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General Market Commentary
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General Market Commentary
Pot takes the spotlight away from lithium and threatens the EV boom
SANTIAGO – Lithium miners are seeing investor interest go up in smoke.
The flow of capital into the cannabis industry is draining investments into lithium producers that supply the raw mineral key to power the electric-vehicle revolution.
Mining companies and analysts at the Lithium Supply and Markets Conference in Santiago this week said they couldn’t help but notice the half-empty rooms at the sessions – and the lack of investors and fund managers among attendants. The picture was remarkably different from last year’s event, when prices for the mineral used in rechargeable batteries were at historic highs. This year prices have fallen 17%.
“A lot of the risk capital that had gone into the lithium sector is now running into cannabis," said Tobias Tetter, managing director at Zurich-based fund manager Commodity Capital. The lithium market “absolutely needs more investment, not just from car manufacturers or chemical companies but also from institutional investors and fund managers.”
Lithium miners need billions of dollars in investments in order to expand production and to keep up with demand that’s expected to rise at double-digit rates in coming years, according to conference participants including Anthony Tse, CEO of Perth, Australia-based producer Galaxy Resources.
While the market is slightly oversupplied at the moment, it is expected to remain tight, with demand set to reach one-million tons per year by 2025, from about 325 000 t last year, according to BloombergNEF.
NEW CAPACITY
About $9-billion has to be invested across the lithium mining sector in order to add the 600 000 t of new capacity needed to match demand in coming years, Tse said. The company operates the Mt. Cattlin mine in Australia and is developing a project in Canada and another in Argentina.
“Unless we start seeing meaningful slots of capital and checks being written for the sector, I see it being very hard getting the amount of supply needed to meet demand,” Tse said during a presentation at the conference. “You can build all the EV factories that you want, but if you don’t have any of the raw material, you can’t feed that chain.”
The recent mega-deals between gold producers Barrick Gold and Randgold Resources, and Newmont Mining and Goldcorp brought hope that investors would return in greater numbers to mining stocks. But that money hasn’t made it into the lithium mining space, attendants at the conference said.
‘FIRMLY PARKED’
“The capital is firmly parked on the cannabis sector,” Chris Berry, an analyst at House Mountain Partners, said on the sidelines of the gathering. “As this speculative cannabis view matures, the hope is that that capital will come back to mining -- but I don’t see a lot of money coming into the space for now.”