Ganfeng Lithium's Achievements In Overseas Lithium Mining Still Unclear



Ganfeng Lithium's Achievements In Overseas Lithium Mining Still Unclear

On June 15, Ganfeng Lithium issued an announcement on the production progress of its subsidiary, the Australian RIM. This is also a response to public doubt on the lithium supply capacity of the Mt Marion lithium project the company has participated in.

According to the announcement, the Mt Marion lithium project was officially put into production in February, and as of June 15, about 79,000 tons of lithium concentrate had been shipped in four batches. Among them, 38,000 tons have been used by Ganfeng Lithium to produce about 1,600 tons of battery grade lithium carbonate and about 2,800 tons of battery grade lithium hydroxide. At present, production and operation are normal, the product quality is stable, and all the products have been sold. The company said that RIM will accelerate the capacity release of the Mt Marion lithium project and that the next batch of about 50,000 tons of spodumene concentrate is expected to be shipped out in late June.

According to the agreement, the Mt Marion lithium project plans to provide 200,000 tons of lithium concentrate to Ganfeng Lithium this year. But the project only shipped out 15,000 tons and 16,600 tons of lithium concentrate in this February and March respectively. The company hadn't made further announcements on the progress before June 15. The investors are very concerned about the lithium supply capacity of the Mt Marion lithium project.

"We've paid close attention to the progress of the Mt Marion lithium project." Chairman Secretary of Ganfeng Lithium Ouyang Ming said, the project will provide nearly 130,000 tons of lithium concentrate in the first half of this year and is expected to provide 20,000 - 250,000 tons throughout the year.

In July 2015, Ganfeng Lithium announced that its wholly-owned subsidiary Ganfeng International Co., Ltd. ("Ganfeng International") plans to acquire no more than a 49% stake in RIM at no more than USD 61 million. RIM is an Australian company with a 100% stake in the Mt Marion spodumene project. Data shows that the Mt Marion lithium project has 6.75 million tons of lithium oxide.In the meanwhile, Ganfeng International and Mt Marion have signed a long-term exclusive sales agreement, under which during 2016 and 2019, Ganfeng Lithium will exclusively sell all spodumene concentrate with a lithium oxide content of above 6% produced by the Mt Marion lithium project based on the market price. During 2017 and 2019, Ganfeng International will purchase 200,000 tons of lithium concentrate every year.

Calculations based on the data provided by the announcement show that the production of 10,000 tons of battery grade lithium carbonate requires about 86,000 tons of lithium concentrate. The grade of lithium concentrate of the Mt Marion lithium project is above 10%.

"Now it seems that the investment plays a key role in the company's controlling the upstream resources and has solved the company's shortage of raw materials." Ouyang Ming said, "When the company invested in the Mt Marion lithium project, it only showed proven reserves and hadn't started mining. There was some risk."

The China Securities Journal reporter studied the announcements and found that most of the overseas lithium projects Ganfeng Lithium has invested in haven't started mining. In January this year, the company acquired a 19.9% stake in Lithium Americas at USD 49 million. Lithium Americas owns 50% of the Cauchari-Olaroz lithium project in Jujuy, Argentina and 100% of the Lithium Nevada project in the United States. Back then, the two projects only showed proven reserves and hadn't started mining. In May this year, Ganfeng Lithium bought shares in the Australian Pilgangoora lithium project at USD 20 million and the project hasn't been put into production yet. In 2014, the company bought a controlling interest in the Blackstair lithium project in Ireland and the Mariana brine project in Argentina, which are still in the exploration period.

Ouyang Ming told the China Securities Journal reporter that whether by holding a controlling interest in these projects or buying shares and gaining the exclusive selling rights, the company's purpose of establishing a presence in upstream resources is clear - to gain lithium ores. "When a project is not officially put into production, buying its shares and gaining the exclusive selling rights requires a lower investment cost than directly purchasing the products. In the future, the company's "going out" pace will not slow down. If the resources are good, the mining difficulty is not severe, and it's cost-effective, the company will make more acquisitions to control more resources."

