Miner predicts lithium market rebound

Australian mining firm Mineral Resources (Minres) is already seeing lithium prices recovering and expects them to strengthen further in the next few years. But the market is not yet back at levels where it will reopen its Bald Hill mine that it put into care and maintenance in November last year.

The firm’s lithium spodumene production across its three sites, including before Bald Hill's shuttering, in the second quarter of its financial year between October and December was 136,000 dry metric tonnes, while shipments in the same period were slightly higher at 143,000t. Minres’ average realised price achieved across all the sites, on an SC6 — spodumene concentrate with a lithium content of about 6pc — equivalent basis was $827/t.

The firm’s CFO Mark Wilson describes it as “a solid performance in a market that we believe is improving”. “We have continued to see prices better than that as we move into this second half,” he says of what his firm has experienced in January.

“We are seeing better pricing in January than we were in December. We are comfortable with where it is trending,” Wilson adds.

At its Mount Marion mine, Minres has executed on a plan to both deliver a higher-grade product and “to realign volumes around market conditions”. As such, October-December production was lower at 58,000t, with 55,000t shipped during the period at 4.4pc lithium content. And it sold 56,000t at a realised price, SC6 equivalent, of $816/t.

Profitability problem

Cost cutting measures across MinRes’ lithium operations in response to continuing low prices saw the Mt Marion workforce reduced by 190. But, while the firm is still targeting $870-970/t on an SC6 Fob basis for its portfolio production costs, this figure for Mt Marion in its financial Q2 was $1,076/t, or materially higher than the achieved sales price.

“We are already seeing the cost reduction measures flow through towards the back end of the quarter, and those will continue to have an impact through the second half. We continue to see expected improvements in recoveries, partly because of the introduction of wet high intensity magnetic separator (Whims),” Wilson predicts. But this gap between costs and realised price lays bare how challenging 2024 was for lithium miners, and how buyers such as battery makers may need to prepare for price readjustments.

At the firm’s Wodgina mine, production of 54,000t was up by 5pc quarter-on-quarter, as transitional ore and quality issues in the July-September quarter were mitigated by more fresh ore and higher recovery rates in Q2. The firm shipped 61,000t.

“We have done a lot of drilling to better understand the ore body where we were active,” Wilson explains. “We have seen the benefits of that in the second half [since January]. In terms of the quality of the feed, that has improved over the half as we expected.”

But Wodgina economics have proven similarly challenging. The firm achieved an average SC6 realised price of $834/t, above Fob costs of $1,103t. Again, the firm expects these to come down at Wodgina in the second half of its financial year.

Ready to return, but not yet

Bald Hill, as Minres’ highest-cost operation, is even tougher to run profitably under current market conditions, hence its November shuttering — prior to which it had produced 27,000t in the quarter. Its SC6 Fob costs across July-December were c.$1,150/t, although the move into care and maintenance and lower associated production did push them higher than they would otherwise have been, Wilson says.

Minres is hopeful of restarting the mine should market conditions allow. “We are maintaining the site on the basis that we can turn it on again for a quick restart as needed. We have three months pre and post-crusher ore and blast stock available to make things a bit easier for us when we need to go when the market moves,” the finance chief says.

But, even after the January upturn in the lithium market, the price environment that would allow a Bald Hill restart remains elusive. “It would need to be probably 20pc higher than where we are today, maybe a little bit more, just to give us a solid run at it,” Wilson says.

Analyst Paul Young of bank Goldman Sachs is more concerned about whether the two remaining mines will be cost positive if Minres can get costs down to its target range. “If they are not, are you just hanging on for that option… when the price improves? he asks.

He even speculates that if a situation where the firm’s profitable iron ore assets are “effectively funding lithium” continues, there might be “discussion from the JV partners about potentially putting either of those assets on care and maintenance” too. Minres firmly denies that any such conversation have taken place, looking instead to a rosier future.

“I think everybody understands that care and maintenance is not a good choice for a big complex lithium asset,” says Wilson. “Bald Hill [is] a little bit different; we can turn that on again pretty quickly.”

Grounds for optimism

The finance chief predicts that its lithium assets’ economics will improve as it continues to work on the opex. “As we take those costs out, the mines will certainly be profitable in an accounting sense. In terms of the actual cash position from them, it really depends on how hard we are going at the strip,” he suggests.

But he is also confident of a price recovery. “The business has a belief that the lithium market is not going to stay at $900/t for the next five years. And so, it is important from my perspective that we continue to develop those mines and invest, so that when the market does need that product and can take it, we are in a position to produce it,” Wilson says.

Any market rebound could be abrupt, he warns. “One of the risks for the lithium market globally is underinvestment in projects over these last couple of years.

“And that has a risk for end consumers… of seeing a steeper rebound in prices. We are trying to make sure that we are positioned to take advantage of that,” he continues.