After a week like the one investors in local and global lithium stocks have just endured, it is sometimes best just to cut out as much noise as possible and look at the numbers.
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For the second quarter in a row, SQM – the huge Chilean lithium producer – has stunned the market with a much better set of figures than forecast as the boom shows no sign of fading.
In fact, the revenue and earnings surge enjoyed by SQM in the quarter, saw it move past Albemarle to become the top global lithium company by those metrics.
This week it reported a tenfold surge in third quarter income to $US1.1 billion on a 400% plus surge in quarterly revenues to $US2.95 billion.
In August it reported revenue for the June quarter of $US2.599 billion, up 341% and net income of $US859 million which was up 857% from the $US89 million earned in the second quarter of 2021.
For the 9 months to September SQM reported revenues of $US7.57 billion, up 326% from the $US1.778 billion in the first 9 months of 2021 and net income of almost $US2.755 billion – up from $US264 million a year earlier.
Both are records and SQM is heading towards reporting a record result for the 2022 financial year.
Lithium demand and prices continue to surge – to levels never forecast as sales of electric vehicles and plug ins/hybrids rise by the month.
China is heading for sales of more than 6.5 million new energy vehicles. Sales in Europe, the US, UK and other parts of Asia are booming, helped in most cases by generous tax benefits or purchase subsidies.
SQM benefited directly from that as its lithium revenues exploded in the third quarter and demand showed no sign of slowing.
Sales volumes for lithium and its derivatives totalled 41,000 tonnes in the three months to September which was the highest quarterly volume ever reported by the company, SQM said in its earnings report.
“Our positive results in the lithium market were due to sales volumes and prices significantly above average,” the company said. Like Albemarle, SQM also sells also sells industrial chemicals.
That’s how both companies moved deeper into lithium.
Average lithium prices rose to record levels during the quarter at more than $US56,000 a tonne, the company said in its release.
SQM forecast global lithium demand to grow this year by at least 40% due to rising electric vehicles sales in China, where it estimates sales of these vehicles to exceed 6.5 million units, double last year’s amount.
Albemarle also reported a surge in sales earlier this month with a 152% jump to $2.1 billion and net income of nearly $900 million for the third quarter.
Both companies have major projects underway on Chile’s Atacama salt flats.
Chile-based SQM produces lithium from the brine process – as does Albemarle, which also has interests in the Australian hard rock sector (producing spodumene) with IGO and Mineral Resources.
SQM has a 50% stake with Wesfarmers holding the other 50% in Covalent Lithium which controls the Mount Holland mine and associated hydroxide processing plant in WA.
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Let’s turn our focus now to the local sector.
Pity Pilbara Minerals – all legit and now an ageing star after years as a speculative ingenue after it confirmed this week it had put in place a capital management framework that includes a dividend policy.
After around 17 years of searching for fame and fortune and finally settling, fortuitously, on lithium, Pilbara is now one of the major global players in the space, up there with SQM, Albemarle, IGO and the Chinese giants Tianqui and Ganfeng.
And it now wants to pay a dividend in a cash from next year- one that, in all probability, will be fully franked.
That makes it an adult miner, up there with the likes of BHP – the fully franked dividend should attract a whole new class of investor.
Pilbara promised a capital management and dividend policy in its September quarterly which revealed a massive inflow of more than $1 billion in proceeds from lithium sales in the quarter and a cash pile of close to $1.3 billion.
A month on and the policy has been issued and the news for shareholders is that they will start receiving dividends from the 2023 financial year – ie in about a year’s time.
The board is aiming to pay out 20% to 30% of its free cash flow to shareholders as fully franked dividends.
Pilbara said the target payout ratio “is designed to provide a sustainable dividend return to shareholders, but also reflects the early stages of Pilbara Minerals’ growth cycle, with the remaining cash flow able to be allocated to organic and inorganic growth opportunities which are aligned with the Company’s growth and diversification strategy to deliver long- term shareholder value.”
Having utilised all prior year tax losses, Pilbara Minerals said it will be paying income tax in February 2023.
