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High cash injections, battery-grade lithium prices point to rapid EV expansions


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High cash injections, battery-grade lithium prices point to rapid EV expansions

Lithium majors raising large chunks of cash in recent months and battery-grade lithium prices skyrocketing since the new year are indications that electric vehicle sales will accelerate and that themes driving growth for such commodities are here to stay, according to industry experts.

A handful of midtier companies raising considerable amounts of cash in 2020 turned out to be a forerunner to three huge equity raisings by the world's major lithium players in the first three months of 2021.

Chile-based Sociedad Quimica y Minera de Chile SA, or SQM, approved a proposal in December 2020 to increase its capital by up to US$1.1 billion to fund a US$1.9 billion expansion plan running from 2021 to 2024.

Canada-based Lithium Americas Corp. raised US$400 million in January through a public offering targeting US$350 million, and U.S.-based Albemarle Corp. raised about US$1.45 billion in February through a public offering of common stock initially targeting US$1.3 billion.

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Low prices over the last two years dampened excitement for new lithium projects, but a confluence of events has given investors the impression that EV demand will ramp up quickly, BloombergNEF analyst Sharon Mustri said in an interview. This includes a halt on new projects because of the coronavirus pandemic as well as world governments pursuing large green stimulus packages.

"We saw at the beginning of the year pretty big equity placements," Mustri said of the Albemarle and SQM proposals.

Mustri also noted a US$225 million debt offering by U.S.-based Livent Corp., which was a play specifically for the growing green finance market. The analyst said the offering was "an innovation" that could be "replicated by different projects." Livent is an FMC Corp. lithium spinoff that listed on the NYSE in late 2018.

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Reg Spencer, head of mining research for Canaccord Genuity LLC's Australian business, told S&P Global Market Intelligence that the difference between this bull market and the last one from 2015 to 2018 is that "we've got confirmation that EV sales are accelerating."

Canaccord was the best metals and mining equity capital markets bookrunner in 2020, accounting for a total A$1.53 billion in proceeds raised on the ASX across 111 deals, which represented a 17.85% market share.

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While many of Canaccord's raisings were for junior companies capitalizing on the buoyant gold market, it also helped Malaysia-based rare earths producer Lynas Rare Earths Ltd. raise A$425 million. Spencer said the financing was aided by the EV investment theme as rare earth magnets are used in electric motors.

Canaccord also oversaw A$126 million and A$161 million equity financings in 2020 by Australia-based lithium producers Orocobre Ltd. and Galaxy Resources Ltd., respectively, while the firm's North American business was involved in Lithium America's raise in early 2021.

Australia-based Ioneer Ltd. also received firm commitments to raise A$80 million for an upsized placement to develop its Rhyolite Ridge lithium-boron project in Nevada, which did not involve Canaccord.

EV sales rising 50% year over year to exceed 3 million units in 2020 and the fact that most of that increase was in Europe, which surpassed China in sales for the first time, was "recognition that the established auto original equipment manufacturers are lifting EV sales," Spencer said.

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This is evidence that "the market is going to grow a lot quicker than most people would have thought," which will lead market observers to reassess their demand expectations, the researcher told Market Intelligence.

At the same time, battery-grade lithium prices have doubled in China since November 2020, which is "another manifestation of the fact that the market is tightening up and demand is rising," Spencer said.

The lithium market downturn since 2018 led to a lot of supply being curtailed, closed or delayed, and Spencer said the additional production supported by the billions of dollars raised for lithium projects over the past year is not due until the mid-2020s.