Commodities, Features, Lithium

Australia’s bold lithium moves set to pay off

By Regina Meani

Lithium is mined from three types of deposits: brine deposits, pegmatite lithium and sedimentary (hard rock) deposits, with the majority of the world’s lithium hard rock mines found in Australia.

It is a silver-white light metal and the prices below are based on the spot prices for battery grade lithium carbonate, 99.5 per cent Li2CO3 min traded in China. 

Lithium hydroxide is increasingly used in batteries for electrical vehicles and mobile phones. It is also used in breathing gas purification systems for spacecraft, submarines and in rebreathers to remove carbon dioxide from exhaled gas by producing lithium carbonate and water. 

Among its other uses are in ceramics and cement and to alkalise the reactor coolant in pressurised water reactors for corrosion.

Lithium hydroxide is produced from a chemical reaction between lithium carbonate and calcium hydroxide. 

The largest lithium producers are Australia, Chile, Argentina and China, while the biggest lithium importers are China, Japan, South Korea and the United States.

In mid-2020 the downward trend from 2018, in lithium prices, was broken and the price based around Yuan (CNY) 40,000 before establishing a new upward path that saw the price more than double in less than 12 months (see price graph below).

Liontown Resouces (ASX: LTR) is an Australian explorer and developer calling itself “A next generation lithium producer.” 

The company has four wholly-owned battery metal projects with its flagship Kathleen Valley lithium-tantalum project in Western Australia, 680 kilometres north-east of Perth. Its second hard-rock lithium discovery in Western Australia is the Buldania project located in the Eastern Goldfields province.

The share price for Liontown (top, right) has led a volatile path. Forming a top in 2007, the price fell precipitously to a low of 0.7 cents in late 2008. 

A “V” reversal formed spurring a recovery to 10.3 cents in September 2010 where divergent momentum halted the advance and saw the price fall into a protracted decline finally locating a triple turning point at 0.4 cents in August-September 2015. 

A broad and deep reversal phase ensued with the first stage completed in May 2019, spurring a strong upward path. 

The upswing was interrupted in mid-2019 with a significant pullback which acted to expand the base through until September 2020. Since then, the price has undertaken an accelerated climb achieving a price objective to 50 cents in March this year where a brief pause consolidated the upswing to push higher in June to surpass $1.00. 

The 100 per cent gain for the stock is in line with the lithium price move but taken from its starting point back in May 2019 at five cents, the price has multiplied 19 times over the time period. 

As the price continues to stretch higher, so too is momentum, suggesting that the advance will be interrupted with pause/pullback actions before achieving all of its objectives. Along the upward path the price has objectives to around $1.60, then $2.00 and $2.50.

At the time of writing in early September, support is located around 85 cents and then more importantly at 70 cents. A penetration of this level could signal a deeper pullback phase was underway and buying opportunities for the longer term.

Core Lithium (ASX: CXO) is developing one of Australia’s most capital-efficient and lowest-cost spodumene lithium projects, the Finniss lithium project, located near Darwin Port in the Northern Territory of Australia. 

Its location is beneficial as it boasts the best supporting infrastructure and logistics chain to Asia, the major importers of lithium, of any Australian lithium project.

Following a similar style volatility to the Liontown price movements, the price for Core (below, left) developed a deep and expanded base between 2011 through to December 2020. 

The depth and breadth of the phase suggests significant upward potential for the stock. In its completion of the base and breakaway in December/January the price spiralled from a take-off point at 4.8 cents to halt at 42 cents on January 29 after experiencing a gain of over seven times. 

In response to the steepness and magnitude of the rise, highlighted by extremely overbought conditions, the price corrected to 17.5 cents by March this year. 

At this level the price had achieved a 60 per cent correction of the previous move accompanied by a rebooted momentum. Following the minor reversal and climb back to 29 cents by mid-April the price began oscillating sideways in line with the lithium price and keeping with this to then breakaway and push to a new high at 43.5 cents on August 11. 

Hitting into resistance lines drawn from late 2020, the price dropped back to support in another corrective phase which, may continue to influence the price over the short to medium term. With support located around 30 cents and then around 25 cents with a drop through 21 cents signalling a more serious delay to the upward path. 

Resistance to the upward path would be found in the 50-60 cents range and once through would clear the way towards $1.00 and potentially beyond.

Pilbara Minerals (ASX:PLS) takes its name from its location in the resource-rich Pilbara region of Western Australia and owns the world’s largest, independent hard-rock lithium operation. 

The Pilgangoora operation produces a spodumene and tantalite concentrate. The scale and quality of the operation has brought together a consortium of high-quality, global partners, including Ganfeng Lithium, General Lithium, Great Wall Motor Company, POSCO, CATL and Yibin Tianyi.

The share price history for Pilbara Minerals (below, right) resembles a rollercoaster ride. The price trended down between 2010 and 2013 when it reached a low and turning point at 0.7 cents in October of that year.

Spiking into reversal, the price consolidated a base which empowered it to rise to 81.1 cents in May 2016 where divergent momentum saw the price pullback over several months before finding support in mid-2017 to drive higher.

Reaching to a new high in late 2017-early 2018 at $1.165 the price halted again in momentum divergence and the price toppled into another pullback which escalated and saw the price plunge to a spike low at 12.6 cents in March 2020.   

The action formed part of a head and shoulders reversal triggering a price spiral in November 2020. Rising from the completed base at 42 cents to encounter a parallel barrier at $1.468 by January 22 this year, with the rebuff producing a corrective phase acting as a pause in the steep upward path. 

The price broke away in June pulsing higher to $2.46 in August and the next parallel barrier. The price entered another pause phase which may develop over the short to medium term as the price reboots for its next push higher. 

Keeping with the volatile nature of the price movements, the main support lies around $1.75 with a drop through this level suggesting a more extended corrective phase.

Once the upswing resumes, it will retackle the $2.45-50 resistance zone to move beyond towards $3.00 and potentially much higher.

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