This Week in Critical Minerals - #6
Record earnings, trouble in Panama, and the Indonesian growth story
Welcome to the sixth issue of This Week in Critical Minerals, where I cover the mining and resource processing projects and technologies being built around the world.
Thank you for joining me. Let’s dig in.
Lithium
Pilbara Minerals and Allkem profits up 10X in H2 2022
Australian lithium producers Pilbara Minerals and Allkem announced record earnings this week as production scales and lithium prices remain high. Pilbara’s revenue grew 647% (compared to H2 2021) to $1.46B and EBITDA soared 1,091% to $1.21B. Pilbara has been expanding production at its Pilgangoora project in Western Australia which now has the capacity to process 580,000 tonnes of spodumene (lithium mineral) concentrate per year. Over the past 6 months, the company was able to produce spodumene concentrate at a cost of $405-$430 per tonne, which it sold for an average of $4,993 per tonne. With current prices ten times production costs, more than $2B of cash, and a mine life of 26 years, Pilbara is well poised to grow into a larger lithium player over the next decade and thrive even if prices drop from record highs.
It’s a similar story over at Allkem, where revenue tripled to $588MM and EBITDA quadrupled to $401MM. Though lower revenue, Allkem is a more diversified lithium producer, with assets in Western Australia, Argentina, and Japan and the capacity to produce lithium carbonate, a more refined chemical (compared to spodumene concentrate) used in lithium batteries. With cash and a low cost of production, Allkem is also well-suited to expand mining and processing operations.
Although lithium is down 30% from its November 2022 all-time high, prices remain well above the pre-2020 “normal.” With a continued production deficit it is likely prices remain elevated while projects currently in development come online to meet the demand. This should be a boon to companies like Pilbara and Allkem who’ve been building capacity over the last decade.
Albemarle restructures joint venture with Mineral Resources
Lithium giants Albemarle and Mineral Resources (MinRes) have restructured a joint venture between the two companies. Albemarle will increase its stake in the Western Australian processing plant Kemerton from 60% to 85%, as well as operate part of the facility. Albemarle will supply MinRes’s 15% of the spodumene feedstock used at the plant at market prices. MinRes will increase its ownership of the Wodgina lithium mine in the Pilbara region of Western Australia from 40% to 50%, and MinRes will operate the mine. Albemarle will build processing capacity to convert both parties’ spodumene from Wodgina to lithium chemicals, with MinRes paying for 50% of up-front capital costs for that processing facility. Additionally, pending Chinese regulatory approval, MinRes will acquire a 50% stake in Albemarle’s Qinzhou and Meishan processing plants in China. Qinzhou is undergoing modifications to process Wodgina spodumene, and Meishan is still under construction. Both are expected to open in 2024. Albemarle CEO Kent Masters said that their “Australian lithium assets are core to Albemarle's strategy to build a globally diversified portfolio of best-in-class assets and resources.” The point about diversification is key. Albemarle and MinRes are both looking to ramp up capacity rapidly, and investing in projects together enables the companies to have more assets in their portfolio and pipeline. The deal also reflects an increasingly interconnected lithium and battery supply chain with customers investing in miners and processors to secure supply (see LG Chem/Piedmont Lithium last week).
Copper
First Quantum halts processing at Panama mine
Canadian miner First Quantum Minerals is halting ore processing operations at its Cobre Panama mine following a months-long dispute with the Panamanian government. After First Quantum missed a deadline to renew their mining contract because they were unhappy with some of the terms last December, the President of Panama announced a plan to halt the operation. Talks seemed to progress, but in early February the company was ordered to suspend operations at the local port, blocking First Quantum’s exports of copper from the mine. Now the company is halting ore processing and beginning to demobilize some of their 8,000 employees and contractors. The company has also suspended purchasing of some $20 million per week of supplies for the mine, a significant loss for local Panamanian suppliers. The mine is responsible for 3.5% of Panama’s GDP and 1.5% of global copper production. The situation in Panama demonstrates the difficulty of operating in jurisdictions with regulatory uncertainty, where tax and royalty payments are not set in stone. A continued closure, combined with production decreases in Peru and Chile, would deal a major blow to global copper output, potentially impacting price.
Teck to spin off coal assets, focus on copper
Last week $20B Canadian giant Teck Resources announced that the company would change its name to Teck Metals and spin out their coal assets into a separate entity named Elk Valley Resources. The split will allow the company to focus on metals (like copper) critical for an energy transition, as well as potentially unlock latent shareholder value. Current Teck shareholders will receive shares in Elk Valley Resources, which operates four mines in British Columbia. Additionally, Teck will be phasing out their dual-class share structure over the next six years by which the Keevil family had control over the company. The focus on copper and winding down of dual-class shares could make Teck a fruitful target for acquisition as larger mining players like Rio Tinto and BHP are looking to expand their exposure to copper. Teck Metals will operate four copper mines in Canada and Chile at a current production of 270,000 tonnes per year, which is expected to double by next year as the company concludes a production ramp at Quebrada Blanca in Chile. Teck Resources’s split follows a similar move by Vale earlier this year to separate its coal and base metals units.