In addition to buying shares, Ganfeng Lithium singed a long-term purchase agreement of the Pilgangoora lithium project phase I and II with the Australian lithium exporter Pilbara Minerals on May 4. Under the agreement, the company has the rights to exclusively sell some spodumene concentrate of the Pilgangoora lithium project based on market price. After the project phase I is put into production, the project will provide the company with annual 160,000 tons of 6% grade lithium concentrate for ten years. After the project phase II is put into production, the project will additionally provide 75,000 tons of lithium concentrate per year. If the company purchases additional share offerings of the Pilgangoora lithium project, the project will increase the supply of lithium concentrate for the company to half of the project phase II's output, about 150,000 tons after the project phase II is put into production. When buying shares of Lithium Americas, Ganfeng International also signed an exclusive sales agreement, under which Ganfeng International would exclusively sell 80% of 25,000 tons of battery grade lithium carbonate produced in the first stage after Lithium Americas's Cauchari-Olaroz lithium project is put into production.

The lithium shortage is mainly attributed to the strong demand for power lithium batteries as a result of the explosive growth of the new energy vehicle market.

Driven by the demand for new energy vehicles, the price of battery grade lithium carbonate has risen by 7% this year, and now basically stables at 140,000 yuan / ton, more than doubled in two years from about 40,000 yuan / ton in early 2015.

The explosive growth of lithium battery demand has set off an investment and M&A boom. Since this year, more than 20 listed companies have released a power battery expansion plan, up by 133% year-on-year, and nearly 40 listed companies have accelerated their presence in lithium battery business through mergers and capital increase, etc.

"At present, there are more than 200 lithium battery enterprises in China. The industry will face a big reshuffle." Ouyang Ming said, "Facing the M&A boom in the industry chain downstream, the company will take a differentiated approach to winning market share with technical resources and customer advantages."

According to Ouyang Ming, the company started late in the battery sector, but decided to enter the lithium battery industry based on its optimistic attitude about the industry and considerations for the company's future development. "The company's entire industry chain advantages are prominent during times of resource shortage. The company provides upstream lithium resources for midstream cathode material companies and purchases lithium battery-related materials from those midstream companies to save many intermediate procurement steps."

In 2015, Ganfeng Lithium acquired 100% of Meibai Electronics at RMB 400 million to enter the 3C lithium-ion battery industry. "Through the acquisition of Meibai Electronics, the company has been engaged in lithium batteries to further extend the lithium industry chain to the downstream polymer lithium-ion battery industry." Ouyang Ming pointed out.

In 2016, Ganfeng Lithium intended to raise RMB 500 million through a non-public offering and invest in a project with an annual output of 125 million Type 18650 high-capacity lithium-ion power batteries and an estimated capacity of about 1.2 billion kWh. "This initiative enables the company to be deeply engaged in the lithium battery industry and use Meibai Electronics's relevant experience." Ouyang Ming said.

In 2016, Ganfeng Lithium set up a lithium battery group and invested in RMB 600 million in building the first fully-automated high-capacity lithium-ion power battery production line in Shanxi Province. The Phase 1 investment exceeded RMB 300 million. After put into production, the production line will have an annual production capacity of 600 million kWh. The production line, developed in accordance with industry 4.0, will use nearly 200 industrial robots (300024) based on big data analysis. Currently, the company has signed a strategic cooperation agreement with some domestic new energy vehicle enterprises.Recently, the company is planning to issue non-public convertible bonds and invest RMB 500 million in building a high-capacity lithium-ion power battery project with an annual output of 600 million kWh. After put into production, the project will contribute a revenue of RMB 1.015 billion and a net profit of RMB 144 million to the company.

Although the lithium battery industry is in a period of explosive demand growth, overcapacity has gradually emerged. Wang Zidong, Director of the Power Battery Test Center, a Major Special Electric Vehicle Project of the National 863 Program, told the reporter, "Given the capacity expansion plan of power battery enterprises, their total production capacity will exceed 170GWh/ year, already more than 7 times the demand. According to the national 13th Five-Year" plan for new energy vehicles, the demand for power batteries is expected to reach about 71.7GWh by 2020." A research report of Essence Securities shows that as of the end of 2016, the overall capacity of the power battery industry exceeded 80GWh, but the demand was only 28GWh.

"Due to intensive capacity expansion of lithium battery enterprises, the industry will face low-end overcapacity problems." Zhang Jiangfeng, Secretary-General of the Lithium Industry Branch of the China Nonferrous Metals Industry Association, told the reporter that although the downstream demand drives capacity expansion of lithium battery enterprises, the increase in quantity cannot guarantee simultaneous enhancement of quality.

In fact, many of domestic lithium battery products are hard to meet the quality and cost needs for the promotion and popularization of new energy vehicles and there is still a big gap with international levels in terms of basic key materials, technology and manufacturing process, etc.

