Q+A: Global Lithium MD Ron Mitchell on the market’s recent turbulence and why there’s still upside

• Upgrade makes Global Lithium WA’s 7th biggest producer by resource tonnes
• Eyeing 2026 production, studies begin at Manna project
• MD Ron Mitchell says upside ahead for the industry despite recent market turbulence

As we close the book on 2022, investors in the hottest commodity of the year, lithium, have been plunged into an existential crisis of epic proportions.

Small caps and penny stocks have turned into ASX giants as EV sales have skyrocketed and lithium prices have more than quadrupled in 2022, topping at over US$80,000/t for downstream chemicals and almost US$8000/t for spot spodumene concentrate.

But a slight drop in prices in China, reported by leading price agency Benchmark Minerals Intelligence and evident in a Pilbara Minerals (ASX:PLS) spodumene auction that saw a slight drop in the winning bid price (though the 10,000t cargo will still rake in more than $100 million in cash), as well as persistent forecasts from some analysts projecting a drop in prices in 2023 and 2024, has the market spooked.

It is a classic gambler’s conundrum. Investors have the jitters because they’re scared the top may have already come.

But the bull in them is also terrified it hasn’t.

Maybe that isn’t the way we should look at lithium, which is likely to see demand continue to rise at pace as internal combustion engines are phased out and the rest of the world catches up to front runner China on EV adoption.

Amid the maelstrom on Thursday — when PLS fell more than 10.5% — 2021 float and near $500 million advanced explorer Global Lithium (ASX:GL1) chose an awkward day to unload a “transformative” 148.5% increase in its WA hard rock lithium resources, Manna and Marble Bar, to 50.7Mt of spodumene bearing lithium ore at 1% Li2O.

Manna, where GL1 took an 80% stake from project owner Breaker Resources (ASX:BRB) for an initial $13m before paying $60m after 2022’s magic price ride for the remaining 20% in October, now contains 32.7Mt at 1% Li2O.

It is enough to get development studies under way, starting with a scoping study which kicked off yesterday.

We caught up with GL1 managing director Ron Mitchell, formerly the sales director for Greenbushes lithium mine co-owner Tianqi, on the explorer’s rapid rise to developer status and why he thinks the upside is ahead of the lithium industry.

 

There was a massive increase in the resource base. Did you did you feel somewhat aggrieved the way the lithium market was behaving on Thursday?

“Look, my view is good news is enduring.

“So whilst it was a tough day, it’s been a tough couple of weeks to be honest in the lithium space — there’s a few bearish views out there and a few analysts who certainly aren’t insiders and aren’t attuned maturing to what’s happening on the inside of the industry as we are.

“It is disappointing certainly. But look, I think ultimately once the market’s had sufficient time to process this news (they’ll) really understand that this is a globally significant resource.

“Now in terms of this upgrade, 50 million tonnes positions us incredibly well for next year. So we’re mindful that the market goes up and down and this is a really significant piece of news. No doubt we’ll see better traction in the months ahead.”

 

Where does this particular result place you relative to other hard rock lithium deposits in Western Australia?

“This is a really meaningful announcement, by my recollection on a company level, on an equity basis, this puts us seventh behind IGO.

“So you’ve got Pilbara Minerals, Albemarle, which is not an Australian listed company, Liontown, Mineral Resources, Tianqi, which again, is not an Australian listed company, IGO and then it’s Global Lithium.

“So if you look at the ASX listed companies there we’ve got the fourth largest resource on an equity basis, so (it’s) really, really pleasing.”

 

You obviously paid a fair amount for the final portion of the equity stake at Manna. I’m sure you’d argue that it was it was more than worth it at this point. We were talking about issues in the market. Do you have any fears that we are currently at a top, given where prices are, and the slight pullback in China?

“Oh, look, I’m not concerned about the long term fundamentals. They are as strong as they’ve ever been.

“And again, just my communications in recent times with the downstream end users, I’m talking about well-credentialed end users and tier one counterparties in Japan, Korea, Europe and US and even in China they’re incredibly strong.

“Everyone needs more raw materials. I think the challenge has always been not so much on the demand side, it’s always been a supply issue. And from my 12 years experience in the sector, I understand full well some of the challenges in terms of delivering new projects to market.

“So yes there’s going to be ebbs and flows around pricing, that’s quite normal in this type of market, we’ve had a phenomenal run in terms of price increases. So at some point there was going to be a little bit of pullback. But the pullback’s really on the back of we’ve got the Chinese New Year coming up.

“Generally it’s a very quiet time, that sort of three to four weeks ahead of the Chinese New Year, which is early this year. But certainly as the purchasing managers, at least once they return to the office in mid-February, I expect things to heat up again, particularly as China is again beginning to open up.

“It’s been pretty quiet sort of six months in China with the lockdowns that they’ve had, which have been persisting. But I think as things open up next year, we’re really confident the pricing is going to remain high, it’s not certainly not going back to the levels we’ve experienced in the past.”

 

You referenced your past when you worked with Talison and Tianqi. You saw the impact of the last decline in lithium prices on their business. What’s different about the market now, to where we were back then?

“It was almost a perfect storm. But fundamentally, the major difference between then and now is the market orientation. Back in 2018-19, you had a market on the demand side, that was just the China story. China was the major market globally, accounting for most of the demand as far as EV penetration goes. But the difference now is it’s a truly global story.

“We’ve got the Europeans, the North Americans, and in the next couple of years, we’re going to see phenomenal demand growth from North Asia from both Japan and Korea, the OEMs that are based in those nations. So it’s a global story.