Nickel
Indonesia nickel exports up tenfold in 5 years
In 2014, Indonesia banned the export of raw nickel ore. Since then, companies have set up nickel refineries in the country, leading to a greater value from the resource accruing to the nation. As the largest nickel exporter with five times the production of the second-place Philippines, this policy appears to have been a success so far, with even downstream battery producers like Tesla considering setting up advanced manufacturing facilities in the country. Foreign investment in the country rose 44% last year to $80B, driven largely by the nickel industry. President Joko Widodo wants to use nickel as the prototype for bringing all sorts of processing and manufacturing industries to the country, from fertilizer to copper to fish, following the growth model of countries like Taiwan and South Korea. Historically, people would move to the richest and most populous island of Java for good jobs, but new manufacturing is spread around the country’s islands, creating new growth centers in provinces outside Java.
There are doubts that this level of growth is sustainable, due to nickel investment driven largely by a supply shortage giving the country leverage in production — this may not apply to other industries. Additionally, the EU recently protested Indonesia’s ban on nickel exports to the WTO and won, though President Jokowi will appeal the ruling. Finally, if commodity prices fall, Indonesia may see investment drastically decrease and exports drop — a part of “resource curse” which burdens many developing countries endowed with natural resources. Countries in Africa including Namibia, Zimbabwe, and Nigeria may be following Indonesia’s lead, all enacting bans on unprocessed ores in recent years. If Indonesia is able to meet their goal of doubling their GDP per capita to $10,000 by 2045, this would be a growth story aided by the energy transition hardly seen in the past.
Graphite
Magnis to supply graphite to Tesla
Australian battery manufacturer and graphite developer Magnis Energy signed an offtake agreement to supply Tesla with up to 35,000 tonnes per annum of anode active materials (graphite) for a minimum of three years. The anode materials will be supplied from a yet to be constructed factory in the United States. A site is expected to be chosen in the first half of this year, with production commencing by February 2025. The company will be constructing pilot plants for the graphite production lines over the next year, following research and development on their anode materials conducted at their New York battery facility over the last seven years. The US plant would be one of the first graphite anode manufacturing facilities in the US, producing this resource critical for popular lithium ion battery chemistries.
Rare Earths
MP Materials hits record output, to supply REEs to Japan1
Sole US rare earths producer MP Materials released earnings this week, announcing record rare earths production with revenue increasing 59% to $527.5MM and EBITDA increasing to 77% $388.6MM as the price of rare earths oxides rises. The company also announced a deal with Japanese trading house Sumitomo Corporation to distribute the company's NdPr oxides in Japan. NdPr is a critical material used in the production of powerful rare earths magnets used in electric motors.
Other Mining News
Molybdenum surges 122% in past year
The price of molybdenum, an additive used to make steel alloys, has more than doubled in the past three months due to supply shortages. Molybdenum is often produced as a byproduct of copper mining by companies such as American Freeport-McMoRan and Chilean Antofagasta. The high molybdenum prices have offset flat copper prices and rising copper mining costs for these companies. It remains to be seen how long these elevated prices last, as some stainless steel producers are already cutting output.
US to raise tariffs on Russian metals
The White House announced increased tariffs on imports of Russian aluminum and products made with Russian aluminum. Bloomberg reported the amount at 200%, though this appears to be unconfirmed. The tariff is both a punitive action against Russia and a ploy to strengthen the US’s domestic aluminum industry, with the tariffs seeing massive support from American producer Alcoa. The US also imports a substantial amount of titanium from Russia which has thus far gone unsanctioned.
Chinese coal mine collapses
An open pit coal mine in the Chinese province of Inner Mongolia collapsed Wednesday in a tragic accident which killed six workers. The incident prompted an investigation by China’s ministry of emergency management into landslide risk, poor management practices, and illegal mining. China’s mines have been trying to boost output as the government wants increased supplies and stable prices in order to increase coal electricity production. In a region where safety inspection is not as rigorous as in the US or Australia, that desire can lead to accidents like this.
Key Takeaways
Lithium and rare earths mining companies are making record profits as prices remain high due to structural deficits of these commodities (Pilbara Minerals, Allkem, MP Materials).
Mining companies are restructuring agreements and corporate entities to maximize growth potential to supply battery raw materials (Albemarle, MinRes, Teck Resources).
Developing countries like Indonesia are finding success by limiting export of raw ores and requiring processing domestically. It remains to be seen if this policy and growth can be maintained.
That’s all for this week. Thank you for reading, and if you have not yet, please consider subscribing.
- Teddy
For full disclosure, I am currently an Intern at MP Mine Operations LLC (MP Materials). This newsletter is in no way associated with my employer and reflects my views alone.
Do you have any resources to learn more about spodumene concentrate? I typically write about production further downstream, so your Substack is great context.