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With global supply and demand dynamics tightening, lithium producers that are able to expand capacity should realize increased profits, which can be reinvested into additional value-added segments of their businesses.
Pure-play lithium producer Talison Lithium Ltd. (TSX:TLH) has reported that its third quarter net earnings increased to $8.2 million, an improvement of 112 percent from the previous year, as a result of record revenue and increased prices.
The Australia-based hard-rock lithium miner increased sales of lithium concentrate by 27 percent from the same period a year ago. Talison also reported a six percent increase in the production volume of lithium concentrate during the third quarter.
Talison aims to position itself to adjust capacity volume in response to changing market conditions with the completion of the Stage 2 expansion of the Greenbushes lithium operation in Western Australia. The company confirmed that work on the expansion continues to progress on budget and on schedule, with commissioning having started and completion anticipated by the end of June. As of the end of March the company had $85.1 million in cash on its balance sheet.
Nascent growth
Earlier in the year, Peter Oliver, CEO for Talison Lithium, explained operational problems from the previous quarter, stating, “we had an issue at the port. The product was there and the port was unable to load it. Obviously those [lithium] sales flowed through into January and will add up to a huge month for the next quarter.”
Talison outlook
In a conference call with investors, the company provided details for guidance on the current year as well as its expectation for the following twelve months. The company expects to reach sales targets ranging from approximately 350,000 to 360,000 tonnes of lithium concentrate for the current year. The outlook for the following year is bullish, with demand for lithium-based applications such as smartphones and tablets remaining favorable in the primary Asian markets.
Lithium prices on the rise
Highlighting the tightening of the global supply of lithium, Frank Wheatley, Executive Director of Corporate Affairs and Strategy for Talison Lithium recently presented at the Dahlman Rose Rare Earth Elements Conference. He commented, “we have increased our prices 15 percent for the first half of 2012. The two types of products that we produce are technical grade products. We set those prices once a year so we have a 15 percent price increase for calendar 2012. On our chemical grade products we price those once every six months, and our marketing department is just now entering into discussions on pricing for the second half of 2012. I do not have any guidance I can give you on prices now other than the supply and demand dynamics are still very tight. So we are anticipating an increase in prices.”
On Monday, Rockwood Holdings Inc. (NYSE:ROC), the parent of Rockwood Lithium, announced global price increases for its lithium salts – in particular for lithium hydroxide and lithium carbonate – as contracts permit, of up to $1,000 per metric tonne. Lithium hydroxide is mainly used for the production of lithium grease, which is generally useful because of its high resistance to water and utility at both low and high temperatures. Lithium carbonate is used for manufacturing most lithium-ion battery cathodes and carbon dioxide sensors, and is a common ingredient in both low-fire and high-fire ceramic glazes.
This news is significant for investors as well as for other lithium producers as it provides additional support for the Talison presentation. It also confirms Rockwood’s previous quarter results, which revealed that battery-grade lithium sales in the first quarter more than doubled compared to the same period last year. As this increase implies confidence in continued demand for this quarter, other producers may also raise their prices, which could result in the commercial viability of lithium development projects. Further, as exposure to the underlying lithium resource becomes of greater market value, these developments are helpful in providing a positive environment for increased investment activity as well as potential merger and acquisition activity.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.