Lithium Reset Presents Compelling Entry Point for Disciplined Producers and Asset-Rich Juniors

• Lithium prices have fallen recently but demand remains strong, especially from EV makers in China
• Major players like SQM, Albemarle, and MinRes are well-positioned
• Short-term oversupply from new projects in Zimbabwe but infrastructure constraints may limit further increases
• Lithium juniors with quality assets are attracting investor interest and strategic partnerships
• Adoption of EVs continues to accelerate globally creating huge lithium demand growth in the years ahead

The lithium market has experienced significant volatility in recent months, with prices declining sharply from the highs seen earlier this year. However, most industry experts believe demand fundamentals remain strong given the accelerating adoption of electric vehicles (EVs) globally. We provide an overview of the current state of the lithium market, discuss the positioning of major players, highlight rising supply from new projects, and identify promising opportunities in the junior mining space.

Lithium Pricing and Demand Dynamics

While lithium chemical prices have pulled back around 50% from the peaks seen in November 2022, we are seeing no meaningful shortfalls in actual demand. Research firm Adamas Intelligence estimates a 48% year-over-year increase in gigawatt hours (GWh) deployed for passenger EVs in 2023. China hit record EV sales levels, up over 35% versus last year. The industry is still tracking towards 14 million EV passenger vehicle sales this year. Energy storage deployment also continues to see strong growth.

The discrepancy between robust demand trends and declining lithium pricing likely relates to destocking by the lithium chemical industry. Companies like Livent and Albemarle noted converting spodumene concentrate into lithium chemicals has faced some delays. Additionally, new supply from Zimbabwe may be higher than anticipated – reportedly approaching a run rate of 10,000 tonnes of LCE per month. However, order will be restored as disciplined production from tier-one lithium miners balances the markets.

Positioning of Major Lithium Players

Leading lithium producers like SQM, Albemarle, Pilbara Minerals, and Mineral Resources (MinRes) reported disciplined production growth and are avoiding excess volumes that could undermine pricing. Unlike the last industry downturn in 2017-2020 which was driven by distressed junior miners, the current reset mostly involves well-capitalized large players taking a measured approach.

Industry veteran Chris Ellison now holds board positions and equity stakes in several promising lithium developers. As these assets are advanced towards production, Ellison may become the world’s largest lithium miner. His company MinRes, which specialises in hard-rock lithium concentrated, represents a promising investment vehicle to capitalize on his growing influence.

Rising Supply from New Projects

The lithium industry faces increased supply from non-traditional sources like Zimbabwe which could undermine the pricing control exhibited by the largest producers Albemarle and SQM in recent years. Reports suggest Zimbabwe’s lithium output could reach an annual run rate approaching 1 million tonnes LCE. However, infrastructure constraints including transport links, power supply, and beneficiation requirements could limit further expansion.

While China traditionally depended on Australia for lithium supply, surging domestic production may meet more of its needs going forward. China also seems focused on securing supply from Africa and Brazil to diversify its sources. As the lithium industry bifurcates between tier-one and two producers, it remains unclear whether major battery manufacturers will accept lower quality supply.

Opportunities in the Lithium Mining Junior Space

Despite lithium price weakness, juniors with high-quality assets continue to gain investor attention and form strategic partnerships with companies up the lithium supply chain. Faced with expansion constraints for Western supply, Asian battery makers are accelerating efforts to make investment deals. Simon Moores of Benchmark Minerals notes “the next nine months or so is the time that the auto OEMs have been waiting for” to lock in lithium inventory at reduced prices.

Names like Atlantic Lithium, European Metals Holdings, Latin Resources, and Global Lithium have recently hired investment banks to assist in positioning for partnerships or project development. Many prospective mines are conducting drilling programs and early engineering work to advance projects during the current industry lull. Well-funded juniors with quality lithium assets stand ready to help feed accelerating lithium demand once prices stabilize at more economic levels.

We are seeing no meaningful shortfalls in actual demand.

Investment Thesis for Lithium

• Despite recent volatility, lithium demand growth driven by EV adoption is undeniable
• Leading producers brought a disciplined supply approach; reset was inevitable
• Battery makers urgently want to lock in lithium inventory at lower prevailing prices
• Promising juniors with quality assets are well-positioned for development
• Volatility provides opportunities for investors to buy lithium stocks at discounted levels
• Hard rock specialists MinRes and soon-to-list Ioneer represent top investment choices

The prevailing weakness in lithium pricing represents a disconnect from the strong underlying demand dynamics in the electric transport and energy storage sectors. While temporary oversupply from unanticipated new projects has contributed to the pullback, constrained infrastructure likely limits further supply shocks from these non-traditional sources. Leading low-cost producers have taken measured steps to optimize production rather than maximizing volumes. With demand signals remaining robust globally outside North America, battery manufacturers urgently seek to lock in inventory at newly discounted prices. As lithium pricing stabilizes in coming years, disciplined producers and promising juniors with quality assets stand ready to capture accelerating market growth from the irreversible megatrends of vehicle electrification and carbon reduction.

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, with the goal of playing a major role in the transition to sustainable energy. The company score 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

company'sLi-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 13 lithium pegmatite dykes near infrastructure and they have initiated a 45,000-meter drill program in 2023 to define resources. Li-FT also has the early-stage Project in 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.