M&A spree for lithium projects spurred by low market prices

Lithium majors are taking advantage of a sluggish market to carry out large-scale M&A activity, analysts told S&P Global Commodity Insights.

Falling lithium prices have created an opportunity for well-heeled majors to snap up smaller companies. Deals for lithium totaled $5.89 billion through Nov. 15, more than the total value of deals in 2021 and 2022 combined, S&P Global Market Intelligence data shows.

Slower-than-expected growth in the electric vehicle sector this year has pressured metal prices for producers of the key battery input. The lithium carbonate EXW China Battery price fell 74.4% from its November 2022 high of $79,650 to $20,425 per metric ton Nov. 15, according to Market Intelligence data.

Yet executives remain optimistic about long-term lithium fundamentals. Commodity Insights expects global lithium supplies to fall into deficit in 2027 as demand more than doubles from 2023 estimates, according to an October research report. Large lithium producers are choosing to not only weather the storm but take advantage of low market sentiment to bolster their asset portfolios with cheap acquisitions.

"With lithium prices falling over 60% year on year assets valuation became lower, it is a good market for buyers," said Lukasz Bednarski, principal research analyst for lithium and battery metals at Commodity Insights. "Another reason [for the activity] is securing the largest possible market share in this still 'new' industry."

Off to the races

Buyers in the current market are prioritizing long-term growth prospects over short-term margin squeezes, analysts said.

"This is a cheap way for the well-capitalized market players to acquire proven reserves," Will McDonough, CEO of asset manager EMG Advisors, told Commodity Insights.

Chilean state-owned copper miner Codelco, which is tasked with managing the country's lithium industry, said in October that it will acquire Lithium Power International Ltd., taking control of one of the most developed lithium projects in Chile's large Maricunga salt flat.

Brine-based lithium producer Sociedad Química y Minera de Chile SA's takeover bid for Azure Minerals Ltd. and its Australian spodumene operations was accepted in October. Livent Corp. announced a merger with Allkem Ltd. in May, and it received regulatory approvals in November.

"Miners themselves are investing to diversify [their] resource base across brine and rock and across geographies," Alice Yu, senior analyst of future energy metals at Commodity Insights, said in an email.

North Carolina-based Albemarle Corp. attempted to expand its Australian presence with a buyout of Australian lithium developer Liontown Resources Ltd., but it abandoned the attempt after Hancock Prospecting Pty. Ltd. took a 19.9% stake in Liontown.

"The unrelenting investment in lithium resources is ... driven by industry players for greater vertical integration and resource security for long-term production planning — battery producers, carmakers, recyclers, lithium refineries, etc.," Yu said.

Capacity investments up

Producers are also pumping money into expanding their own operations, while general investors are taking a larger interest in the industry.

After the failed buyout bid by Albemarle, Liontown Resources will focus on developing its Kathleen Valley lithium project using funds from its recent capital raising, a spokesperson said in an email response when asked about the company's M&A strategy.

Big ticket investments, especially in Australia by Mineral Resources Ltd. for mineral rights and by Australian billionaire Gina Rinehart from Hancock Prospecting, are "a pretty good endorsement of the medium- to long-term views," Max Vickerson, analyst with Morgans Financial, told Commodity Insights.

The payback periods for lithium projects are still attractive at $15,000 per metric ton of lithium carbonate equivalent (LCE), according to a Commodity Insights analysis released in October. And at a price of $40,000/t of LCE, as recorded in early 2023, the payback period of most concentrate projects is less than six months.

A total of 151 deals for lithium properties were announced during the first quarter, an 86.4% increase year over year, according to S&P Global Market Intelligence data. Through Nov. 15, 388 deals were announced, compared with 303 in all of 2022.

Downstream players are also getting involved in the action through offtakes and investment agreements, such as General Motors Co.'s $650 million deal with Lithium Americas Corp., announced in January, and Stellantis NV's acquisition of a 19.9% stake in Argentina Litio Y Energia SA in September.

Original equipment manufacturers "want to rely on the most reliable, biggest source of material. They don't want to be dealing with thinly-capitalized junior companies," said Howard Klein, RK Equity founder and partner.

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