GNENF - Q1 Lithium Results Are In - Key Takeaways from Top Miners

During Q1, the coronavirus pandemic took over the world’s attention, with the unpredictable outbreak impacting every industry at different levels, including lithium.

Lithium was already experiencing tough market conditions prior to COVID-19, but 2020 was expected to kick off a decade of increasing demand due to the unfolding of the energy revolution — and many would argue that in the long term that still may be the case.

However, right now lithium miners have had to pivot to face the challenge brought by the pandemic. Many have put significant effort into slowing down the spread of the virus, as well as into trying to maintain healthy balance sheets to survive this season.

The first three months of the year saw lithium demand slow down from the biggest player in the sector — China — and brought a steep decline in electric vehicle production and sales, as automakers took preventive measures and paused their ambitious electrification plans.

Lithium producers had already initiated a supply response to this challenging environment prior to the outbreak, but COVID-19 also brought temporary suspensions and revisions of expansion plans.

Investors are now waiting to see what happens with stimulus packages globally, but in particular in China, and they are eager to see if lithium demand recovers in the second half of the year. In the meantime, the question is how lithium producers are weathering the coronavirus storm. The short-term outlook seems bearish for sales, with a big focus on cutting spending.

Below the Investing News Network runs through the top lithium miners’ key results from Q1. This article will be updated as results are released.

1. Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460)

Market cap: 58.51 billion yuan; Share price: 49.30 yuan; Year-to-date move: +39.03 percent

• Operating income: 1.078 billion yuan
• Net cash flow from operating activities: 138.58 million yuan

Top Chinese lithium producer Ganfeng released its first-quarter results at the end of April, but had already warned of a decline compared to the previous period earlier that month.

The results were expected to be negative due to a decrease in the lithium salt price during the period. Additionally, COVID-19 had an impact on the company’s profit growth as it affected its productivity.

Ganfeng’s operating income declined by 18 percent year-on-year, while its net cash flow from operating activities fell a significant 159.29 percent.

2. Tianqi Lithium (SZSE:002466)

Market cap: 26 billion yuan; Share price: 17.12 yuan; Year-to-date move: – 44.22 percent

• Operating income: 968.428 million yuan
• Net cash flow from operating activities: 12.928 million yuan

Tianqi Lithium has been in a tight spot financially for some time, with the company warning of a net loss for the quarter as early as February.

On the back of low lithium prices and coronavirus-related disruptions, which have hurt sales and foreign exchange factors, Tianqi Lithium posted an operating income decline of 27.57 percent year-on-year.

The company’s net cash flow was down 97.16 percent, from 454,768,617.24 yuan last year to 12,928,127.45 in Q1 this year.

Tianqi, which bought a minority stake in top producer SQM (NYSE:SQM) for US$4.1 billion, is also reportedly looking to sell its interest in Australia’s Greenbushes mine.

Ratings agency Moody’s downgraded Tianqi in March, its fourth such downgrade since September.

“The rating downgrade reflects Tianqi Lithium’s highly strained capital structure as a result of its high debt burden, elevated leverage and weak liquidity,” the firm said in a note on April 15.

3. Albemarle (NYSE:ALB)

Market cap: US$6.69 billion; Share price: US$62.94; Year-to-date move: -13.32 percent

• Adjusted EBITDA: US$196 million
• Net income: US$107 million
• Lithium net sales: US$$236.8 million

“Despite challenges related to COVID-19, our business performed safely and on plan during the first quarter of 2020,” Albemarle CEO Kent Masters said. “The economic impact of the global pandemic remains unclear, but we remain focused on what is within our control.”

The North Carolina-based company saw its net lithium sales decline by US$55.1 million, driven by lower pricing and volume.

“Lower contract pricing reflects 2020 price adjustments that were agreed to in late 2019,” the company said in a statement. “As expected, customers reduced Q1 2020 volumes as they worked off excess inventory purchased in Q4 2019.”

The COVID-19 outbreak has led the company to withdraw its full-year 2020 outlook given the uncertainty around the duration and economic impact of the pandemic.

Albemarle anticipates that its Q2 performance will be lower year-over-year, also as a result of the impact of the coronavirus on economic activity.

“We continue to see solid battery grade orders in Q2 2020 as battery manufacturers catch up on backlog orders placed prior to COVID-19,” the company said. “Therefore, the impact of recent automotive OEM shutdowns is expected to be delayed into H2 2020.”

Albemarle continues to be focused on its US$100 million cost-reduction program, with the company now expecting to realize between $50 million and $70 million of these savings in 2020.

Full-year capital spending is expected to be approximately US$850 million to US$950 million, down about US$150 million from the company’s previous plan. Albemarle has expressed interest in buying all or part of Tianqi Lithium’s controlling stake in the world’s largest lithium mine, Australia’s Greenbushes.

4. Livent (NYSE:LTHM)

Market cap: US$885.83 million; Share price: US$6.05; Year-to-date move: -29.9 percent

• Revenue: US$68.5 million
• Adjusted EBITDA: US$9 million
• Net loss: US$1.9 million

Livent also had a challenging Q1, with quarterly results impacted by the coronavirus outbreak.

In March, the Argentina-focused company said it was suspending all its capital expansion work globally. As a result, Livent reduced its projected capital spending for 2020 by approximately 50 percent, with the current estimate of total capital spending this year being US$115 million.

“Despite the challenging near-term environment, we have not seen any evidence of automotive OEMs pulling back from their own electrification objectives,” CEO Paul Graves said in the company’s press release. “With that said, we do expect near-term demand to be negatively impacted by the production stoppages we have seen at OEM facilities globally.”

Graves added that the supply-side reaction to the current lithium market conditions will create a more rapid tightening of the supply/demand balance once electric vehicle production starts to accelerate.

Following Livent’s results, BMO Capital Markets analysts increased their target price to US$6.50.

“(But) we stay concerned considering customers continuing to defer orders, low margins, and the potential Livent’s balance sheet prohibits participation in the next leg of lithium/EV growth,” they said.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.