Rio Tinto must delay the development of its Jadar lithium project in Serbia as it may exacerbate a slump in prices due to a projected oversupply in 2025, a year after the project is scheduled for first production, The Australian Financial Review reported, citing investment advisory firm Ord Minnett.
In a note to its clients, the advisory firm said Rio Tinto should proceed slower than its projected time frame of seeking board approval in 2020 and first production in 2024 — the fastest possible development schedule for the operation.
According to Ord Minnett estimates, lithium supply is targeted to exceed demand by 45,000 tonnes in 2025, and the addition of 50,000 tonnes of lithium from Jadar would only worsen the oversupply woes.
The project could also threaten the mining major's cashflows from boric acids, a byproduct of Jadar, as Rio Tinto is already a big player in that market, the AFR said.
Borax production has contributed net earnings of between US$111 million and US$126 million over the past three years, with production from Jadar expected to "swamp the boric acid market with a negative impact on Rio Tinto's borax asset."
"It may make sense for Rio Tinto to keep [Jadar] on the backburner until market requirements are higher and confidence in economic returns improves," analysts from Ord Minnett said.
The firm's analysis was based on Jadar producing 50,000 tonnes of lithium carbonate equivalent per year, with construction cost of US$1.5 billion and average lithium price of US$9,500 per tonne.
In March, Rio Tinto's head of new ventures and its lithium division, Andrew Latham, said the miner was "actively looking" to invest in metals which it expects to be impacted by the electric vehicle market.