Global Lithium’s new DSO plans show how confident lithium miners are in the battery mineral’s decade of decadence

• Global Lithium has started a PFS into a 500,000tpa DSO operation at its Manna lithium mine
• It’s a sign producers and developers are bullish a strong lithium will persist in the coming years
• MD Ron Mitchell says downstream customers are desperate for product as EV sales surge

An emerging lithium name will use the Diggers and Dealers Mining Forum today to outline new plans to produce direct shipping ore lithium out of WA in a sign producers see a bullish outlook for lithium prices.

Global Lithium (ASX:GL1) has grown rapidly from its IPO in 2021 to become a $441 million company off the back of its Manna lithium discovery east of Kalgoorlie in WA’s historic Eastern Goldfields.

At a scale of 36Mt and grade of 1.13% Li2O, it sits among the 15 largest undeveloped hard rock lithium deposits globally and is one of just 14 JORC lithium resources held in Australia by ASX listed companies, including its smaller Marble Bar asset in the Pilbara (18Mt at 1% Li2O).

It could be in production as a full scale spodumene concentrate exporting operation by 2026.

But GL1’s management now see the potential to underwrite part of their future construction costs by generating early cash flow over an 18-24 month period with a 500,000tpa DSO operation, selling a product that with ore sorting could be upgraded to eke out more grade.

A PFS is due to be delivered on the new initiative to the company’s board by the end of the September Quarter. But CFO Matt Allen told analysts ahead of Diggers and Dealers yesterday the company sees DSO as an attractive opportunity to churn out early cash flow while the market is buoyant, with GL1 anticipating it can generate value at benchmark prices upwards of US$2500/t 6% Li2O spodumene.

A DFS on the larger operation is due some time around January next year, with an FID expected in 2024. But DSO sales could start as soon as 2025, with plans to begin stripping an open pit subject to approvals in the middle of next year.

The major raw material used in the lithium chemicals that are key to electric vehicle batteries currently trades for around US$3500/t (SC6), three times the cost base of all West Australian producers and 10x the operating cost of the world’s largest mine Greenbushes.

And if miners see DSO as a pathway forward, either through sales to China or offtake to local concentrators, it suggests they see strong market conditions continuing as demand from the EV sector surges.

 

Mitchell: Desperation from the downstream

GL1 MD Ron Mitchell says the move to investigate DSO sales has come after seeing the desperation of customers, especially in China, to procure the special sauce for their lithium chemical, battery and EV businesses.

“There’s been a stream of customers through our office for most of this year and most of last year and there’s a very near term opportunity around DSO. I mean, that is just the reality,” he said.

“We’ve got relationships with the downstream that are far reaching, obviously into China. Really if you want to make money in this industry, China’s where you’re going to make money in the next 12 to 18 months.

“That is the opportunity for us and we feel we’re incredibly well positioned.”

The near surface mineralisation at Manna is amenable to low cost DSO style mining, with a mining lease expected to be granted late this year or early next.

It has also just been subject to heritage surveys ahead of native title negotiations with the Kakarra Part B claimants, and sits just 13km from the Trans Australian Railway, opening a cheap export route through Kalgoorlie to the ports of Esperance or Kwinana.

DSO operations ship more waste and require more refining than spodumene concentrate, so they require higher benchmark prices to be viable.

But Mitchell is confident in the strength of the market, warning supply continued to disappoint.

“I have been in the sector a while and I know how hard is to first and foremost, get projects up, but even from some of the public commentary from the incumbent producers, it’s hard work,” he said.

“So the sell side analysts assuming the market can just double-triple overnight, it’s just not going to happen. It takes time and that’s where the opportunity lies.

“And ultimately, if it wasn’t for the desperation that I’m seeing in the markets on the downstream I’d consider the opportunity low. But I’m seeing real and continuous desperation from the downstream.”

 

Likely to remain strong

As 2500 delegates from around Australia and the world descend on Kalgoorlie for the iconic more than three decade old gabfest, it’s not the gold found by Paddy Hannan, Dan Shea and Tom Flanagan in 1893 that is on everyone’s mind.

While the Super Pit and its shadow looms large over Australia’s mining capital, it’s battery metals that has every analyst, broker and explorer really licking their lips.

GL1’s announcement comes after a similar decision by Core Lithium (ASX:CXO) to ship early tonnes at the peak of last year’s lithium boom from its Finniss mine in the NT as DSO.

Leo Lithium (ASX:LLL) planned the same move from its Goulamina JV in Mali with China’s Ganfeng, though its plans appear to be in doubt amid a long-lasting trading halt pending correspondence from the West African country’s military junta.

In WA the developer of one of two Tier-1 lithium mines planned to enter production next year, Liontown Resources (ASX:LTR), revealed it would look to sell 250,000 to 300,000 tonnes of >1% grade DSO before the start of concentrate production next year at the $895 million, 500,000tpa Kathleen Valley mine.

Delta Lithium (ASX:DLI) has also flagged plans to begin DSO sales from its Mt Ida mine near Menzies as soon as this year.

Shaw and Partners senior resource analyst Peter Kormendy said lithium producers’ increasing confidence in DSO showed their confidence in the continued strength of the market.

It could see the recent boom turning into a Roaring Twenties for the battery commmodity.

“I think they’re confident that the structural deficits we see in the market currently are here until the end of the decade, at least, and probably a few years beyond that,” he said.

“I think the price is likely to remain strong beyond the forecast horizon.”

Lithium carbonate prices tumbled sharply from over US$80,000/t in China to the mid US$20,000/t mark early this year as low grade lepidolite production ramped up in the country which houses the bulk of the EV supply chain.