“As a result, the Company is expecting to apply the target dividend payout ratio of 20-30% of free cash flow for the first time to pay a fully franked dividend for the 2023 Financial Year,” the company forecast.
That in turn will leave it with enough free cash flow to maintain safe and reliable operations, as well as support growth and productivity initiatives at its expanding WA mines and the refinery it and Posco (South Korea’s largest steelmaker) are building in South Korea.
Pilbara Minerals CEO Dale Henderson said in the announcement:
“With strong cashflows being generated, it is pleasing to be in a position to seek to return value to our shareholders so early in our operational life via a maiden fully franked dividend for the 2023 Financial Year.
“The established operating platform, expansion pathway and downstream participation opportunities place Pilbara Minerals in an enviable position to capitalise on the emerging demand for lithium materials. I am excited about what the future holds for the business, the opportunities this will bring to our stakeholders and all those who are connected with the business,” Mr Henderson added.
In this week’s announcement, Pilbara made it clear that its chief concern will be to invest in the future.
“Pilbara Minerals’ current strategy is to grow and diversify its business on the back of the strong cashflows being generated from its operations.
“To achieve this strategy, the Company will likely prioritise identified growth paths in the near-term which are expected to deliver the greatest long-term value for shareholders, ahead of allocating capital to special dividends, buy-backs or capital returns,” the company said.
Pilbara said growth opportunities to which capital might be allocated in the near-term include:
- The P680 Projectto incrementally expand production capacity at the Pilgangoora Project to 680,000 dry metric tonnes (dmt) of spodumene concentrate, as well as deliver crushing and ore sorting infrastructure in support of further expansions. The P680 Project is currently in development.
- The P1000 Projectto further expand production capacity at the Pilgangoora Operation to 1Mtpa. A Final Investment Decision for the P1000 Project is targeted for late this quarter.
- The Downstream Joint Venture with Poscoto construct a 43,000 tpa Lithium Hydroxide Monohydrate (LHM) chemical facility in South Korea, including the possible acquisition of a further 12% interest in the project pursuant to a call option to increase Pilbara Minerals’ interest in the joint venture to 30%.
There’s also the mid-Stream Project which is aimed at producing a value-added lithium salt with a lower carbon intensity for the battery materials industry.
“The initial investment is likely to be the construction of a demonstration-scale chemicals facility in joint venture with Calix (subject to a final investment decision), which will test the commercial and technical viability of a commercial scale plant.”
Other ideas include further investment into sustainability commitments and initiatives, as well as new downstream lithium chemicals opportunities, which Pilbara says will be likely in partnership with parties involved in the battery materials industry.
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Despite some silly speculative chat at the start of this week that saw the share prices of Australian-listed lithium miners rise, then fall on Monday and Tuesday, the latest Pilbara Minerals latest Battery Minerals Exchange (BMX) auction has confirmed the lithium boom continues with prices pushed to record levels.
The auction showed that demand for the key battery metal remains very strong with the price jumping more than 10% in a month.
The latest auction takes the gain in the lithium prices in the past year more than 300%, defying repeated claims and commentaries that the boom would soon turn into a bust.
Pilbara Mineral’s monthly BMX auctions are rapidly becoming the most transparent pricing mechanism for lithium.
Pilbara said the latest auction held on Wednesday afternoon saw a cargo of 5,000 dry metric tonnes (dmt) at a target grade of ~5.5% lithia go for the highest bid of $US7,805/dmt (SC5.5, FOB Port Hedland basis).
Pilbara Mineral’s said that on a pro rata basis for lithia content and inclusive of freight costs equates to a price of ~$US8,575/dmt (SC6.0, CIF China basis).
The winning auction price was higher than the $US7,100 in October ($US7,830 on a pro rata basis) and much higher than the prices in the October, 2021 third auction of $US2,350 a tonne and the pro rata price of $US2,350.
“The auction terms now require the successful bidder to enter a sales contract within 24 hours requiring a 10 percent deposit to be paid by early next week and an irrevocable letter of credit from a recognised bank to be presented by late November 2022,” Pilbara said in the statement on Wednesday. The order will be delivered in December.
