Lithium Cycle Volatility is Just Early Growing Pains; Golden Era Still Ahead

• The Lithium market has experienced significant volatility recently due to factors like oversupply from new Chinese sources and shifting demand dynamics.
• Prices have fallen but could stabilize and recover as supply and demand come into balance; the cycle likely to be relatively short.
• The lithium Industry consolidation through M&A activity seems inevitable given scarce deposits with ideal mineralogy and scale.
• Development of alternate supply chains needed to reduce over-reliance on China in the medium term.
• Projects best positioned to succeed long-term have advantageous location, scale, and mineralogy rather than just low costs.

The Lithium Price Rollercoaster: Where Are We Now and What's Ahead?

The lithium market has been on a wild ride in recent years, with prices spiking to astronomical heights in 2022-early 2023 before plunging back down in recent months. With so much volatility, investors may be wondering—where are we now in the cycle, and what lies ahead for lithium?

To understand the current situation, we must look to the outsized effect of China’s behavior on markets. Though hailed as a long-term thinker, China often acts with short-term motives in business. Chinese markets are motivated by everyone wanting to buy on the same day, but equally wanting to sell on the same day when the Market's going the other way. This tension creates extreme volatility as China scrambles for quick solutions when supply tightens. This panic contributed to China overbuilding conversion capacity and underwriting new lithium sources to boost production.

Though these moves complicated markets, essential high-quality assets will prevail long-term.

It might be that very important projects got starved of capital in this period because risk Capital got scared off...but those mines are relatively rare in the same way that they're rare in Copper.

Beyond China’s impact, part of recent price spikes came from spodumene capturing more downstream chemical value. Though converters historically claimed 70% of margin, miners began taking 100% during the squeeze. There are opportunities for miners to keep capturing more margin as bottlenecks elsewhere prevent overbuilding capacity.

So when can investors expect stability to return? This situation differs from 2017-2020, when customers rejected shipments entirely. With demand still growing, a rational supply response can reboot the cycle. But Western OEMs are on borrowed time to reshape supply chains and secure lithium before losing relevance. Once governments intervene to prop up auto industries, consolidation and development activity will likely accelerate.

As for M&A, expect continuing activity between Australian lithium players as they position for the new energy economy. With few high-quality assets around, scarcity creates tension. But drawn-out stalemates can frustrate shareholders, so rational consolidation should benefit viable projects.

Stepping back, we remain upbeat on lithium. The market has grown several times over in a decade and should continue as EV adoption rises. For investors willing to endure volatility, the cycle still looks strong. Essential projects in the right jurisdictions will attract capital through temporary disconnects. Across supply chains, margins have much room to evolve in miners’ favor over baseline assumptions. So while China complicates markets, time and rational actions appear on the industry’s side.

The Investment Thesis for Lithium

• Consolidation through M&A seems inevitable given scarce deposits with ideal mineralogy and scale to support lowest-cost production long-term. Target investments leveraged to lithium assets with these enduring advantages.
• Alternate supply chains needed to reduce over-reliance on China, driving more midstream processing and chemical capacity additions closer to demand centers in North America and Europe. Companies advancing onsite integration or partners well-aligned to benefit.
• Projects able to capture more margin relative to chemical conversion partners will be best positioned to succeed through pricing volatility. Favor miners with negotiating leverage from resource scale and regional advantages.
• Cycle still in early stages of growth with demand expanding ahead. Investors accepting short-term volatility can benefit from secular tailwinds driving tightness and higher prices over time.

After a turbulent year, the lithium market appears poised to rationalize and regain balance. For investors, the essential takeaway is that this growth story still seems in its early chapters. Demand continues expanding faster than supply. Though China may weigh on markets temporarily, essential advantages like scale, location, and integration will separate winners long-term. Portfolios positioned in these enduring lithium assets can ride out short-term storms and capture substantial gains in the years ahead as electric mobility scales new heights.

American Lithium

American Lithium is developing large-scale lithium projects in Nevada and Peru as well as one of the world's biggest uranium projects, to play a major role in the transition to sustainable energy. The company's assets are the advanced-stage TLC lithium project in Nevada and the Falchanilithium project in Peru, which have robust preliminary economic assessments. American Lithium also owns the Macusani uranium project in Peru, which has seen significant historical development. With assets at various stages of pre-feasibility and feasibility studies, American Lithium is positioned to be a major player in lithium and uranium mining.

Li-FT Power

Li-FT is a mineral exploration company focused on acquiring and developing lithium pegmatite projects in Canada. Their flagship Yellowknife Lithium Project in Northwest Territories contains 13lithium pegmatite dykes near infrastructure and they have initiated a 45,000-meter drill program in 2023 to define resources. Li-FT also has an early-stage Project in the Northwest Territories within a historic lithium pegmatite belt and drilling is planned once permits are received. In Quebec, Li-FT has three large exploration properties near the Whabouchi deposit where 10 targets have been generated and initial drilling of two targets will occur in summer 2023 with more exploration planned for 2024. Overall, Li-FT is advancing a portfolio of Canadian lithium assets through systematic exploration and drilling.