They have since stabilised and risen to around US$37,500/t, suggesting a floor in the market well above historic levels.

Kormendy says a floor for spodumene going forward could be as high as US$4000/t, with refiners still keen as mustard to secure tonnes in a starved raw material market.

“Anecdotally they are getting inquiries every week, multiple inquiries,” he said.

“So it does look like the demand is a very strong from all of the refiners.

“I think you’ve got cause to be very confident in all of the battery materials really. Lithium and anything on both sides of the battery chemistry, anode and cathode.”

 

A path for major growth

The big question is how quickly supply can catch up to demand, with EV sales continuing to grow at a rapid pace.

The IEA foresees sales lifting 35% to 14 million units in 2023. By way of contrast around 100,000 were sold in the whole of 2012 … worldwide.

In Albemarle’s recent earnings call J. Kent Masters, the boss of the world’s biggest lithium producer, said EV sales had lifted 41% YoY in 2023 YTD, and were up 45% in China despite a slow start as long-running EV subsidies rolled off and ICE carmakers discounted product to get it on the roads ahead of a mid-year ban.

Argonaut mining analyst George Ross told Stockhead the evidence was supply was continuing to struggle, suggesting a positive pricing environment for both incumbent producers and top tier developers will persist.

“I think we’re still on a path for major growth. Supply is still lagging,” he said.

“About a year ago people were asking me about supply and how quickly it was going to come online and I think we’ve just seen now with repeated companies that getting production up to respectable recoveries and those guided in studies is very, very difficult.

“That flows through to supply issues struggling to meet demand.”

He said the DSO announcement and interest in the lower grade product from refiners, battery companies and EV makers showed they were keen to get tonnes of lithium wherever they could as long as it was convertible.

Ross’ long term price marker is more conservative, sitting at around US$1750/t. That would remain highly profitable for producers, a price not seen for spodumene concentrate until the boom of late 2021 and early 2022.

“We’ve got high pricing right now and (DSO) makes a lot of sense,” he said.

“Some people think we’re never going to see (SC6) pricing under US$2500/t again. If that’s the case it’s brilliant for the industry and opens up whole new possibilities about how you can move your project forward.

“For me I just like to be a little bit more conservative.”

 

Consolidation plays

One of the big features of the lithium market this year has been the desperation of large players to secure additional tonnes with mergers and acquisitions, through company scale bids like Albemarle’s rejected $5.5b offer for Liontown and Allkem’s (ASX:AKE) $16b merger with Livent, or strategic investments like SQM’s 19.99% stake in boom ASX explorer Azure Minerals (ASX:AZS).

Both Kormendy and Ross say a company like Global Lithium could be a takeover target in an environment where the big boys and even companies as large as Rio Tinto (ASX:RIO) view the previously obscure lithium as a major ticket item.

“We’ve seen M & A action in the market sort of ongoing,” Ross said.

“We’ve most recently seen (Bill Beament’s) Develop (ASX:DVP) take on Essential (ASX:ESS), which is not far (from Manna), it’s in the neighbourhood.

“You have Develop and MinRes (ASX:MIN) and to me it looks like they’re kind of collaborating in some form.

“To me potentially GL1 somehow gets wrapped up in that mix at some point.

“Maybe GL1 is it’s own standalone operation which is ore sorting — being able to efficiently and effectively ore sort gives you options in how to take the project forward.

“GL1’s new strategy they are trialling at the moment … gives them optionality of how they might get early revenues and in the longer term do they end up trucking that to an existing plant?

“It’ll all come down to the economic modelling of what’s best”.

MinRes already boasts a 9.6% stake in Global Lithium, the same ownership stake as another major shareholder and prospective offtaker in China’s Canmax.

GL1’s Mitchell says he can only focus on building the business, confident with the demand for lithium ahead he can turn Global into a multi-billion business in its own right.

“I can’t comment … on what other companies may or may not be contemplating,” he said.

“Our focus at the moment is building a team that can develop hopefully a multi-billion dollar lithium company of the future and that’s what I’m trying to achieve.”

 

Funding roads open up

Despite its rising scale and popularity, traditional banks remain nervy about funding lithium mines into production.

But new funding routes are opening up, with offtakers increasingly keen to secure supply in a tight market.

GL1 CFO Matt Allen says the company intends to cover half of its DSO construction costs with customer prepay deals. The DSO itself should help generate more cashflow during the build of the Manna concentrator.

“The demand is there in the downstream for locking up supply,” he said.

“I think it’s a unique window, we’re in that next stage of the evolution for lithium as it’s going from an exotic to a bulk commodity.

“I don’t think this existed four or five years ago and it may not be there in four or five years.”

And it isn’t only Chinese companies keen to support Global Lithium into production, with EV and battery market growth evident across the world.

“We want to diversify our customer base away from China, and that’s something I’m astounded by,” he said.

“The number of inbounds we’re taking from whether it’s Korea, Japan, India, North America or Europe, the raw material supply is the topic.

“They’d take 100% of what we can give today. There is a real issue with raw material supply and the more we can supply the quicker it will all get gobbled up.”

Allen says China could take 100% of GL1’s material, but that partnering with companies outside the dominant Chinese market could help GL1 head further down EV value chain.

Until then, the well-funded company will continue to grow, investing $9 million in a 50,000m drilling program to grow Manna, $2.5m at Marble Bar and spending $4.6m for a cornerstone stake to back neighbour Kairos Minerals (ASX:KAI) to make a discovery to the south of Manna.

 

Global Lithium (ASX:GL1) share price today:

 

The post Global Lithium’s new DSO plans show how confident lithium miners are in the battery mineral’s decade of decadence appeared first on Stockhead.

asx
lithium