Lithium prices have tumbled in 2023, but new data shows the money men continue to bet on the battery metal
\nBDO\u2019s Sherif Andrawes says financiers and punters are looking at long term demand for lithium by backing equity and debt raisings in the metal ahead of traditional stayers like gold
\nWeak IPO market and falling cash balances should see even more lithium and gold M&A in 2024<\/p>\n
As gold prices picked up steam and lithium prices began to crash, the flow of money into ASX explorers ran the opposite direction in a sign investors continue to view lithium as the commodity of the future.<\/p>\n
Oversupply in China and the consequences of a small, volatile market have seen spodumene concentrate prices fall to a little over US$1000\/t, just 12 months after rising to upwards of US$8000\/t in an unprecedented bull run.<\/p>\n
Chemical prices have fallen from around US$80,000\/t to a little over US$15,000\/t in the same time. <\/p>\n
The fall has revived memories of the bear market from 2018 to early 2020, when against many industry projections, but inline with the warnings of some investment banks like Morgan Stanley, spodumene prices fell to around US$500\/t and only the strong survived.<\/p>\n
That situation resulted in a tightening of the belt from majors that led to a shortage as EV sales hit an inflection point as well as a pullback in investment as junior explorers moved on from lithium exploration.<\/p>\n
But risk capital for lithium miners, juniors and IPOs is still hot.<\/p>\n
That\u2019s the story told in financial services firm BDO\u2019s latest Explorers Quarterly Cash Update, with junior lithium financing beating traditional leader gold even as the battery metal began to tumble into freefall and bullion held near record high above US$1900\/oz.<\/p>\n
BDO\u2019s head of global natural resources Sherif Andrawes said investors continued to punt on a massive uptick in electric vehicle demand going forward.<\/p>\n
\u201cThere is a long term view that even despite the short term prices coming down and a lot of volatility in the lithium price, the long term demand for lithium will be there,\u201d he told Stockhead<\/em>.<\/p>\n \u201cCertainly in most overseas jurisdictions the price of lithium stocks hasn\u2019t reflected what\u2019s happened in Australia, which is really interesting. <\/p>\n \u201cYou\u2019ve got a somewhat unique market here.\u201d<\/p>\n As the market falls sharply around them, lithium companies are still drawing waves of support from investors. Pic: BDO<\/p>\n \u00a0<\/p>\n Andrawes noted another big factor is the quality of assets in WA, where the hard rock lithium industry supplies over half of the world\u2019s lithium raw materials in the form of 6% and below lithium concentrate called spodumene.<\/p>\n Then there is the manic efforts of majors like Gina Rinehart, Albemarle, SQM and Mineral Resources (ASX:MIN)<\/a>, offering massive premiums for takeovers or minority stakes in lithium juniors.<\/p>\n Most notable is Azure Minerals (ASX:AZS)<\/a>, which despite being pre-resource and owning just 60% of its Andover JV with Mark Creasy\u2019s Creasy Group, saw SQM and Gina\u2019s Hancock Prospecting bury the hatchet to jointly bid $3.70 per share yesterday \u2014 valuing the one time micro-cap at ~$1.7 billion.<\/a><\/p>\n It was one of three major lithium fundraisers in the September quarter, pulling in $106.5m in an equity placement and option exercises to bankroll drilling at Andover, where the Tony Rovira led company expects to post a world class pegmatite resource next year.<\/p>\n NT miner Core Lithium (ASX:CXO)<\/a> also rose $111.37m in equity despite (and because of) a challenging start to life at its Finniss mine, while Liontown Resources (ASX:LTR)<\/a>, which ended the quarter as the subject of a failed $6.6b takeover bid from the world\u2019s largest lithium producer Albemarle, pulled in $128.6m in borrowings.<\/p>\n All up among companies raising upwards of $10m in the quarter, lithium stocks raised almost $430m, well above gold\u2019s $166m, nickel\u2019s $164m, graphite\u2019s $117.5m and copper\u2019s $97m. While lithium companies pulled in 27% less than the previous quarter, they remained resilient in a tough market.<\/p>\n \u201cWhile acknowledging the overall reduction in funds raised for lithium, it is noteworthy that companies with advanced-stage lithium assets managed to secure funding, ensuring \u201cThis is particularly encouraging given the prevailing macroeconomic conditions such as the declining lithium price over the past year. Even in times of declining lithium spot prices, explorers continue to be a destination for capital as investors are taking a long-term view of future demand.\u201d<\/p>\n Despite weak capital markets, exploration investment remains high as explorers chase new discoveries, especially in battery metals. Pic: BDO<\/p>\n \u00a0<\/p>\n IPOs, a harbinger for risk appetite on the ASX, tell a similar story.<\/p>\n Having climbed to as high as 26 a quarter in 2021, 2023\u2019s weaker capital markets have seen the number of new listings slide to just four in the June quarter and seven in the September quarter.<\/p>\n \u201cIPOs were still pretty quiet and we had seven in the quarter, which is more than the previous quarter, but still pretty low historically,\u201d Andrawes said.<\/p>\n \u201cI know that there have been quite a few in the pipeline that have hit the pause button and we had quite a few in this quarter as well, which kind of hit the pause button moving into 2024. <\/p>\n \u201cUnless you\u2019re in lithium in particular, but generally in energy transition minerals, it\u2019s pretty hard to raise money through IPOs.\u201d<\/p>\n Those may wait for a brighter market environment later in 2024 when interest rates begin to come under control.<\/p>\n Four of the seven IPOs were in the clean energy space, including lithium focused James Bay Minerals (ASX:JBY)<\/a> and Pioneer Lithium (ASX:PLN)<\/a>, and niobium\/copper explorer CGN Resources (ASX:CGR)<\/a>.<\/p>\n Paradoxically exploration spending remains strong, with money spent by explorers lodging Appendix 5B reports up 8% to $1.25m per company in the September Quarter and $983m all up, with BDO regarding a 19% rise in exploration spending a \u201cgenuine upswing\u201d.<\/p>\n Only three quarters in the past two years \u2014 June through December 2022 \u2014 have seen explorers hit the drill bit harder.<\/p>\n At the same time cash reserves have come down, with 22% of companies holding less than $1m in their coffers, up from 12% in December 2021, and the proportion of companies carrying $4-10m has almost halved from 32% to 18% over the same period.<\/p>\n Could things change?<\/p>\n Andrawes says strong gold prices \u2014 which have threatened all time highs since Hamas\u2019 invasion of Israel and the subsequent bombing of Gaza, helped by an apparent cooling in the US Fed\u2019s stance on lifting interest rates \u2014 could see a return of interest for gold raisings and potential IPOs.<\/p>\n Expect majors with swelling bank accounts and stronger share performances against junior miners and developers to pounce on M&A as well.<\/p>\n \u201cA little less has been raised, cash is coming down a little bit, but expenditure is going up,\u201d Andrawes said.<\/p>\n \u201cThat all feeds towards M&A activity and I think that\u2019s probably what we are seeing at the moment, we\u2019re seeing it obviously in lithium and we\u2019re seeing it in other things like gold as well. <\/p>\n \u201cWe\u2019re probably going to see a period of probably a few less IPOs and a few more takeover schemes coming through over the coming quarter or two.\u201d<\/p>\n Falling cash balances at the small end of town could leave companies vulnerable to M&A. Pic: BDO The post Lithium prices crashed in 2023, but these figures show white gold is still the market\u2019s biggest bet<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"M&A moves the needle<\/h2>\n
\nprogress toward production,\u201d BDO said in the report.<\/p>\nIPO rap<\/h2>\n
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