Dollar Rallies & Copper Slips, Critical Minerals in Political Crossfire, and Lithium Slump Signals Shift
MARKETS UPDATE
Global investors are positioning for higher growth and higher, entrenched inflation. China's prospects, which remain dim, are countering this trend, except for the roaring export sector. Copper has been weakening since Beijing’s disappointing stimulus package, with the sell-off likely exacerbated by a sharp rally in the dollar. The Euro is at a 12-month low, the Canadian dollar is digging deep unseen since the COVID panic, and Japan threatens to intervene to stem the Yen's weakness. Meanwhile, following the recent policy disappointments in Beijing, the PBOC has now cut the daily renminbi rate to the lowest level since September 2023, potentially allowing the renminbi to weaken further.
Critical minerals have been yo-yo-ing since the US election, with the MVIS Rare Earths/Strategic Metals Index remaining volatile and directionless. In general, funds are flowing out of materials, commodities, and energy sectors while seeking exposure to anything smelling of “US” or “USD.” The US market appears heavily overbought as the main US index ETFs trade over 10% above their 50-day moving average, a rare event. (1)
GEOPOLITICAL INSIGHTS
The multiple plots surrounding the critical minerals value chain have considerably thickened in the last 10 days. Several of America's key allies are attempting to anticipate the avalanche of "US tariffs," and the neo-feudal queue of petitioners in front of Mar-o-Lago’s golf course is getting longer by the hour.
Australia and Canada are among the potential losers of the upcoming changes to the global trade regime. In both nations, the governments are weak, while conservative parties happen to be in the opposition, which does not facilitate the dialogue with America’s emerging leadership.
Over the last three years, Canada has positioned itself as integral to North America's electrification drive. Investment in upstream and midstream capacities was supposed to link Canada’s mined and processed materials with the automotive powerhouses on both sides of the border. However, before his election, the Republican candidate for the White House warned that he would impose a minimum 10% tariff on "all" US imports. Special exemptions for Canada were nowhere to be seen.
Implementing such a policy could shave between 1.7% and 2% off Canada’s real GDP by the end of Trump’s presidency. With difficult trade talks ahead, Trudeau’s government appears to opt for a joint "anti-China" bloc with the United States. Last week, Canada's Prime Minister adopted this line by saying that his country was "aligned with the US on tackling overcapacity from China," which is actually true. Ottawa has followed Washington with 100% tariffs on electric vehicles imported from the PRC and 25% tariffs on Chinese steel and aluminum. Helpfully for Ottawa, Deputy Prime Minister Chrystia Freeland has maintained the warm personal relationship she forged with Trump's former trade chief, Robert Lighthizer, during the USMCA (US-Mexico-Canada Agreement) negotiations in 2018. Personal agency and relationships will count for a lot in this post-globalized contest.
Other Canadian leaders are clearly aligning with the tough talk emanating from Mar-o-Lago. Ontario Premier Doug Ford stated he wants his country to negotiate a separate trade agreement with the US unless Mexico aligns itself with its North American partners on Chinese imports. Ford dubbed Mexico "a backdoor" for Chinese goods flowing into Canada and the US. “They shouldn’t have a seat at the table or enjoy access to the largest economy in the world. We must prioritize the closest economic partnership on earth by directly negotiating a bilateral US-Canada free trade agreement that puts US and Canadian workers first.”
But tough talk is cheap these days. "If you put 25 percent tariffs on me, I have to react with tariffs," Marcelo Ebrard, Mexico's economy minister, retorted this week, referring to the looming pressure from Robert Lighthizer. It is unclear what a pro-Chinese stance can earn Mexico. Will ultra-cheap Chinese EVs produced in Guanajuato or Toluca end up in Guatemala instead of the US? Leaving Mexico to drift into the Chinese orbit would be an extraordinary development for the United States. It would happen precisely 200 years after Antonio Lopez de Santa Anna abolished Mexico's constitution, triggering the events that led to Texas's independence.
Serious concerns have also surfaced in America's other "five-eye" ally - Australia. To avoid the crisis in relations triggered by the 2016 election, Canberra has been working behind the scenes to build bridges with Trump's team. In October, Foreign Minister Penny Wong met with Trump’s former Secretary of State Mike Pompeo in Washington. At the time, Pompeo emerged as a leading contender to reclaim his former position. Meanwhile, Australia's Treasurer Jim Chalmers met with Trump's economic adviser, Scott Bessent, widely regarded as the frontrunner for Treasury Secretary in the new administration. Bessent, who heads the macro hedge fund Key Square Group, is not an isolationist. He has called tariffs a "temporary tool" in negotiations and, earlier this year, spoke in favor of expanding the Biden administration’s “friendshoring” strategy, thus creating a tiered system among America’s partners. In such a system, countries that help further the goal of a weaker dollar would be rewarded with trade advantages. More recently, however, he expressed his enthusiasm for strengthening the US dollar.