“Now, the other thing around the last price decline was you had a number of projects, which all came on literally within a matter of months in terms of production. So you had this supply glut in the market, which dragged the price down.

“Certainly going forward projects from my experience take far longer. The ramp up periods, the commissioning periods, the qualification, permitting approvals, there’s infrastructure challenges, the geopolitical challenges, it’s not going to be easy to get tonnes in market going forward.

“The quantities that are required to really grow out this industry … the biggest challenge I feel is going to be on supply and supplying the right quality and from the right jurisdictions.”

 

If you look at Manna and Marble Bar, a 1% lithium Li2O grade probably wouldn’t have been necessarily that exciting a few years ago. Has that shift in market pricing really changed the economics for projects with resource grades like Manna?

“Oh, absolutely. That’s absolutely without question, I think the requirement now going forward is going to be for a whole raft of new projects to be delivered.

“1% is economic as it relates to spodumene concentrate, it is the preferred raw material in the electric vehicle value chain. And whilst there’s other lithium hard rock materials such as petalite, and lepidolite, these are typically much lower grade.

“So 1% spodumene concentrate with low impurities would be a highly sought after project, particularly at the resource level we have now and, as I mentioned earlier, this is now truly a globally important resource in terms of its scale.

“Of course, with any project you have a grade-tonnage curve. So generally you can have reduced tonnes at high grades, but we felt it was really meaningful to announce not only do we have the grade, but we have a really wonderful scalable resource as well.

“So certainly, the market is very different now. It’s going to require a whole raft of projects at 1%, and in some cases lower than 1% to come to market if we’re able to meet this shortfall as a collective industry.”

 

Citi upped its forecasts next year, but has 20% of the downside on the lithium carbonate price at US$60,000/t lithium carbonate price in 2023. Is the market reaction a bit panicky given anyone who’s producing or trying to finance a project would still be finding life very comfortable at those prices?

“Pricing will ebb and flow, but even at US$60,000 on an LCE basis, that is a phenomenally high lithium price if you compare it to historic levels. No doubt this is pre-Christmas, there’s a little bit of profit taking happening as well.

“Our stock’s had an incredible ride as most lithium stocks have. But fundamentally, at the end of the day, we’ve got a project that has scale on an international basis, and we think we always have the view that good news is enduring.

“And we have the two projects as well which gives us great development optionality. So retail investors are more than obliged to take profit where they see it, but we think that the upside is all ahead of this industry, particularly for those projects that have scale such as ours.”

 

So the scoping study is due next quarter and then along with that the feasibility studies are going to start. Do you have a good idea of when you might be able to get into production at Manna and Marble Bar and whether you might be looking at, say, a DSO while you ramp up the concentrate plant?

“Certainly we have communicated a timeline and a schedule going forward with regards to a full spoduemen concentrate beneficiation plant. All going well, we’re a company that has historically always hit or exceeded our milestones in market.

“But you know we’re planning feasibility or scoping segueing into feasibility, which will commence in Q1. We’ll have feasibility completed by the end of next year that will allow the company to proceed with an FID in 2024, environmental and heritage negotiations will be ongoing through that period.

“So we’ll look to conclude those mid ’24 and that’ll allow us to get into construction; at least commence the civils the back half of 24 into 25.

“So all going well, first production late ’25, early ’26, in the form of a high grade spodumene concentrate. Clearly there are some near term opportunities as it relates to DSO, we’ll certainly explore those, we have an asset at Manna that’s amenable to a DSO operation given we’ve got some very high grade intercepts at surface and near surface.

“We’ll certainly investigate those we have a really well-balanced share register with the likes of Suzhou TA&A which has a processing facility for DSO material in China. So it’s important to have the connections within the industry and we have those.

“Suzhou TA&A has 9.9% of our stock, so we’ve got a partner that’s willing and able to process DSO and also Mineral Resources on our register as well, they can certainly assist us on the upstream side of the DSO operation. So we think we’re incredibly well positioned of all the potential DSO aspirants out there, I think we’re in the best place.”

 

Any longer term plans around getting into conversion, or is that just too far down the line?

“Just as it relates to DSO, we’re focused on the commercial longevity of our assets. So DSO where it makes sense and as I said, it will still be subject to some level of scoping next year. But the endgame is the concentrate, and then ultimately going downstream into, we feel a lithium hydroxide is the product from our engagement with end users makes best sense to make here in Western Australia.

“So absolutely, we have aspirations, we haven’t announced those sort of in any meaningful way publicly, but certainly, again, next year when we commence our feasibility, we’ll be running a separate scoping study, looking at some downstream options. We feel the best way to pursue that downstream strategy is by some level of partnership.

“So we’ll bring the raw material, and our partner will bring the IP and also a significant level of the capital required to develop the downstream piece. So that’s likely the preferred course of action we’ll take and, again we’re in discussions already with some some likely partners in that space. So there’s something to look forward to next year.

 

You mentioned MinRes’ position on the register. I’ve obviously got to ask, have they made any takeover approaches?

“Well (laughs) I wouldn’t be sharing that with you if they had. But look, they’ve been a wonderful partner.

“And very happy, obviously, with the quality of the assets that Global Lithium has and they’ve increased their position on the register at each opportunity.

“So that’s probably a demonstration of not only their interest in the projects, but also their support of the team.”

 

 

Global Lithium (ASX:GL1) share price today:

 

 

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