Citi has added fuel to the fire burning beneath the ASX lithium sector by forecasting spodumene concentrate prices could take-off to US$4,200/t over the next three months.
Now that would be something.
As it is, prices have already been on a tear, surging from less US$800/t at one point last year to US$2,872/t this week.
The ASX spodumene producers are at, or are closing in on, record share prices in response.
Having survived last year’s lows, they are once again enjoying massive margins.
But no one wants to call it boom. Fast-growing but still small, the lithium market is as volatile as can be.
Things were booming back in late 2022 when spodumene concentrates were selling at a crazy US$8,000/t.
The current price is a long way short of the 2022 peak but will do anyway as earnings by the producers are storming back.
Assume a further increase in prices to US$4,200/t over the next three months and it will sure feel like a boom. And the great hope is it is longer lasting than the previous one. Citi also provides succour on that point.
“We have raised our price forecasts for the 6-12 month horizon and adjusted full year expectations for 2026, 2027 and 2028,” Citi said.
“The projected prices for these years are now on average 50-70% higher than previous estimates.”
It noted that the lithium market was highly sensitive to subtle shifts in market fundamentals, resulting in significant volatility.
Like other forecasters, Citi was bearish on lithium earlier in the year because of weak EV sales in China and an easing of supply tightness. However, actual battery production has far exceeded market expectations.
“Escalating tensions in the Middle East have raised concerns regarding energy crises and supply chain fragility,” Citi said.
“This has further accelerated global energy transition demand, particularly among lower-income countries – evident in increased exports of EVs and batteries from China, rising orders for energy story systems (ESS), and growing interest in electrification of commercial vehicles.
“On the supply side, constraints include export disruptions of lithium concentrates from Zimbabwe, port congestion in Nigeria, instability in Mali, production issues at Australia’s Greenbushes mine, and lithium lepidolite mining policies in China.”
It added that the April forecast by the US National Oceanic and Atmospheric Administration of the increased the likelihood of an El Nino meant lithium from South America’s salars could be impacted.
As mentioned, the ASX producers have been posting big gains in response to the market turnaround. PLS is sporting a 66% price gain over the last six months and Liontown’s market cap now exceeds the spurned $6.6 billion bid Albermarle made for it back in 2023.
Developers:
Normally it might be expected that the developers would be lagging behind by the producers for the simple reason that they are not reaping the fat margins the producers are.
But the two leading developers in this market – Wildcat (ASX:WC8) and PMET Resources (ASX:PMT) – have posted 131% and 102% share price gains over the last six months to comfortably outperform the producers.
It is an example of leverage to the upside at work, along with the boom market conditions for lithium making their financing needs all that much easier to secure.
Wildcat’s market cap of $868m might seem on the large side of things. But when it is all but on its way to annual production of at least half that of its Pilbara neighbour PLS with its $20.17 billion market cap, its market cap is hardly challenging.
The same can be said for PMET with its project in Canada.
Somewhat interestingly, both Wildcat and PMET managed to add to their value story during the previous lithium market low. Wildcat by adding the Bolt Cutter discovery near its Tabba Tabba project to its story, and PMET by adding tantalum and caesium legs to its Shaakichiuwaanaan story.
Euroz Hartleys was on to the turn for the better in the lithium market earlier than most. It has also been an advocate of the idea that with the producers at or near record price levels, the more compelling opportunity in the sector sat with the high quality developers.
In an April 30 research note on Wildcat, the firm said the catch-up trade was on for the developer. Wildcat was trading at 58c at the time. It was 64c in Thursday’s market which compares with Euroz Hartleys’ $1.21 share price target on the stock.
The firm is assuming a $700M development at Tabba Tabba, ramping up to 565,000t of spodumene concentrates generating $480M per annum in free cashflow using a US1,384/t spodumene.
On April 30 the spodumene concentrate price was US$2,450/t (now $US2,872/t). Using the April 30 price Euroz Hartleys estimated Wildcat could generate $1.2 billion-plus in EBITDA and achieve a less than one year payback on Tabba Tabba’s development cost.
No wonder the entire ASX lithium sector has a spring in its step.
Alicanto:
A year or so ago, Alicanto (ASX:AQI) was a $25M company with some interesting projects in Sweden.
Now it is a $288M company, with the difference explained by the February acquisition from Westgold (ASX:WGX) of the 915,000oz Mt Henry gold project, 20km south of Norseman in WA.
It hasn’t been a complete farewell to Sweden, with Alicanto this week striking a deal with two groups to pick up the running on the projects in return for $21 million in potential consideration, milestone payments and third-party funding across the portfolio.
That the imputed value of the deal about matches the company’s market cap a year ago was a cause for celebration in the Alicanto market on Thursday. Its shares popped 10.5% higher to $1.78.
But the focus is now very much on Mt Henry, an overlooked historic asset which is to get the love it deserves in a $6,500/oz Aussie gold price environment.
The crew behind Alicanto – including Steve Parsons of Bellevue (ASX:BGL) and FireFly (ASX:FFM) – have set out to prove with the drill bit that the current resource is just the start of the story.
Alicanto is planning to drill about 50,000m of step-out and deeper holes in its first year of ownership which compares with 150,000m drilled in the project area in the last 30 years along a 16km banded iron formation gold trend.
The market is expecting at least one and possibly two resource updates/upgrades before the year is out.
Closer to hand is first results from Alicanto’s drilling program. First assays are likely in the next couple of weeks. Assuming the initial results do point to Mt Henry moving well beyond its current 915,000oz, the market will respond accordingly.
And one for the history buffs out there. Alicanto is changing its name to Sinclair Gold in honour of Laurie Sinclair and his horse “Hardy Norseman”.
Sinclair and his horse played a key role in the discovery of the Norseman Reef and the broader Norseman Goldfields, with the horse said to have uncovered the discovery nugget while pawing the ground while tethered up overnight.
And it shouldn’t be forgotten that the Swedes are modern day descendants of the Norsemen.
