With the drop in lithium prices plateauing after pulling back to lows not seen since 2021, there is the potential for opportunistic mergers and acquisitions (M&A) in the lithium industry, according to analysts at Stifel GMP.
In a note to clients, the analysts wrote that many factors were currently colliding within the electric vehicle (EV) verticals, starting with the negative rate of change on lithium pricing in China plateauing for the first time since November 2022.
“This past week, we saw China spot prices realize their first weekly gain since November, with spot battery-grade carbonate up 3% week-over-week,” they wrote.
“Valuations within the lithium space have responded, in part. Within our coverage universe, the lithium developers are trading at a P/NAV of 0.44x, versus a 12-month average of 0.53x and a high of 0.58x in early February.”
With the mining industry’s financial strength at or near 20-year highs, M&A is the preferred avenue for growth, the analysts added.
“That the metals and mining industry, and specifically lithium industry, could be entering a new wave of merger and acquisition activity should come as no surprise,” they wrote.
“Sticky cost escalation, capex blowouts and permitting challenges are just a few of a multitude of reasons we see miners viewing buying better than building.”
They added that they see two potential avenues for increased M&A activity in the lithium space this year.
The first, incumbent lithium producers protecting their market share and buying developing assets on the doorstep of new EV supply chain build-outs, the analysts wrote.
“We note recent Chilean policy potentially leaving the door open for the state to acquire majority interest in domestic state deemed 'strategic projects' has the ability to lessen certainty for new large capital private investments, and thus leaves Australia and Canada as front-runners for IRA compliant, conventional spodumene projects,” they wrote.
“We have already seen evidence of this with Albemarle's rejected $3.7 billion cash offer for Liontown Resources (ASX:LTR)' construction stage Kathleen Valley, and the company's recent $1.5 billion processing expansion at Kemerton, both located in Australia.”
The second potential avenue is that diversified miners now see lithium as too big to ignore and break into the industry with the acquisition of low-cost, scalable assets, Stifel’s analysts wrote.
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