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Ground Breakers: Goldman Sachs, of course, thinks lithium prices could go lower

Goldman Sachs is at it again, predicting that the lithium bear market may not be over. It believes prices, already depressed, could continue to fall.

Goldman Sachs thinks that, as predicted by Play School, there's (still) a bear in there. Picture: Qingwa/iStock via Getty Images
Goldman Sachs thinks that, as predicted by Play School, there's (still) a bear in there. Picture: Qingwa/iStock via Getty Images

Those rapscallions at Goldman Sachs are at it again, pulling a fastie on the Australian lithium sector with a call that prices could yet go lower.

For anyone playing at home, spot spodumene prices have now fallen more than 75 per cent this year and we’re a day out from knowing if the price quoted by Fastmarkets, one of the metrics used as a benchmark by Aussie producers, is going to drop again.

It’s currently paying $US1650/t, with chemical prices in China down similarly to around $US19,400/t for lithium hydroxide and about $US20,400/t for lithium carbonate.


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A broken clock is of course right twice a day and Goldman has been bearish on lithium for a LOOOOOONNNGGG time.

It’s analysts say it’s “too early to call the bottom of the lithium bear market”, which they obviously would, having called 2024 lithium prices of $US11,000/t back in late 2022, compared to market consensus at the time of about $US29,000/t.

READ: Canaccord mining analyst disagrees with Goldman Sachs — ‘lithium supply always disappoints’

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READ:Goldman Sachs says battery metal bull market is over – at least until 2024

They say now that despite a 70 per cent fall in prices in China, the size of an upcoming surplus from rising supply against smaller retail EV growth is yet to be fully factored in by the market.

As spodumene prices have fallen – which, due to a shortage of rock, has lagged drops in the less tightly supplied chemical sector – GS says the marginal cost of production has come down as well, also putting the integrated lepidolite cost below levels estimated by other forecasters and industry figures.

“In the team’s view, current elevated marginal cost levels for non-integrated lithium carbonate puts c. 80kty capacity currently in a loss-making position, though integrated costs of production using purchased spodumene are expected to fall on average to a cost of about $US14,000/t LCE on lagged correction in spodumene prices, and our China team has maintained their estimate of total cost for the integrated lepidolite between $US11-14k/t LCE, substantially below current price levels,” GS Aussie analysts Hugo Nicolaci, Paul Young and Elise Bailey said.


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What does that mean for Aussie producers?

Goldman has estimated a slight surplus for lithium in 2023 of 29,000t LCE, but says that higher long-term demand expectations won’t stop a larger estimated surplus of 202,000t LCE in 2024 amid expansions and new mine starts.

“Our China team estimate that the implied lithium chemical inventory has continued to increase across the China battery supply chain, in the form of both raw materials and end-products, with the increase mostly on LFP batteries,” GS’ number-crunchers said.

The real strugglers are the non-integrated producers, whose refineries are eating out of the money estimated costs of $US19,000/t and $US27,000/t for lepidolite and spodumene feedstocks on average.

Goldman also thinks suggestions supply is always slow to ramp up is overblown.

While it is a common refrain that mines struggle to hit their targeted production rates for years – Core Lithium’s (ASX:CXO) Finniss mine this year is a case in point – Nicolaci, Young and Bailey say on average new projects have reached 60-80 per cent of their nameplate capacity within 9-12 months of starting up.

They are then able to increase recoveries from initial levels of 55-60 per cent as they lower their target spodumene product grades.

“Furthermore, feedback from these existing producers (including at recent site visits) is that these types of projects are getting easier with learnings from their own experiences and a growing pool of expertise in the industry.”

Has this updated take on price made any difference to the Aussie producers?

The biggest downgrade from GS comes for Core, which is down only 10 per cent this year with ASX equities propped up by M&A action and hopes thereof.

Trading at an NAV (net asset value) multiple of 1.2x on GS’ numbers it’s a relative sell in a falling lithium price environment, amid concerns it may struggle to fund its second mine in the NT – the BP33 underground deposit – from cashflow.

Nicolaci et al also say underground mining costs are up around 40 per cent in recent times, with an FID due there in the March quarter.

At the same time, Liontown Resources (ASX:LTR) has been upgraded to Neutral after the end of Albemarle’s $3 per share, $6.6 billion attempt to buy out the developer of the 500,000tpa Kathleen Valley mine out.

Its shares are back at $1.50, half the bid price and around 20 per cent below a recent $1.80 equity raise. GS says production risks for the half-complete Kathleen Valley are now more prices in.

GS’ favourite Aussie lithium stocks are IGO (ASX:IGO) and Allkem (ASX:AKE) on free cash flow and growth metrics respectively, but it said most Australian producers’ all-in sustaining costs remained well below its long term real SC6 concentrate price of $US1000/t.


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Iron ore rises even further

Despite copping a first strike at an AGM on Tuesday, hallmarked by the sheer lack of curiosity from investors in the room, Fortescue (ASX:FMG) rose again on Wednesday morning to the cusp of an all time high, hitting $25.63 on a 0.9 per cent gain early doors after iron ore prices bounded to $US134/t on Chinese stimulus hopes.

Executive chairman Andrew Forrest on Tuesday shrugged off questions about the director’s payments which prompted the more-than-50 per cent no vote on its remuneration report from key proxy advisers.

Forrest played a similarly straight bat to questions about allegations of an inappropriate relationship involving him – checked and dismissed by the FMG board – and queries around a lawsuit from a company linked to American hedge fund billionaire Paul Tudor Jones.

They say you don’t look a gift horse in the mouth though, and even as FMG drops serious cash on green energy projects it insists will deliver “double digit returns” but for which hard and fast financial metrics are hard to come by, strong iron ore prices are delivering super-high margins for its low cost Pilbara iron ore operations, the fourth largest in the world.

That means cold hard cash in the form of dividends in a few months’ time, and investors like that.

BHP (ASX:BHP) and Rio (ASX:RIO) were also, predictably, higher.

Lithium stocks were down but gold miners dominated the gains in the mid-caps, with De Grey Mining (ASX:DEG) 3 per cent higher a day after pushing the resource at its Hemi gold project – one of the world’s largest undeveloped mines – beyond 10Moz.

Bullion hit $US2000/oz in the US overnight but could come under pressure after late release FOMC minutes firmed the dollar, showing the US Federal Reserve remains committed to its goal of returning the rate of inflation to 2 per cent, without signalling any potential rare cuts on the horizon.

This content first appeared on stockhead.com.au

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Originally published as Ground Breakers: Goldman Sachs, of course, thinks lithium prices could go lower

Original URL: https://www.couriermail.com.au/business/stockhead/ground-breakers-goldman-sachs-of-course-thinks-lithium-prices-could-go-lower/news-story/a9ef03ec0a82c74a9d9014917c27a4cf