And what could go wrong? Lithium, cobalt and other rare earth minerals are needed to makethe millions of electric vehicle (EV) batteries needed in the coming year. Nickel is much needed for wind and solar power as well as EVs.
However, the recent crash of prices for these commodities has seen many companies in Australia shutter their mines and indefinitely defer expansion plans.
These ‘future-facing’ minerals were the hottest thing in mining last year, but this year’s events show they are not immune to the laws of supply and demand, just like oil and coal.
In a dynamic seen many times in mining over the centuries, high prices for these commodities induced more miners to get their projects up and running as quickly as they could. The extra supply is now causing a glut in the market and prices have crashed. When enough miners have ceased or cut back production, prices will rise and we’ll start the cycle all over again.
The company’s share price rose from under 10c at the start of 2020 to more than $3 in 2023 as the lithium price rose, underpinned by bullish demand forecasts.
Prices for spodumene concentrate - the lithium raw ingredient that Australia exports - hit US$955 a tonne earlier this month, down about 90 per cent from a year ago. Photo / 123rf
Liontown shares are now sitting at under $1. Investors who’ve owned the stock from the outset have still done very well, but those who jumped in late are sitting on big losses.
Prices for spodumene concentrate - the lithium raw ingredient that Australia exports - hit US$955 a tonne earlier this month, down about 90 per cent from a year ago.
New supply from Africa, China and the Americas has weighed on the lithium price and weaker-than-expected growth in electric vehicle sales is seeing demand grow more slowly than expected.
Liontown had been planning a new mine and only three months ago secured A$760 million in bank funding for the project. But the banking syndicate withdrew its loan offer on Monday, causing the share price to drop by 20 per cent.
The banks were spooked by pessimistic lithium price forecasts, which plummeted below the level on which the loan approvals were based.
Liontown chief executive Tony Ottaviano believes the forecasts are too pessimistic. He has delayed some expansion plans but still wants to increase production so as not to be caught flat-footed when the market turns.
In the meantime, a lot of people have lost a lot of money, and not just mum and dad investors who were late to the party.
She’s not the only billionaire sitting on a loss. Just six months ago Fortescue Metals founder Andrew Forrest spent A$760 million buying three nickel mines near Kambalda in Western Australia. Last week he announced he would shut them as the nickel price hit their lowest level in three years.
This had a knock-on effect for mining giant BHP, which was processing the nickel from Forrest’s mines. BHP said last week it would mothball its Kambalda nickel concentrator.
Miners held crisis talks with the government on Thursday at which the government said it might introduce a tax credit for the processing of nickel and lithium in Australia.
Nickel is trading at about half the price it was a year ago.
Production of the hard silvery metal has exploded in Indonesia, where the government had demanded that any miners wanting to exploit the nation’s nickel reserves had to build downstream refineries to process the minerals.
The south-east Asian nation now produces more than 1.5 million tonnes of nickel a year, more than half of global supply. It is relying on cheap and carbon-intensive coal-fired power for processing, and as a result, the commodity has much lower environmental standards when compared to Australian production.
Australian miners had hoped their commodities, produced with low or potentially even zero carbon emissions, would command a price premium as they were sought out by electric vehicle manufacturers. The expectation was that companies building equipment for the zero-carbon economy would want low-carbon raw materials because their customers - such as buyers of electric vehicles - would demand low-carbon production.
That hasn’t happened yet.
Miners held crisis talks with the government on Thursday at which the government said it might introduce a tax credit for the processing of nickel and lithium in Australia.
If that happens, it will help only at the margins; the laws of supply and demand will really determine the miners’ fates. In the meantime, more mines, particularly small ones, are likely to shut, If they’re lucky, they’ll be able to temporarily close some of their operations and wait until conditions improve.
But some won’t be able to pay their debts as they mothball their operations and will collapse.