"In the context of the intense competition in the lithium battery industry, the company is exploring new technology paths, including solid-state batteries." Ouyang Ming said that the company has a number of ongoing laboratory projects including all solid-state batteries and has the corresponding personnel and technology resources to ensure subsequent development.

In addition, the company has been engaged in ternary precursors apart from lithium batteries. According to the announcement, the 4,500-ton ternary precursor project, built in 2013, has been put into production. During 2016 and 2017, the company has built two lithium-ion battery production lines and acquired shares in CH-AUTO Technology, a new energy vehicle enterprise that specializes in the R&D and sales of Ni MH batteries, sodium sulfur batteries and lithium battery protection devices.

It's learned that Ganfeng Lithium has more than 40 kinds of products in 5 series, including special inorganic lithium, organic lithium, lithium metal and lithium alloy, new lithium battery materials, lithium power and energy storage batteries. The company has a full range of lithium series products with a long product processing chain and comprehensive technology. Meanwhile, Ganfeng Lithium is the only domestic enterprise that owns both the industrial technologies of "extracting lithium from brine" and "extracting lithium from ore". "We have always valued the accumulation of technology, and have offered a variety of products for the lithium industry. For example, a few enterprises offer lithium metal and butyl lithium. But we do, as long as there is market demand." Ouyang Ming said, "Product and technology diversification is conducive to mutual adjustment and gaining more revenue."

At present, as China's lithium battery recycling industry is still in the early stages of development, a closed loop system has not yet formed and the development is relatively slow. Ouyang Ming said, Ganfeng Lithium has some advantages in the recycling of lithium batteries, including existing waste treatment plants and recycling technology.

In order to improve the company's presence in the recycling industry, Ganfeng Lithium set up a wholly-owned subsidiary - Ganfeng Lithium Recycling Technology Co., Ltd. in early 2016, which plans to initially invest its own funds of RMB 12 million in building a lithium-containing metal waste recycling project.

"This project is related to the company's main business and will meet the requirements of rapid growth of the company and the industry after its completion. It is expected to become a new profit growth point for the company in the future." Ouyang Ming said, Ganfeng Lithium Recycling Technology achieved a profit of RMB 10 million in 2016, and will likely recover more than 10,000 tons of lithium-containing waste from the cathode material industry such as lithium cobalt oxide, lithium manganate, ternary materials and lithium iron phosphate.

"In the future, the company will take the path of comprehensive recycling." Ouyang Ming said, "We will recover not only lithium, but rare metals such as cobalt and nickel, and will be deeply engaged in the battery recycling field."

In fact, Ganfeng Lithium has always been committed to comprehensive recycling of lithium resources. Since its establishment in 2000, the company has been engaged in the recycling of lithium containing wastewater.

As a matter of fact, Ganfeng Lithium eyes the lithium battery recycling industry, not only because of the company's technical advantages, but the industry's potential market size.It is predicted that 2018 will be a small peak in the recycling of automotive power batteries. Then, China's power lithium battery recycling market will take shape as the total capacity of waste power lithium batteries will exceed 12GWh and more than 170,000 tons of power lithium batteries will be scrapped, from which metals such as cobalt, nickel, manganese, lithium, iron and aluminum will be recycled, creating a RMB 5.3 billion recycling market. By 2020, up to 200,000 tons of automotive power batteries will be scrapped in China and the recycling market will reach RMB 10.1 billion. With the development of new energy vehicles and the passage of time, the pressure of power lithium battery recycling will become increasingly higher.

Although the potential market size is big, the development of the industry is still not standardized. Ouyang Ming noted that the lithium battery recycling industry currently lacks relevant industry standards. "For example, whether the vehicle manufacturers or battery factories are the primary responsible party and what qualification licenses are needed...There isn't a clear answer to these problems. Currently, the recycling of lithium batteries in the market is mostly done by small workshops. This disorderly development of the industry can easily cause pollution and waste of resources. We call on the government to strengthen the establishment of a lithium battery recycling standard system, and guide the industry towards faster and better development."

Ouyang Ming said that the company has the domestic leading lithium metal smelting and low-temperature vacuum distillation purification technology, and specializes in the large-scale comprehensive utilization of lithium resources and the professional large-scale supply of butyl lithium. "Technical advantages will help the company seize opportunities in the lithium battery recycling sector."

