithium producers (in order of likely project start).
• Risks, summary table and conclusions.

This article first appeared in 'Trend Investing' Investing Group on May 18, 2023, but has been updated for this article.

The 2023 new producers are all now well known and mostly quite well valued. They include Sayona Mining [ASX:SYA]/ Piedmont Lithium [ASX:PLL], Core Lithium [ASX:CXO] ( OTCPK:CXOXF ), Sigma Lithium [TSXV:SGMA] ( SGML ), Lithium Americas [TSX:LAC] ( LAC ) (Cauchari Project JV with Jiangxi Ganfeng Lithium [SHE: 002460]) and Argosy Minerals [ASX:AGY] ( OTCPK:ARYMF ).

Trend Investing's lithium demand vs. supply model forecasts 2024 'new' lithium demand to be about 400,000 tonnes LCE (see below). This can come from existing producers expanding and the new 2024 producers. It assumes global plugin electric car sales grow to reach 20.4m sales in 2024 (24% market share).

A snapshot from Trend Investing's lithium demand vs. supply model

Today we take a look at the potential next wave of 'new' lithium producers starting in 2024. These may offer investors good value as they potentially get re-rated as they approach their production start.

2024 potential lithium producers (in order of likely project start)

Sinomine Resources Group [SHE: 002738] ("Sinomine") - Price = HKD 54.24

Sinomine owns the Bikita Mine in Zimbabwe. The project looks likely to commission in mid-2023 and reach commercial production by late 2023 or early 2024.

In January 2022, Sinomine acquired Bikita Minerals for US$180 million . The mine has been in operation since 1950 and predominantly produces petalite for the glass and ceramic industries, but Sinomine now plans to produce spodumene. Wikipedia states : "The Bikita mine has reserves amounting to 10.8 million tonnes of lithium ore grading 1.4%."

Sinomine's website company description states :

Sinomine has developed into a global mining group with a comprehensive resource industrial chain. Our main business and operation cover four segments, EV-lithium material development and utilization, rare & light mineral (cesium & rubidium) development and application, geo-tech services & mining property development. Sinomine’s business covers more than 40 countries in the world, like Canada, US, UK, Norway, Zambia, Congo ((DRC)), Zimbabwe, Uganda, Indonesia, Malaysia and other regions in Asia, Africa, Europe, America, and Oceania.

It is the world's largest enterprise specializing in production of cesium and rubidium products. It is also the leading manufacturer of battery-grade lithium fluoride in China, with a market share of more than 40%. It is the main supplier of battery-grade lithium fluoride for the Tesla automotive system in the United States.

On May 16, Reuters reported :

Sinomine suspends Zimbabwe lithium ops over authorities' concerns...... The two plants are scheduled to be commissioned by July this year.....The Chinese miner has invested a further $200 million to expand existing operations at Bikita, including the construction of two lithium processing plants to produce 250,000 tonnes of spodumene concentrate and 480,000 tonnes of petalite per year.

On May 24, Market Screener reported :

Sinomine's Zimbabwe unit resumes operations.... Sinomine said Bikita Minerals was resuming operations after "special inspections and rectifications have been carried out on labour management and other related issues of subcontractors.

Sinomine trades on a market cap of HKD 38.77b (~USD 4.95b). Plenty of risk having a Zimbabwe Project so caution warranted (see news below).

• May 16, 2023 - Zimbabwe: Bikita Minerals Suspends Operations, Weeks After Claims of Lithium Looting

Wesfarmers [ASX:WES] ( OTCPK:WFAFY ) ( OTCPK:WFAFF ) - Price = AUD 49.54, Sociedad Quimica y Minera de Chile S.A. (NYSE: SQM ) - Price = USD 71.98

The Mt Holland Lithium Project is a 50/50 JV between Wesfarmers and SQM held via their JV company Covalent Lithium, located in Western Australia. The Mt Holland Lithium Project is world class with a total resource of 186Mt @ 1.53% Li 2O . There is also a plan for a LiOH refinery located in Kwinana, WA.

