Lithium miners are trying to survive slumping prices

Breadcrumb Trail Links Mining Commodities Falling prices hurting investor appetite…

Falling prices hurting investor appetite and threaten to crush exploration

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Miner Paul Cowley decided two years ago to shift his focus to lithium from gold when his company acquired the mineral rights for multiple small claims containing the light metal in central Alberta.

Given lithium’s skyrocketing prices and investors pouring money into companies associated with the metal needed to power electric-vehicle batteries, the chief executive of TSX Venture-listed Indigo Exploration Inc. thought it was the perfect time to make the move.

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“There was a lot of excitement,” said Cowley, who has been in the industry for more than four decades. “Everything was there. There was investor interest in our project, we were able to raise money and advance the project up to a certain point.”

Two years on, however, “the wind just died down,” said the former BHP Minerals geologist. His company was affected by the sudden slump in lithium prices, which significantly fell in 2023 after rising manyfold in 2022 as the market swung to a surplus.

The spot price of lithium hydroxide in 2022 averaged US$67,279 per tonne, much higher than the average price of US$13,656 over the three years to 2021. But the price is now expected to fall to US$30,000 per tonne by 2025, according to a report by the government of Australia, the world’s largest producer of lithium, and that hurts investors’ appetite.

Junior miners such as Cowley’s Indigo rely on investments as a key source of financial support to fund their exploratory activities, but falling prices erode confidence in the market and that leads investors and some companies to look into other in-demand commodities for profit.

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Cowley is trying to survive the dip in price by decreasing the size of his company’s property and holding off any exploratory drills or other kinds of project investments until prices rise again.

“I can’t make any plans whatsoever,” he said. “Basically, I am in a standstill position because of the circumstances. We don’t plan on spending any money other than trying to survive for better times. Everybody is just trying to hold on.”

We don’t plan on spending any money other than trying to survive for better times. Everybody is just trying to hold on

Paul Cowley, CEO, Indigo Exploration

It’s not just the smaller miners who were hurt by falling prices. Albemarle Corp., the world’s largest lithium producer, in January said it would have to cut costs and lay off employees. And the North American Lithium project, majority owned by Sayona Mining Ltd. and Canada’s only major lithium producer, in late January said it was looking to reduce its cost base in a “challenging market environment.”

But some in the industry say the impact on junior miners is more concerning since they also play a key role as explorers. Most of them don’t end up producing minerals, but act as a crucial source for discovering mining projects for bigger companies to take over and build.

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Cowley is playing the waiting game, but some other miners have diversified their holdings.

For example, Vancouver-based Sienna Resource Inc., which owns four lithium projects in the United States and has a market cap of about $8 million, acquired two uranium projects in Saskatchewan in January. Uranium prices have been on the rise since 2021 and last month reached their highest spot price since 2007.

“(You) need to go sometimes where the market wants you to be,” Sienna’s president Jason Gigliotti said. “You can’t always be ahead of it. And, right now, lithium is very challenging for sure from the perspective of raising money or getting shareholder interest.

He said the company doesn’t intend to drop its lithium properties, but wants to give shareholders the best chance to make money.

Vancouver-based miner Monumental Minerals Corp. in November changed its company’s name to Monumental Energy Corp. on the TSX-V weeks before it made an investment in a gas project in New Zealand.

“Once the lithium price started to drop, it concerned shareholders,” said Michelle DeCecco, interim chief executive of Monumental Energy, which is working on two lithium projects in Chile. “The idea was to diversify into other areas to de-risk a bit.”

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She added it would be difficult for companies right now to raise funds for exploration projects in lithium.

That is quite different from a year ago or so when the market was saturated with prospectors and junior miners looking for lithium projects in Canada. So much so that some industry insiders informally dubbed the activity as “lithium-mania.”

There were only 22 companies exploring lithium projects in Canada in 2020, but that increased fivefold to 112 companies in 2022, the latest year data is available.

An employee works on a mining core line at a lithium plant in France.
An employee works on a mining core line at a lithium plant in France. Photo by Olivier Chassignole/AFP via Getty Images

The lithium market, however, has been volatile over the past decade due to rising demand and a sudden surplus of new developments.

The spot price of lithium carbonate in 2017 increased to US$24,000 per tonne due to a surge in demand for use in electronics before crashing to a low of US$5,000 per tonne by the end of 2020 due to new supplies from mines in Australia.

Similarly, prices surged once again from US$7,000 per tonne in 2021 to record prices in 2022, but then declined in early 2023 due to rising supplies, subdued Chinese demand — which is a key driver — and a poor electric-vehicle market.

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But the cycle’s ups and downs are necessary to “wash out the market projects that are unrealistic” and have no real hope of becoming a mine, said Killian Charles, chief executive of Brunswick Exploration Inc.

Charles, whose company is exploring lithium projects in Quebec, Nova Scotia and Saskatchewan, said development has been slower, but companies that have investors focused on the long run will continue.

“There’s a group of investors out there who are momentum chasers, who want … the next big thing. It was cannabis, crypto and lithium recently,” he said. “But there are still shareholders who saw the boom that (lithium) underwent in Australia … which created a lot of wealth and everyone looks to Canada as having the same geological potential.”

Charles said the world is still looking to gradually transition away from fossil fuels and that the demand for lithium should only increase in the coming decade. Canada will be paying more than $30 billion in incentives to build three battery plants in the coming years, all of which will require battery raw materials such as lithium.

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A mockup of a Northvolt battery. The company is building an EV battery plant in Quebec.
A mock-up of a Northvolt battery. The company is building an EV battery plant in Quebec. Photo by Joanthan Nackstrand/AFP via Getty Images

But he doubts Canada can supply these battery plants, which are expected to start production in the next few years, with the metals they will need.

“People are going to be in shock in a few years’ time when they realize that these factories are going to be supplied with lithium from West Africa or Brazil,” he said, adding there is a need for the government to support Canada’s mining projects and explorers.

The federal government said its critical minerals strategy is backed by $4 billion in funding, aims to build a supply chain for Canada’s new battery industry and will try to support every stakeholder, from explorers to recyclers.

“We continue to consider additional measures to further support the producers and explorers of lithium, among other critical minerals,” the statement said.

Charles, though, said most of the investment so far has gone to factories, warehouses and refineries instead of helping suppliers.

Aside from delaying exploratory activities and diversifications, some predict the fall in lithium prices may also experience a rise in mergers.

“The bigger lithium corporates can take this opportunity to try to probably pick up assets that would have been five or 10 times more expensive a year or two ago,” Michael Murphy, chief executive of Vancouver-based Global Battery Metals Ltd., said.

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Many in the industry also view the price slump as an opportunity to create a stable market for lithium instead of one that dramatically fluctuates.

Theo Yameogo, EY Canada’s mining and metals leader head, said the price decline is an opportunity for people to consciously shrink their business models and get the right system in place rather than “everybody jumping in when everything is high.”

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Indigo Exploration’s Cowley said he hopes to be one of those successful individuals as he shrinks the size of his lithium property with the goal of reducing expenses while waiting for better days.

“We would like to stay in lithium,” he said. “We don’t want to give up just yet. We just can’t afford to do any heavy lifting.”

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