Europeans won’t be in a position to meaningfully craft a standard policy vis-à-vis Washington until the elections in Germany, which are now expected to be held in February. Brussels is too busy handling its own trade conflict with China to entirely focus on golfing at Mar-o-Lago.
Back in 2016-20, Beijing managed to play off the EU against Washington, a charm offensive that almost resulted in an investment agreement just days before Biden’s inauguration. The CCP sank the opportunity when the regime sanctioned several Members of the European Parliament for raising the issue of concentration camps in East Turkestan.
One reason a rapprochement between Brussels and Beijing is less likely this time is the electrification value chain. The European Commission continues negotiating with Beijing to find ways to avoid tariffs slapped on Chinese EVs. Just two weeks before the new EU Commission takes office, the prospects of a negotiation breakthrough remain dim.
To sidestep a harsher tariff regime, the two sides have been exploring an agreement on so-called price undertakings—a complex mechanism to control prices and volumes of exports that would match the effect of the recently imposed import duties. The EU insists on the strict enforceability of such an agreement, but the Chinese side refuses to budge on these requirements.
Failure to reach an agreement on this issue reduces the negotiations to establish a communication mechanism between the two sides. Brussels is also keen to avoid the risk of so-called "cross-compensation," whereby any minimum prices on imported EVs would be offset by sales of complementary goods (e.g., accessories) or substitutes (e.g., hybrid vehicles).
Another bone of contention concerns the EU's insistence on reaching agreements with individual carmakers. The EU claims that such deals would be compliant with the World Trade Organization’s rules, while the Chinese side fears nothing more than the loss of total control over its carmakers' global strategy.
Beijing filed a request with the WTO to hold dispute consultations on the EV tariffs. The Geneva-based organization is scrambling to advance specific dossiers ahead of the inauguration of the new President in Washington. The organization’s chief since 2021, Ngozi Okonjo-Iweala, has been nominated as the only candidate to run the trade body in the next four years. She’s up for quite a challenge this time around.
SUPPLY CHAIN OBSERVATIONS
Finally, we have good news in critical minerals sectors. Miners are in Trumpanic.
Lithium miners are following in the footsteps of their nickel sulfide counterparts, scaling back production, delaying projects, and mothballing plants. Seasoned commodity traders recognize this pattern—the groundwork for the next major rally is being laid.
Liontown Resources, the erstwhile poster child in Australia’s second lithium boom, has trimmed production plans for its flagship Kathleen Valley mine. The revised production plan aims to lower capital expenditure in the next five years through reduced underground development and a focus on higher grades. Plant throughput has been reduced from 3Mtpa to 2.8Mtpa, where higher grades are expected to offset lower volumes, yielding AUD $100 million in savings. The company has kept an option to boost production levels should lithium prices recover. However, the company's capital commitments may create a liquidity crunch without pricing improvement.
Liontown is not alone in staring into the dark pit of pricing realism. In October, Pilbara Minerals said it would temporarily suspend a processing plant from December to reduce expenses and freeze the construction of a midstream demonstration plant in partnership with Calix. Meanwhile, Mineral Resources has cut guidance at its Mt Marion mine, announced that it has trimmed its workforce at its lithium operations, and would produce less battery feedstock “to meet current market conditions.” This week, the company announced that its Bald Hill operation will be put on care & maintenance. Lithium’s bruised fans will recall that previous owners of this asset were placed in administration during the last slump in 2019, shortly before the market's stunning recovery in 2020.
Earlier this year, Arcadium Lithium halted operations at its Mt. Cattlin mine near Ravensthorpe, Western Australia. (Interesting sidenote: Mt. Cattlin is where Amvest Terraden’s Stuart Macliver and Tomasz Nadrowski first met.) Arcadium's production dropped by 6% in the last quarter due to weaker markets and slower production ramp-up of its Olaroz Stage 2 expansion project in Argentina. At USD $16,200/t, the realized combined pricing for lithium hydroxide and carbonate for combined volumes was 6% lower than in the second quarter.
Albemarle is not far behind. The world’s largest producer, which has already shut half its processing capacity in Australia, announced last week that it would cut 6-7% of its global workforce and shrink 2025 capital expenditures by 50%. The measures are expected to save about USD $300-400 million annually. Shorts sitting on the stock in New York were promptly squeezed, sending the name up 10%.