"Technology is the company's traditional advantage, while the lack of raw materials has been the bottleneck in the company's production. The company's capacity has been insufficient in recent years, mainly due to restrictions of raw materials. Now, with sufficient supply of raw materials and explosive demand growth, the company has begun to increase the production capacity of lithium salts." Ouyang Ming said.

Currently, the company's completed and ongoing projects include: the 15,000-ton battery grade lithium carbonate project, put into production in the fourth quarter of 2016 and expected to reach its full capacity in the third quarter of 2017, the 1,000-ton butyl lithium project, expected to be put into production in early 2018, and the 15,000-ton battery grade lithium carbonate and 2,500-ton industrial grade lithium carbonate project, expected to be put into production at the end of 2018 or in early 2019.

Ouyang Ming said the company will produce about 30,000 tons of lithium salts this year. If all the expansion projects are put into production, the total capacity will reach 83,500 tons and the company will become the world's largest lithium salt processing factory. "Of course, the expansion plan depends on the downstream demand, as well as the supply of raw materials."

The lithium salt capacity of the company's competitor Tianqi Lithium is about 34,000 tons in 2017 and if all of its expansion projects are put into production, the total capacity will reach 60,000 tons. By far, Chile's SQM boasts the world's largest capacity of lithium salts, about 50,000 tons.

Driven by the downstream demand for lithium batteries, lithium salt prices have skyrocketed in recent years. But the threshold of lithium salt processing technology is high, and great costs are required. In addition, the acquisition of raw material is also a big problem. Therefore, the lithium salt market is mainly in the hands of a few enterprises.

China's lithium resources are dominated by brine lithium resources from salt lakes, accounting for about 78% of the total reserves and mainly distributed in Qinghai and Tibet. The lithium ore resources account for about 22% of the total reserves and are mainly distributed in Sichuan and Jiangxi. According to a survey of Industrial Securities, about 15,000 tons of lithium carbonate were produced by extracting lithium from salt lakes in 2016. In 2017, the increment only comes from Lanke Lithium - estimated 3,000 tons of industrial grade lithium carbonate. In 2018, the increment will mainly come from the 10,000 ton project phase I of Qinghai Lithium, with an estimated capacity of 6,000 - 7,000 tons.

Industrial Securities believed that the capacity expansion of salt lakes is difficult, the development and construction of salt lakes take a long time and the technology of extracting lithium from salt lakes is demanding. In addition, domestic enterprises lack technology and stable large-scale production ability.

Qi Ding, Chief Analyst of Nonferrous Industry at Essence Securities, told the reporter that in 2016, most domestic companies extracting lithium from ore had a very low capacity of lithium concentrate due to environmental and technological transformation factors. In 2017, except Youngy's Jiajika lithium ore project which is likely to resume production and bring about 30,000 tons of lithium concentrate, there are no other large projects to be put into production in a short term. In the overseas market, the production capacity of Chile's SQM is difficult to maintain at a high level, and is expected to fall by 3,500 tons in 2017. In 2017, the global lithium resource increment mainly comes from two mines in Australia, including the reopening of Galaxy Resources Limited's Mt Cattlin mine and the Mt Marion project in which Ganfeng Lithium holds a 43.1% equity. It's estimated that the spodumene amount to be increased is equivalent to a total of 35,000 tons of lithium carbonate.

According to the data of the Lithium Industry Branch of the China Nonferrous Metals Industry Association, China's basic lithium salt output in 2016 was equivalent to about 87,000 tons of lithium carbonate, up by about 22.5% year-on-year. The China Securities Journal reporter learned that in 2016, Ganfeng Lithium's lithium salt output (lithium carbonate equivalent) was 29,000 tons and Tianqi Lithium's lithium salt output was 26,900 tons, which, combined, accounted for 64% of the country's total output.

Regarding the lithium salt supply and demand situation in the domestic market, Ouyang Ming said it's hard to maintain supply inadequacy from the current point of view and when the demand and supply balance will be broken depends on the downstream demand. At present, many enterprises are optimistic about the downstream demand.

Qi Ding predicted that during 2017 and 2019, the global supply of lithium will be 235,600 tons, 280,600 tons and 362,200 tons respectively, up by 17%, 19% and 29% year-on-year, the global demand of lithium will be 238,900 tons, 280,500 tons and 347,300 tons respectively, up by 21%, 17% and 24% year-on-year, and the difference is -3,348 tons, 116 tons and 14,897 tons respectively, which shows a tight balance will maintain during 2017 and 2018 and supply will gradually exceed demand in 2019.