Monsters of Rock: Arcadium sees lithium deficit from 2027

US-Australian lithium producer Arcadium thinks it can double sales volumes and earnings by 2028 at forecast market pricing.

Josh Chiat

3 min read

September 20, 2024 - 4:49PM

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Arcadium thinks it can double lithium sales and earnings by 2028. Pic: Getty Images

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Arcadium sees 2027 deficit in lithium market as it targets doubling sales and earnings by 2028
Responding to falling prices, lithium giant recently announced plans to close Mt Cattlin mine early and defer waste stripping, saving between US$75-100m
Develop brings GR Engineering on board to bring Woodlawn copper-zinc mine back to life in 2025

Having pared back spending by delaying its hard rock developments in Canada and flagging the closure of the Mt Cattlin mine in WA from next year, US-Australian lithium giant Arcadium Lithium (ASX:LTM) believes it can hit its growth targets at consensus pricing, flagging a deficit in the market for the electric vehicle metal from 2027.

The miner and refiner of the lithium, which has interests in both hard rock and brine assets along with downstream chemical and lithium metal operations, says it will deliver US$125 million of merger-related cost saving two years ahead of schedule and double sales volumes by 2028 to lift EBITDA from US$525m to US$1.3bn by 2028.

Between US$75-100m will be preserved by shutting Mt Cattlin next year and cutting waste stripping, with future cutbacks likely to come via underground methods (and probably by selling to a third party that wants the above-ground infrastructure).

Boss Paul Graves and his key executives told investors at a presentation in the States overnight the company could still grow production by 25% in 2024 and 2025 on an LCE basis, despite weak market pricing, thanks to investments on which there is no growth capital left to be spent.

Its two main assets are the Fenix and Olaroz brines in Argentina,

El Fenix boasts a capacity of 32,000tpa lithium carbonate, operating at costs of between US$5.5-6.5/kg (current lithium prices are around US$10,500/t or US$10.5/kg).

Olaroz meanwhile has a capacity of 43,000tpa at operating costs of US$6.5-7.5/kg.

Its Sal de Vida brine project, also on the Hombre Muerto Salar where El Fenix is based, has US$280 million of capex remaining on a 15,000tpa stage 1.

US$340m of capital is left to spend on a phase 1B 10,000tpa expansion at El Fenix, which will follow Sal de Vida, though as much as US$2.4bn will have to be spent on an additional 60,000tpa from the two operations to expand them further down the line.

Lithium prices to tick up slowly

According to analyst estimates tabled in its presentation by LTM, consensus estimates see lithium carbonate prices lifting from a paltry US$13.3/kg in 2025 to US$15.3/kg in 2026 and US$17.7/kg in 2027, US$18/kg in 2028 and US$18.6/kg long term.

For spodumene the average analyst forecasts are US$1077/t for 6% Li2O spodumene in 2025 to US$1200/t in 2023, US$1413/t in 2027, US$1400/t in 2028 and US$1400/t long term.

At those prices, LTM sees itself finally turning free cash flow positive after capex in 2028, when it expects to churn out $470m in free cash at a net leverage ratio falling from a peak of 2.1x in 2026 to 0.4x in 2028.

One slide presented by LTM shows lithium demand still rising at a 14% CAGR to 2030, with deficits to set in from 2027. Market prices have crumbled in the past year due to oversupply, largely from low grade producers in China and Zimbabwe.

Pic: Arcadium Lithium

LTM has also reached an agreement to supply more lower quality technical grade carbonate from its Olaroz project to Toyota Tsusho for processing into lithium hydroxide at the companies' jointly owned Naraha plant in Japan. That will boost earnings by freeing up battery grade lithium carbonate from El Fenix for sale to other customers.

Bill the builder

Bill Beament's Develop Global (ASX:DVP) expects to be producing copper and zinc from its Woodlawn project in New South Wales by mid-2025, after announcing a contract to upgrade its plant with GR Engineering Services (ASX:GNG).

The announcement has triggered a $20 million payment to Orion Mine Finance, the operation's vendor, which will be covered by getting existing shareholders to tip in $2 a share into a 5 million share placement, with the rest covered through the issue of $10m in shares to Orion.

Terms for a $100 million prepayment/loan facility with commodity trading giant Trafigura are said to be on track for completion in the coming weeks.

“Completion of the Trafigura documentation will mean Woodlawn is fully funded through to production," DVP MD Beament said.

“We have contracted processing specialists GRES to upgrade and recommission the Woodlawn plant and we have already resumed underground development to ensure we are well ahead of the schedule.

“The recently updated project re-start study showed Woodlawn will generate outstanding cashflows and returns for our shareholders."

A mine plan last year found the Woodlawn project would cost $32m to bring back online, having last been operated by Heron Resources before it went into administration a few years ago.

DVP, which also runs mining services contracts in WA including at the Bellevue gold mine and Mt Marion lithium mine, expects to deliver $626m in free cash flow from Woodlawn over a seven-year life.

The materials sector rose 0.15% today, not quite as bullish as yesterday as iron ore prices came off 1.21% in Singapore.

Gold and copper stocks were mixed after the US rate cut this week.