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China’s top lithium miner eyes stake sale

Not in the red. Greenbushes lithium mine is located 250km south of Perth. (Image courtesy of Talison Lithium.)

China’s Tianqi Lithium Corp., the country’s top producer of the battery metal, said on Wednesday it would post a net loss in the first quarter of 2020, adding pressure to take aggressive measures, including stake sales, to pay back over $6 billion in debt. 

The Shenzhen-listed miner warned losses for the first three months of the year will amount to between 450 and 510 million yuan ($64-$72 million) compared with net profit of 111 million yuan ($16 million) in 2019. 

It attributed the estimate mainly to weak lithium prices, coronavirus-related disruptions that effected sales, and foreign exchange factors.

Tianqi attributed the expected loss to weak lithium prices, coronavirus-related disruptions that effected sales, and foreign exchange factors

Among the measures to reduce debt, Tianqi is said to be exploring a partial sale of its stake in Greenbushes mine in Western Australia, the world’s largest hard-rock lithium operation, according to the Australian Financial Review.

The move would be a setback for the miner, which went from being a provincial company to joining the world’s largest producers of lithium in less than a decade.

Tianqi invested heavily over the past two years in an ambitious global expansion plan aimed at securing its leadership in the lithium market, putting China in a dominant position just as sales of electric vehicles (EVs) took off.

A collapse in price for the metal used in the batteries that power EVs and high tech electronics, has thwarted its plans and those of its rivals.

Ganfeng Lithium said in its own earnings alert this week it expected first-quarter net profit to fall 96-97% year-on-year.

Albemarle (NYSE: ALB), the world’s No. 1 lithium producer, postponed last year plans to add about 125,000 tonnes of processing capacity. It also revised a deal to buy into Australia’s Mineral Resources’ (ASX: MIN) Wodgina lithium mine and said it would delay building 75,000 tonnes of processing capacity at Kemerton, also in Australia.

world's top reserves of lithium according to USGS
China generates less than half the average of lithium output produced by the world’s top producing countries.

Chile’s Chemical and Mining Society (SQM), the world’s second-largest producer of the metal, has shown signs of distress, pushing back a key expansion at its Atacama salt flat operations from the end of 2020 to late 2021.

Canadian lithium miner Nemaska Lithium (TSX: NMX), which was backed by Japan’s SoftBank, filed for bankruptcy protection in December.

The main factor behind the price slump has been the avalanche of new supply that hit the sector over the past year, triggered mainly by mine expansions and a cut in government subsidies for buyers in China, the world’s largest EV market.

Falling demand

While long-term prospects for the metal are positive, global demand for the year will be 25% lower than pre-coronavirus forecasts, according to commodities consultancy Roskill Information Services. This is the market in which Tianqi will need to find a way to cover a $3.5 billion loan from state-owned Citic Bank, due to be repaid in November this year.

The Chinese miner used most of the funding to buy almost a quarter of SQM in 2018. It also grabbed 51% of Australia’s largest lithium mine, Greenbushes, last year and completed a $400 million lithium hydroxide processing plant outside Perth.

In December, Tianqi raised about 2.93 billion yuan ($424 million) in a rights issue, less half the 7 billion yuan it was seeking to help pay down the Citic loan. The Greenbushes mine, in which Tianqi has a 51% stake, is considered one of the world’s best lithium assets. Albemarle owns the other 49%. The asset is operated by their joint venture Talison Lithium.