Construction of the mine, concentrator and refinery is underway with first spodumene production expected late 2023 (Phase 1 capacity is 380,000tpa). The Kwinana LiOH refinery plans to ramp to 45 - 50ktpa LiOH starting in H1, 2025 .

As of March 2023, the Mt Holland Concentrator was >85% complete and early commissioning has commenced.

Covalent Lithium is undertaking a Feasibility Study to evaluate doubling the production capacity of the mine and concentrator to 760,000tpa.

For investors, Wesfarmers new lithium business should somewhat move the needle in terms of new revenues or profits, noting they own only a 50% project share. Wesfarmers 2022 revenue was A$36.8b and net profit was A$2.35b. For SQM the impact is also moderate given their already large lithium business. The second phase potential doubling of production at Mt Holland would really start to move the needle for both Wesfarmers and SQM.

We prefer other more pure play 2024 new lithium producers; however we are still very positive about the Mt Holland Mine and Kwinana Refinery, as well as being very positive on the businesses of Wesfarmers and SQM.

Mt Holland and Kwinana will be a significant new integrated lithium project starting in 2024 ( source )

Aerial view of the Mt Holland Lithium Project as of Feb. 28, 2023 ( source )

Kwinana LiOH Refinery aerial view as of March 8, 2023 ( source )

Leo Lithium Limited [ASX:LLL] ( LLLAF ) - Price = AUD 1.06

Leo Lithium is developing the world class Goulamina Lithium Project (45%/45% JV with Ganfeng Lithium, Mali Gov. potentially owns a 10% free carry interest with an option to purchase an additional 10% ) in Mali with a total Resource of 211 Mt at a grade of 1.37% Li2O (recently upgraded from 142.3 Mt @ 1.38% Li2O ). The Goulamina Resource is in the top 5 globally for size of spodumene projects. Leo Lithium is targeting spodumene production start in Q2, 2024 . Direct shipping ore ("DSO") planned to begin in Q4, 2023 .

Spodumene production at Goulamina is planned to ramp to 506,000tpa, then after 18 months expanding to 831,000tpa. Leo Lithium is 'substantially' funded for Stage 1 production (CapEx US$255m) and DSO revenues would potentially complete the required funding. As of end March 2023 construction was 20% complete.

Leo Lithium trades on a market cap of A$1.27b . Market Screener consensus analyst rating is a 'buy' with a consensus price target of A$1.78 , representing 58% upside.

Leo Lithium looks to be very good value and a spec buy (even after the large run up in the stock price the past month); however there is significant Mali country risk (somewhat lessened by the Mali government having a 10% share).

You can view the latest company presentation here and the recent Trend Investing article linked below.

• Leo Lithium Equity Research by Argonaut
• Trend Investing - Leo Lithium: Outstanding Value For This Near Term Lithium Producer, But With Mali Risk (@A$0.63)

Goulamina Lithium Project set to begin DSO in Q4, 2023 and spodumene in Q2, 2024 ( source )

Liontown Resources [ASX:LTR] ( OTCPK:LINRF ) - Price = AUD 2.92

Liontown Resources 100% owns the world class Kathleen Valley Lithium spodumene project in Western Australia. Substantially funded to production with top tier off-take partners including Tesla ( TSLA ), Ford ( F ) and LG Energy Solution [KRX:373220] and a A$300m Finance Facility with Ford.

The Kathleen Valley Lithium Project has a total resource of 156mt @ 1.4% Li2O .

DSO production may start in Q4, 2023 (and help with final funding) and spodumene production is targeted to begin mid 2024 . Spodumene production at Kathleen Valley is planned to ramp to 600,000tpa , then later to 700,000tpa plus.

Liontown Resources trades on a market cap of A$6.425b . Market Screener consensus analyst's rating is a 'outperform' with a consensus price target of A$2.67 , representing 10% downside.

Liontown Resources looks to be fully valued for now, but if lithium spodumene prices stay high, then the stock is reasonable value

You can view the latest Company presentation here .