Australian producers are not the only ones suffering. Chinese lepidolite production fell 21% in October after some smelters in Jiangxi went offline. China’s lithium brine operations reportedly saw a 3% production fall of lithium carbonate equivalent. Salt lake output at high-altitude operations in Qinghai has slowed due to seasonal effects (high precipitation levels in the third quarter). However, raw materials shortages in Jiangxi point to more structural reasons for the production drop.
Every commodity veteran knows mine closures are precisely the signal to shell out on the sector. The short-term negativity, spurred by an untested view that the US election results will undermine growth in battery- or magnet-intensive technologies, may offer that perfect opportunity that we usually contemplate ex-post, with a 20/20 hindsight.
MINING & EXPLORATION NEWS
Toronto and New York-listed vanadium and titanium producer Largo Inc. released quarterly results for its operations at Maracas Menchen Mine in Bahia, Brazil. The production reached 3.1kt of vanadium pentoxide, a 41% year-on-year improvement; however, at 2kt, sales were lower than in Q323. Prices continue to suffer, down 25% year-on-year. During the quarter, Largo sold its product at USD $6.3/lb, which caused a significant drop in the top line (USD $30 million, compared to USD $44 million in 2023). Cash costs after royalties average USD $3.1/lb. Reduction in haulage distance and a tighter control of mining contractors are bringing results. Still, the mining division's EBITDA is challenging, offset mainly by downstream activities (Largo Clean Energy division and vanadium LPV fund). Largo is negotiating with Stryten Energy to establish a 50/50 JV in the US for the downstream vanadium business. Largo has recently signed a USD $23.5 million vanadium-secured loan, allowing access to additional liquidity. On the titanium side, Largo aims for a full ramp-up of the ilmenite plant by 2029 and a full ramp-up of the TiO2 pigment plant by 2031.
Australian-listed rare earths developers Viridis and Ionic Rare Earths have announced the incorporation of Viridion, which will function as the commercial vehicle for their joint venture. The partnership seeks to fast-track the production of separated rare earth oxides from either mixed carbonate or from spent magnets, which will be recycled using Ionic's technology, which is being rolled out in Belfast, North Ireland. Scoping studies for an oxide refinery and magnet recycling facility are expected to commence in January, with the JV currently assessing several potential pilot plant locations proximal to the Viridis Mining’s Colossus project in Minas Gerais state. Viridis and Viridion have signed a Memorandum of Understanding with SENAI / FIEMG Innovation and Technology Center of Minas Gerais, which owns Lab Fab, the first rare earths magnet laboratory in South America. Viridis has also released another batch of metallurgical test work results for the bulk sample from the southern concessions (Cupim South and Centro Sul) at its Colossus Project in Minas Gerais. The sample showed 4,561ppm of total rare earths oxide, of which 33% were in the magnet (neodymium and praseodymium, although Viridis also includes heavies in this category). Recoveries were 82% for NdPr (very high) and 67% for dysprosium and terbium. Somewhat less acidic solutions actually improved the recoveries marginally. These results are superior to Viridis’ northern concessions.
London-listed Kodal Minerals has finalized terms with the Government of Mali to transition the Bougouni lithium project mining license to the new (2023) mining code. Under the agreement, 35% of the joint venture company will be transferred to the Malian government, comprising the standard 10% free carry and an additional 25% equity—valued at just USD $4.3 million. The government’s equity interest cannot be diluted below 35% in the event of any capital increases in the JV. The remaining 65% of the entity will be held by the Kodal JV (“KMUK”), which is 49%-owned by Kodal and 51% by China’s Hainan Mining. Therefore, Kodal's stake in the Bougouni project stands at 31.85%. The mining license must be renewed after 10 years. The British/Chinese consortium also yielded to Bamako by agreeing to the USD $15 million cash payment, allegedly triggered by Hainan's acquisition of 51% of KMUK. Such payments, potentially construed as "capital gains" taxes, cast a long shadow over future mining transactions in Mali.
US-listed rare earths producer MP Materials has announced a doubling of its share repurchase program, raising the total authorized amount to USD $600 million. The company has so far repurchased an equivalent of 8.6% of the company for USD $225 million. In the third quarter, oxide sales stood at 9,729 tons, up 66.6% sequentially from the operationally challenged second quarter. Realized prices increased 5% to USD $4,425 per tonne. Record production of 478 tons of magnet oxides (neodymium and praseodymium) marked a 75.7% jump from the second quarter. Higher mineral recoveries and operational efficiencies have contributed to a 17% improvement in revenue year-on-year.
