Material Matters: Lithium’s Debate Continues

This story features LIONTOWN RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: LTR

Lithium prices are at or near their low point and equity valuations are no longer overstretched.

See also: https://fnarena.com/index.php/2025/01/13/the-lithium-transition-a-recap-of-2024-thoughts-on-2025/

-Lithium prices stabilise, equity valuations more reasonable
-Some analysts feel the lithium price is at or near a low
-December quarter result previews
-Lithium brine producers provide an alternative, notes Goldman

By Mark Woodruff

As December quarter operational results approach for ASX-listed lithium miners, analysts are releasing previews alongside in-house views on the outlook for lithium prices.

Morgans highlights current spot prices for Australian spodumene concentrate have stabilised and are now higher than those achieved in September 2024. Despite this, related equities have seen significant declines since that time.

For example, during the December quarter, share prices for Liontown Resources ((LTR)) and Pilbara Minerals ((PLS)) both fell by -33%, while IGO Ltd ((IGO)) shares experienced a -17% decline.

Canaccord Genuity explains average spodumene concentrate pricing fell by -3% quarter-on-quarter, with chemicals pricing declining between -4% and -13%, as demand concerns and oversupply continued to weigh on the market.

Since the end of September, spodumene prices have ranged between US$800/t and US$890/t, compared to lows of around US$730/t in August.

UBS now believes the lithium price has likely bottomed and Canaccord Genuity also expects a bottoming of the commodity through 2025 before pricing gradually improves into 2026.

Ahead of this anticipated recovery, Canaccord has lowered its near-term lithium price forecasts for spodumene and chemicals by -15% and -20%, respectively, contributing to falls in 12-month price targets for Liontown, Pilbara Minerals and IGO Ltd of respectively -25%, -8%, and -7% to 60 cents, $3.60, and $4.30.

UBS recently made small upgrades to its 2025/26 spodumene pricing forecasts.

Having been underweight the sector for more than 18 months, this broker feels equity valuations are no longer stretched.

In contrast, Goldman Sachs expects without a substantial and unexpected surge in demand, lithium market softness will continue in 2025, with existing producers likely to focus on further cost/production optimisations.

Headwinds from lithium supply

While acknowledging better value on the share market, UBS and Goldman Sachs remain cautious about the potential for significant upside in lithium prices.

UBS sees only a limited likelihood of an immediate price spike while latent capacity persists.

Ahead of more supply cuts rebalancing the market, equities already look to be pricing a rapid improvement in prices, according to the analysts, who remain largely Sell-rated the sector.

Goldman continues to expect lithium prices will remain weak on a 12-month view, despite Australian lithium names increasingly trading on more in-line longer-term multiples, after an extended period of disparity.

In explaining latent capacity, UBS points to mines on care and maintenance such as Contemporary Amperex Technology Co Limited’s (CATL) Jianxiawo, Pilbara Minerals’ Ngungaju, and the Bald Hill operations at Mineral Resources ((MIN)).

Canaccord believes the lithium market remains well supplied and while announced cuts will help the balance later in 2025, there is still supply being added to the market.

In such a range-bound pricing environment, this broker expects the focus will be on an individual company’s medium- to long-term growth plans and management’s ability to fund them.

Result Previews

From among recent broker coverage in the lead up to December quarter results, the most discussed stocks are Liontown Resources, IGO Ltd and Pilbara Minerals.

Buy-rated Pilbara Minerals is Canaccord’s top pick under coverage as management has taken steps to lower the cost base and continues to see benefits from the P680 Expansion Project at the Pilgangoora operation in Western Australia.

Regarding the cost base, the company announced plans last October to place the Ngungaju Plant at Pilgangoora into care and maintenance.

For the quarterly results, the analysts expect production to decline due to the plant shutdown and forecast shipments of 183,000t, with costs decreasing by -6% quarter-on-quarter to US$452/t.

Pilbara Minerals also remains Morgans’ key pick in the lithium space, seen offering both short and long-term value.

IGO Ltd is Macquarie’s preference in the space.

In December last year Macquarie upgraded IGO’s rating to Outperform from Neutral, noting the company remains the lowest cost producer in hard rock lithium.

In a preview of quarterly results yesterday, the broker notes its spodumene production forecast from Greenbushes of 374kt sits 6% above market consensus.

The full-year production forecast is in the upper half of the guidance range of 1,350-1,450kt given competitive production costs and management’s ongoing focus on productivity.

For Hold-rated Liontown Resources, Morgans forecasts December quarter spodumene shipments from Kathleen Valley of 59kt, in line with consensus expectation for 61.7kt.

This week, Morgans reduced its target for Liontown to 60 cents from 80 cents after revising production and cost assumptions for the Kathleen Valley project, following an updated mine plan released last November.

The revised plan now anticipates a throughput rate of 2.8mt per annum by FY27, down from the previous expectation of 3mtpa.

Ahead of a recovery in prices, UBS suggest cashflow and funding remain in focus for Sell-rated Liontown (target 50 cents).

Alternative lithium exposure?

Goldman Sachs expresses a preference for lithium brine producers over traditional hard rock miners, based on the more competitive cost structures associated with brine extraction methods, especially in the current environment of declining lithium prices.

Brine extraction is generally less energy-intensive and has a lower carbon footprint compared to hard rock mining, which requires significant energy for blasting and crushing ore.

The broker points out a number of global oil and gas producers have recently shown a growing interest in lithium, particularly across North American brines.

ASX-listed exposures with exposure to brine-based lithium projects include Arcadium Lithium ((LTM)) which has Olaroz and other South American brine assets. Arcadium is about to be acquired by Rio Tinto ((RIO)).

Galan Lithium ((GLN)) also has the Hombre Muerto West and Candelas Projects in Argentina.

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