• March 2023 - Liontown Resources rejects Indicative Proposal from Albemarle (@ A$2.50 per share)

Kathleen Valley Lithium Project aerial view - production targeted to begin by mid 2024 ( source )

Allkem [ASX:AKE][TSX:AKE] ( OTCPK:OROCF ) - Price = A$16.33

Allkem's Sal de Vida ("SDV") Project is targeted to start lithium brine production in mid-2024 and ramp to 15ktpa . SDV Stage 2&3 combined will begin about 2025 and ramp to an additional 30ktpa. Total combined when completed will be 45ktpa.

The SDV project will over time help boost Allkem's revenues, but some patience will be required as brine ramp ups are traditionally slow.

On May 10, 2023 Allkem and Livent ( LTHM ) announced a friendly merger, so that somewhat changes the dynamics going forward, assuming the merger completes.

Allkem trades on a market cap of A$10.413b. Market Screener consensus analyst's rating is a 'buy' with a consensus price target of A$17.05 , representing ~5% upside.

Eramet [FR:ERA] ( OTCPK:ERMAY ) ( OTCPK:ERMAF ) - Price = Euro 85.85

Centenario-Ratones Lithium Project (50.1% share, 49.9% Tsingshan) in Argentina. Targets direct lithium extraction ("DLE") production by early 2024 ramping initially to 24,000tpa of lithium carbonate in 2025. Details in our DLE article and the article below.

• Eramet Is Transforming To Become A Leading Battery Metals Producer With Manganese, Nickel, And Soon Lithium

POSCO [KRX:005490] ( PKX ) - Price = USD 74.71

Hombre Muerto Project (100%) in Argentina. Targets H1, 2024 brine production start and initial ramp to 25,000tpa of lithium carbonate. Details in our DLE article .

Others with late 2024 or 2025 production potential (in alphabetical order)

• Allkem [ASX:AKE] ( OROCF ) (James Bay)
• Atlantic Lithium Limited [LSE:ALL] [ASX:A11] ( OTCQX:ALLIF ) (JV Ewoyaa Project, Ghana, with Piedmont Lithium ( PLL ))
• Avalon Advanced Materials [TSX:AVL] (OTC:AVLNF) - Petalite project in Canada.
• Critical Elements Lithium [TSXV:CRE] ( OTCQX:CRECF )
• Galan Lithium [ASX:GLN] ( GLNLF ) (3,000tpa starter operation at their 100% owned HMW Project in Argentina)
• Kodal Minerals [LON:KOD] - Bougouni Project in Mali
• Livent ( LTHM ) (50% JV Whabouchi Nemaska Lithium Project)
• Standard Lithium [TSXV:SLI] ( SLI )
• Zijin Mining [SHA:601899]

Note: Several of the above may likely end up as 2025 producers.

Risks

• The usual mining risks exploration, funding (& cost blowouts), development, permitting, production, partner risks

• Business risks - Debt, management, liquidity, and currency risk.
• Sovereign risk - High in the African countries.
• Stock market risks - Dilution, lack of liquidity (best to buy on local exchange), market sentiment.

Further reading

• Lithium Junior Miners News For The Month Of May 2023
• A Brief Comparison Of The 6 Fully-Funded Lithium Juniors That Will Likely Be The Next Lithium Producers In 2022-2024
• A Look At Direct Lithium Extraction ("DLE") And Some Of The DLE Lithium Companies

Summary table

Note: Those with large market caps have other large businesses (Sinomine, Wesfarmers, SQM, Allkem, Eramet, POSCO, etc.).

Conclusion

The 2024 new lithium miners (in rough order) are likely to be Sinomine Resources Group, Wesfarmers/SQM, Leo Lithium, Liontown Resources, Allkem (Sal de Vida) and perhaps a few others such as Eramet and POSCO (see others group in the article).

Of the 7 projects in the summary table above 3 are in Argentina, 2 are in Australia, and 2 are in Africa.

Among the group there are several world class projects coming online. Leo Lithium looks to be the best value by far, however that comes with significant Mali risk. Eramet also looks to be good value, however they are not a lithium pure play (manganese & nickel mines)

Please read the risks section.

As usual all comments are welcome.

For further details see: