Battery Metal Rout Set to Force Unprofitable Miners to Cut Costs

(Bloomberg) — A wave of cost cutting and potential consolidation looms for lithium and nickel miners in the year ahead, with no short-term relief in sight for the key battery metals sector after a poor earnings season.

Three Australian-based lithium miners — PLS Ltd. (formerly Pilbara Minerals), IGO Ltd. and Mineral Resources Ltd. — each posted their largest first-half losses in more than six years, and delivered no dividends to their shareholders. 

Meanwhile, Nickel Industries Ltd. posted a $169 million loss for its full year, despite operating low-cost mines in Indonesia, while South32 Ltd. announced it was investigating the potential divestment of its nickel project in Colombia.

The profit slump has been mirrored by the downturn in prices for lithium — down more than 80% since 2022 — and nickel — which have halved since the start of 2023. 

The impact of the ongoing global rout in prices, coupled with inflation and high costs, is forcing miners into a new era of capital discipline, and could trigger a new wave of consolidation through takeovers down the track, according to Wood Mackenzie Ltd. analyst James Whiteside.

“Both the nickel and lithium markets look likely to remain substantially in oversupply until the end of the decade,” Whiteside said. “A lot of producers are burning cash, so any non-essential spend will remain curtailed,” he said.

Richard Knights, an analyst at Barrenjoey Markets Ltd., agreed. 

“That’s been the case for some time since the fall in lithium and nickel prices – everyone is trying to run these projects as thinly as they can,” Knights said.

Prices of lithium have failed to rebound from a crash caused by softer electric vehicle demand and oversupply as miners have brought rapid production online since 2022. Several miners have curtailed output, shuttered mines, and paused investment on expansion projects in the past 12 months. 

Chinese lithium giants Tianqi Lithium Corp. and Ganfeng Lithium Group Co. are yet to announce their full-year results, but in preliminary statements they reported net losses of $1.1 billion and $152 million, respectively.

Meanwhile, Indonesia’s nickel boom which took the industry by surprise just two years ago has decimated Western miners of the material. The world’s top miner, BHP Group, shut down its Nickel West business in October.

Even Nickel Industries, which operates in Indonesia alongside partner Tsingshan Holding Group Co., wasn’t immune to the slump. Its loss included a $205 million impairment after low prices, and it said Monday in a report that “should margins remain low for a prolonged period, further impairment of carrying values may be required.” 

Nickel Industries Managing Director Justin Werner said a call that the current environment was “very challenging” with “multi-year lows across the nickel market.”

Meanwhile, lower enterprise values for lithium and nickel companies may present deal-making opportunities as prices stay depressed. Rio Tinto Group last year announced the acquisition of Arcadium Lithium Plc. Barrenjoey’s Knights said there was a likelihood of further consolidation this year, particular in the lithium space.

“M&A activity is typically elevated during periods of price stability,” Wood Mackenzie’s Whiteside said. “There may be a window of opportunity for deals to be finalized,” he said, adding: “It’s cheaper to buy than to build in nickel at current valuations.”

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