Monsters of Rock: Good news doesn’t last long for lithium miners

Lithium miners tank as Pilbara Minerals share sale sends a bearish signal. But falls like these can have mixed impacts in the longer term.

Josh Chiat

3 min read

October 3, 2024 - 4:45PM

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Lithium stocks tumble as Pilbara faces Ganfeng sell-off
Mining services contractor Perenti survives second strike
Contractor sees underground mining as major growth pillar

It's barely over a week since China's stimulus measures sent battery metals stocks on a god-damn ride, along with iron ore, copper, coal and more.

But good news doesn't last long in lithium these days, with $9.5bn capped Pilbara Minerals (ASX:PLS) copping a 5% hiding after Bank of America and Morgan Stanley started the ring arounds on a $271 million block sale, whittling down the holding of Chinese giant Ganfeng.

Other lithium companies also came down hard, with IGO (ASX:IGO) 2.22% in the red and Mineral Resources (ASX:MIN) off 1.54%.

Liontown Resources (ASX:LTR), revealed by The Australian's Margin Call to be retrenching 30 workers in its Perth admin HQ despite lauding a 'premium' first spodumene sale as recently as Monday, was some 5.34% lower.

It also saw Latin Resources (ASX:LRS), the Brazilian lithium explorer PLS is attempting to acquire in an all scrip affair, drop 4.44%.

Why do share sales like these spook investors?

When big holders sell out, especially those like Ganfeng who have a strategic relationship with the company they're invested in, it could indicate a lack of confidence in the market or the stock.

Ganfeng, which is a big processor of lithium chemicals in China, is arguably more plugged than most into the downstream supply and demand dynamics in what has been a tough commodity to make a dime in. Notably, Ganfeng expanded its offtake deal with Pilbara earlier this year and is partnering with PLS on a feasibility study into the construction of a refinery to be located outside China.

Block trades, seeking a buyer or buyers for large orders, also tend to be conducted at discounts, so buyers know they can pick up stock below the most recent prevailing share price.

But it's worth noting these types of price drops, like discounted placements, rarely set the overall trading direction for a company. Earnings, company events, shareholder returns and underlying commodity prices generally make a bigger difference over time.

Fortescue (ASX:FMG) shares tanked on a $1.9bn block trade back in July, but are now trading close to the $20.35 level they were at before the share sale on the back of a recovery in economic sentiment in China.

While manganese miner Jupiter Mines (ASX:JMS) has fallen sharply since a block trade from US backed AMCI in May, coal port operator Dalrymple Bay Infrastructure (ASX:DBI) shares are up around 17.5% since hitting a low of $2.77 following a sell-off from the Queensland Investment Corporation in late May and early June.

Perenti puts faith in underground mining

AGM season is still a month or so away, but Perenti (ASX:PRN) has kicked off early with its annual meeting of shareholders in Perth.

The mining contractor avoided a second strike on its remuneration report, which would have forced a (basically ineffectual) motion on a board spill, after making changes to its short term incentive measures for executives that enhanced safety performance in its STI metrics.

That was driven home by the death of a contractor at a site in West Africa in February.

In terms of the market, Perenti CEO Mark Norwell highlighted the importance of underground mining to the future of the mining services business, with 70% of its contracting now in the space.

"The attractiveness of the underground mining segment is underpinned by three key themes. Firstly, underground mining is technical in nature requiring deep domain expertise, which provides a significant barrier to entry," he said.

"Secondly, our scale as a global leader ensures that expertise is continually refined by operating across a diverse range of commodities, regions and clients.

"And thirdly, the underground mining market is set to grow as the percentage of new and expanded mines that come online in the future is expected to have a bias to underground mines. This trifecta of themes ensures we are extremely well placed to continue our growth in underground mining and therefore delivering quality returns for our shareholders."

Underground mines are being favoured over open pits in part because they produce less visible environmental impacts than open pits and have lower carbon emissions footprints, but also as grades decline and orebodies are being found at greater depths under cover or beneath existing mines.

The materials sector slid 0.08%, with energy down a similarly equivocal 0.07%.