Lithium miners chase growth amid surging prices, profits

Sky-high lithium prices and growing profits in 2022 support lithium miners' plans to expand production in the face of longer-term supply deficits.

Growing sales of electric vehicles, which largely depend on lithium-intensive batteries, have driven up prices amid a tight market, lithium mining executives said on recent earnings calls. Since early March, global lithium carbonate prices have averaged over $50,000 per tonne, compared to prices closer to $10,000/t for much of 2021, according to S&P Global Commodity Insights data.

High prices are swelling profits and, in turn, bolstering the sector's largest producers as they pursue expansion plans.

"In the lithium industry, we see strong indicators relating to demand growth, particularly in China, where we are seeing that EV sales units are doubling compared to last year," Ricardo Ramos, CEO of Sociedad Química y Minera de Chile SA, or SQM, said on a Nov. 17 earnings call, noting similar growth in Europe and the U.S. "Given a lot of this, it seems likely that prices will remain at [these] historically high levels for the remainder of 2022 and into 2023. These strong growth fundamentals are incentivizing us to keep on growing beyond what we have announced in Chile and abroad."

SQM was the second biggest lithium producer in 2021, according to Commodity Insights data. The company acquired Chinese lithium hydroxide operations in September and recently approved plans to expand lithium hydroxide production in Chile from 40,000 tonnes to 100,000 tonnes by 2025, Ramos said. SQM is considering further growth in other countries including the U.S. as demand grows for batteries, said Carlos Diaz, the company's executive vice president of lithium.

Executives at other top lithium miners touted similar growth driven by the unfolding energy transition.

"We are investing in China, Australia, and North and South America, and anticipate production up to 500,000 tonnes per year on a nameplate conversion capacity by 2030," Albemarle Corp. Chairman, President and CEO Kent Masters said on a Nov. 3 earnings call. "And we are off to a great start, when you look at where we were just a year ago at 85,000 tonnes compared to our expectation to end 2022 with 200,000 tonnes of capacity."

Albemarle was the top lithium miner in 2021, producing an estimated 128,036 tonnes of lithium carbonate equivalent, or about 20% of global output for that year, according to Commodity Insights data.

Pilbara Minerals Ltd., the third-biggest lithium miner in 2021, also highlighted growth plans. Dale Henderson, managing director and CEO of Pilbara Minerals, said on an Oct. 25 call that the company's board would soon consider a proposal to nearly double annual output to up to 1 million tonnes of spodumene, an ore mineral containing lithium, through its P1000 project.

Lithium seller's market

The commitment to growth comes as lithium miners' profits explode on the back of record lithium prices in the third quarter of 2022.

Albemarle's net sales jumped 151.9% year over year to $2.09 billion in the third quarter, while adjusted EBITDA grew to $1.19 billion from $217.6 million.

And Pilbara Minerals reported sales of $1.04 billion in its first fiscal quarter ended Sept. 30, up from $100.9 million in the same period last year. In addition, Pilbara said its cash balance grew to $1.38 billion, up $783.7 million over the previous quarter.

"Given the strong increase in the company's cash position, which has really happened over the last six or so months, the company is now turning its mind and working on establishing a capital management framework," said Pilbara CFO Brian Lynn.

Pilbara's strong financial performance allowed the miner to build a net cash position of $1.21 billion as of Sept. 30, which will support a dividend policy expected to be released to the market in the December quarter.

Meanwhile, SQM's lithium revenues hit $2.33 billion in the third quarter, up from $185.2 million in the same quarter of 2021. The company's overall net income, largely driven by its lithium unit, grew to $1.10 billion, up about tenfold year on year from $106.1 million.

Henderson told analysts on the Oct. 25 earnings call that customers are hungry for lithium supply.

"They continue to try and beat down the door. The phone won't stop ringing," Henderson said. "Yes, my phone is set to silent."

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