South Australia’s Eyre Peninsula never ceases to attract mining hopefuls, whether in iron ore, manganese, graphite, or rare earths. This time, it's Cobra Resources's turn. The ASX-listed firm reported that bench-scale testing had been completed and confirmed the suitability of the Boland rare-earths project in the region. Importantly, they plan to use low-impact in-situ recovery (formerly known as "in-situ leaching"). The test work has shown improved recovery rates, with total rare-earth oxide rates rising from 50% to 56% and recovery of the more valuable magnet rare-earth oxides increasing from 48% to 57%. In general, numbers below 60% are not stellar, but the tests showed low levels of harmful elements and low acid consumption.
Malawi-focused rare earths developer Lindian Resources has attracted attention with outstanding project numbers – 23Mt of reserves for a mere USD $40 million capex, USD $2.72/kg operating costs, no significant amounts of (deleterious) uranium or thorium, low chloride, simple mineralogy that does not require a flotation circuit. Faced with market skepticism, the management broke down the astonishingly low capex number (USD $4 million for contingency, USD $20 million for plant, USD $10 million for civil works, and USD $5 million for management costs). Given the contained size of the operation during Stage 1 and no need for pre-stripping, these numbers might indeed prove close to the mark. Financing for the project has taken longer than expected. Separately, Lindian has now announced a binding lease and royalty agreement with local enterprises for a 10-year lease agreement and operating rights over the Woula bauxite project in Guinea. The lessees have committed to advancing Woula to construction within 8 months and the first production of the average annual output of ~2Mtpa. Lindian will receive a royalty of USD $1-2/t of bauxite produced from the Woula tenement in perpetuity, contingent on the ownership structure of the producing entity. The lessees are in the process of securing Woula's exploitation license.
US-listed Lithium America (Argentina) reported its third-quarter results. At Caucharí-Olaroz, the company's flagship brine asset in Jujuy province, LAAC produced 6.8kt of lithium carbonate, a 21% improvement over Q2 numbers. The project currently operates at 75-80% of design capacity (40ktpa). Operating costs were not disclosed. Most of the lithium carbonate produced at Cauchari-Olaroz is being sold to Ganfeng Lithium, LAAC’s Chinese partner, at an average price of USD $8,000/t. LAAC holds USD $92 million in cash and cash equivalents and USD $75 million undrawn on its credit facility with Ganfeng. During the quarter, LAAC closed the transaction whereby Ganfeng acquired 15% of the Pastos Grandes project for USD $70 million. Lithium Americas Argentina is also working with Ganfeng on additional long-term financing options to support its long-term growth plans, such as the possibility of a local bond offering.
Following the sacking of the German coalition's fiscal cerberus and the resulting implosion of the ruling coalition, ASX-listed Vulcan Energy secured EUR €100 million in funding from Bundesministerium für Wirtschaft und Klimaschutz and from DARP (der Deutsche Aufbau- und Resilienzplan). The funds are being provided within the support framework for efficient heating networks to enable the decarbonization of district heating networks (in this case, in Landau, Rheinland-Palatinate). The company has also announced the production of the first lithium hydroxide at its demonstration lithium processing facility in Frankfurt. Lithium chloride recovered using the adsorption-type DLE method (direct lithium extraction) was processed into hydroxide at Zentrale Lithiumelektrolyse-Optimierungsanlage. Several off-takers, including Stellantis, Renault, LG, and Umicore, will perform qualification test work. Vulcan hopes to produce 24ktpa of hydroxide at a cost of EUR €4,000/t C1 cash. The company expects to raise a total of EUR €1.9 billion in project finance, including a planned EUR €600 million in equity, with the remaining EUR €1.3 billion via bank loans.
SOURCES: (1) Market Data from Bloomberg as of 10:00 AM ET, November 15, 2024, in the local currency. (2) Additional data courtesy of Albemarle Corporation (ALB US), Beowulf Mining PLC (BEM LN), Calix Ltd. (CXL AU), Energy Fuels Inc. (UUUU US), First Tin PLC (1SN LN), Guardian Metal Resources PLC (GMET LN), Hancock Prospecting Pty Ltd (private), Hinkinite Resources LLC (private), Ioneer Ltd. (INR AU), Keras Resources PLC (KRS LN), Liontown Resources Ltd. (LTR AU), PhoSul Utah LLC (private), Pilbara Minerals Ltd. (PLS AU), Power Metal Resources PLC (POW LN), Skydio, Inc (private), and Syrah Resources Ltd. (SYR AU).
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