A strengthening lithium price has substantially improved the outlook for
-Lithium prices likely to trend higher
-Funding outlook for Olaroz and Naraha improves
-Major expansion happening in 2022
Is
Brokers suspect the current supply deficit for lithium is likely to widen and Olaroz is a key lithium brine resource with a Stage I production capacity of 17,500tpa. Guidance for a lithium price of
This underscores the recent feedback
Sales missed estimates in the March quarter but Morgan Stanley believes this requires clarification, which was not provided. The cause may have been delayed shipments, or the company holding back tonnage where possible to realise a better price in the fourth quarter.
While guidance is higher, no grade mix was provided and the broker highlights that a large part of tonnage contracted in the fourth quarter is at lower prices than what
Macquarie asserts earnings in the second half of FY21 are largely unaffected by upgrades to lithium price forecasts as prices are locked in at
Macquarie calculates a larger than expected earnings loss will now be reported for FY21 but the improved earnings outlook eases funding concerns for both Olaroz and the Naraha project (75% interest,
Naraha will convert technical grade lithium carbonate from Olaroz to produce 10,000tpa of lithium hydroxide, allowing further exposure to higher-priced lithium products.
The broker has made material upgrades to lithium price estimates beyond the second half of FY21, which transforms the earnings outlook across the sector. In particular, operating cost assumptions are also revised for Olaroz and Naraha.
Macquarie points out Olaroz generated strong earnings over its first four years of production but widening price discounts and falling lithium prices a year ago materially affected profitability. Yet the latest improved pricing from Olaroz is encouraging and the broker observes the recovery in regional lithium prices is occurring at a faster rate than anticipated previously.
Now, reductions in fixed costs and better prices should mean this turns around in FY22. Construction of Stage 2 was delayed because of the pandemic but is now expected to commence in the second half of 2022 and ramp up fully by the second half of 2024.
Macquarie upgrades to Outperform from Underperform on the improving outlook, driving upgrades of 117%, 32% and 14% to earnings estimates for FY23, FY24 and FY25, respectively.
FNArena's database has three Buy ratings, three Hold and one Sell (Credit Suisse). The consensus target is
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