Mine closures loom as Australian lithium producers warn of more price pain

Australian lithium miners expect the price collapse to deepen in coming months, leading to predictions of mine closures.

Prices realized by Pilbara Minerals Ltd., Mineral Resources Ltd. and IGO Ltd. for their fiscal second-quarter 2024 spodumene sales plummeted year over year as lithium prices continued their decline.

Financial services group Euroz Hartleys estimates that "at least 10% of 'Tier 1 jurisdiction' supply is not profitable" given high realized lithium costs, it said in a Feb. 1 note.

"Lithium prices are too low for much of the industry to be profitable, let alone incentivize new supply," and "further mines" will close, it said in a separate Feb. 1 note.

Australian producers said it could only get worse.

"Prices are going to continue to decline over the next three to six months ... We're all battered down at the moment and preserving cash. We've turned off any capital that doesn't need to be spent or can be deferred," Mineral Resources Managing Director Chris Ellison told a Jan. 25 analyst call.

Tianqi Lithium Energy Australia Pty. Ltd. (TLEA) joint venture partners decided not to pay a dividend for the quarter because of market volatility and their "conservative view on the lithium market in the short-term," CEO Ivan Vella told a Jan. 31 analyst call. TLEA, a joint venture between IGO and Tianqi Lithium Corp., owns with Albemarle Corp. the huge Greenbushes mine in Western Australia, which reported lower production year over year.

Pilbara Minerals CEO Dale Henderson saw "confusing signals in the market" during the second quarter of fiscal 2024, he told analysts Jan. 24. He expects "drivers for further potential change" throughout 2024, with a "turbulent" global backdrop including conflicts in Ukraine and the Middle East, inflation and more than 50 elections across the globe.

"The challenge is that the demand side is driven by so many factors that it's very hard to follow," IGO's Vella said. "It's not as simple as GDP growth or some industrial trigger when we talk about electric vehicles, policies that different governments are taking and so on."

More closures ahead

Core Lithium Ltd. said in January it would temporarily suspend mining operations as "the price of spodumene concentrate has declined more than 85% in the last 12 months, including by 50% since the end of October 2023." It was exporting spodumene concentrate from the Finniss project in the Northern Territory since early 2023.

"We believe the market is underestimating the cost structure of lithium, and hence underestimating the fall in supply if lithium prices remain at current levels," Euroz Hartleys analysts said.

Mineral Resources' Ellison said the company's three Australian lithium mines remain profitable, with Wodgina and Mount Marion booking higher second-quarter production year over year. But the miner has removed all the hire gear at the newly acquired Bald Hill mine, which was "an expensive site to run," and replaced it with company-owned dump trucks, diggers and the like. It is also commissioning a company-owned crushing plant to replace a contract crusher.

Pilbara Minerals is purchasing its own fleet and looking to optimize shutdown strategies as part of several cost-saving measures to "assist in helping to offset some of the inflationary pressures we continue to see such as diesel prices, labor, camp services and contracted services such as equipment hire rates, power costs and flights," Henderson said.

Long-term demand signals

Despite plunging prices for the past year, "signs of grassroots growth remain very positive," Henderson said, citing Benchmark Mineral Intelligence data showing global EV sales rising 31% in 2023. Henderson also cited the "big licks of cash going in to fuel the establishment of this growth industry" in late 2023 across South Korea, the European Union and the US.

"The sense we have with that is that all of the stocks are running down, and we feel like we're on the bottom now, but we're preserving cash as a matter of course," Ellison said.

Alice Yu, a senior analyst for future energy metals at S&P Global Commodity Insights, said in a Jan. 24 report that "lithium prices are now supported by supply cuts and disruptions, leading to a slowdown in the lithium carbonate CIF Asia price correction and the bottoming-out of the lithium carbonate spot price in China."