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"As China is restarting, coronavirus-caused supply disruptions might support metals prices in the short term."

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"As China is restarting, coronavirus-caused supply disruptions might support metals prices in the short term."

“As China is restarting, coronavirus-caused supply disruptions might support metals prices in the short term.” - Dmitry Glushakov, head of mining research, VTB Capital

In March governments across South America imposed national lockdowns, which extended to mining operations, in an effort to limit the spread of the Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2), the virus that causes Covid-19. On April 3 Argentina’s government classified mining an “essential activity” allowing miners to begin lifting suspensions and operational reductions at a “string of operations.”

Among those resuming “normal operations” is Toronto, Canada-based Yamana Gold’s (TSX: YRI) Cerro Moro gold mine, after a partial demobilization of workers last month.

In an April 6 press release, Livent Corporation (NYSE: LTHM), #5 global producer of lithium since the 2019 FMC Corporation spin-off, “announced that it has resumed operations in Argentina after receiving authorization from the government.”

Livent’s news continues, “The company will continue to work closely with local authorities to ensure all necessary precautions are taken to protect the health and well-being of employees, their families and the communities in which it operates.”

It is unclear as to the extent of Argentina’s mining resumptions at this point and news to this point implies companies are working closely with the Argentinian government during the restart process.

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The added fiduciary responsibility and government scrutiny in tandem with reports of logistical issues in the South American region may play a hand in price fluctuation for metals mined in the region.

Two weeks ago, Australia’s Galaxy Resources Limited (ASX: GXY) demobilized its workforce at the company’s Sal de Vida lithium and potash brine project in Argentina, leaving a skeleton crew for “essential and crucial services.”

Argentina is the third largest lithium producer in the world, and last year it put out 6,200 MT of the metal, a small increase from 5,700 MT in 2017. It also ranks third in lithium reserves in the world, at 2,000,000 MT.

To put that into perspective, Argentina has enough lithium reserves to meet global demand for about 300 years, according to Financial Post.

Argentina, Chile and Bolivia form the well-publicized “Lithium Triangle”, which has been estimated to host about 54% of the world’s lithium resources.

Argentina alone, which already produces about 12% of the world’s lithium, was historically attractive to international mineral explorers due to favorable government oversight, including former President Mauricio Macri’s 2016 elimination of export taxes on minerals and 2017’s congress-passed new refund laws on “investments for the construction of a project.”

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In Bolivia an obligatory quarantine was imposed until April 15, obstructing mining operations, with Vancouver, Canada-based Pan American Silver (TSX: PAAS) among the companies suspending assets, including the company’s Manantial Espejo Mine in Argentina.

In March, Mining.com reported that South American metal market sellers were already “experiencing difficulties in transporting material out of Bolivia, which borders Peru and Chile and relies on ports in either country, due to the curfews and border shutdowns.”

“Analysts at Fastmarkets believe the extended closures and logistical jams could see supply of base metals produced in the region restricted, going some way to balance markets in which demand has plummeted along with prices since January.”

In a March 2020 interview with Kitco News, Jonathan Evans, president and CEO of Lithium America, indicated that the global lithium supply is diminishing rapidly and a price bounce for the world’s lightest metal may be approaching.

“The supply of lithium carbonate and lithium hydroxide battery minerals is tighter than people think,” says Mr. Evans, “Some 300,000 tonnes of capacity has been removed from the market, setting up the possibility of a strong rebound in pricing”

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One month prior to Mr. Evans’ statements, GEP reported that according to “industry participants”, the recent slump may soon reverse as lithium price decline is expected to be short-lived, noting that “the imbalance between lithium spodumene supply and processing capacity bottlenecks in China are likely to be resolved soon.”

GEP contended that, “the subsequent inflow of spodumene concentrate, coupled with delays in downstream conversion capacity coming online in China, resulted in oversupply and pulled lithium prices lower.”

The global lithium landscape shifted in recent years. Prior to the recent “Lithium Rush” lithium mining and markets were dominated by “The Big Three” - Albemarle (NYSE:ALB), Sociedad Quimica y Minera de Chile (NYSE:SQM) and FMC (NYSE:FMC - now with lithium mining assets as Livent Corporation (NYSE: LTHM).

In 2019 China was the third largest lithium producer. In 2020 China now boasts the two largest lithium producers in the world, Jiangxi Ganfeng Lithium and Tianqi Lithium.

As Dmitry Glushakov, head of mining research at VTB Capital stated in March “As China is restarting, coronavirus-caused supply disruptions might support metals prices in the short term.”

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The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price

2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price

3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price

4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price

Global Market Insights, Inc. concluded that the global lithium ion battery market alone is set to surpass US $60 billion by 2024 with a global market of 534,000 tonnes of lithium carbonate by 2025.

As downstream “bottlenecks” alleviate from newer facilities/producers and Covid-19 era government and corporate imposed restrictions could lend a hand in a potential rise in price. Yet demand may require a near-term economic rebound matriculating to products requiring the metal. Which may hold true for other South American mined metals, including precious metals.

In an April 6, 2020 interview with Kitco News addressing the recently speculated gold market manipulations (between the physical bullion and paper markets), E.B. Tucker, director of Metalla Royalty & Streaming, said “The difference between the price [of gold] in New York and the price in London was $70. What that says is that the people that have been arguing about manipulation in the gold market and talking about that for years is not as crazy as we once thought.”

Time will tell as global mining outfits work hand-in-hand with local legislation and international governments to bring operations back on line. The equation seems weighted by external intervention with production resources and logistical supply chains potentially leading to slower than “normal” production on one side - on the other, a rapidly rebounding economy could lead to growing demand of some metals, whereas a slow rebound may favor others.

Over the next few weeks SmallCapCanada will continue to focus on the sectors and companies seeing progress as operations come back on line.

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Through our own proprietary stock screening technologies, chart indicators and fundamental analysis, as well as other methods - including the theories discussed in this article - SmallCapCanada locates companies worth researching on the TSXV and the CSE.

SmallCapCanada’s free newsletter will be releasing several reports over the upcoming weeks. We’re currently focused on Canada Exploration - amazingly some Canadian miners are thriving through this greater volatility. We’re also looking at bio-pharma and several other, including:

  • Exploration
  • Gold Mining
  • Lithium Mining
  • Technology / Software
  • Banking / Financial / Insurance
  • Cannabis
  • Consumer Goods
  • Logistics
  • Construction / Excavating
  • Energy
  • Oil & Gas

SmallCapCanada’s free newsletter is a publication available to Canadian traders and investors looking for new ideas. We encourage you to sign up with your email via a subscription on this site or at www.SmallCapCanada.com.

Have some ideas of your own? We’re all ears - email us at reports@smallcapcanada.com.

Whichever way you choose to navigate through turbulent markets, remember to stand strong... but stand at a distance from others.

Stay healthy and safe!

Sources:

https://www.kitco.com/news/video/show/BMO-2020/2734/2020-03-06/Lithium-supply-is-tighter-than-people-think-prices-to-rebound-strongly#_48_INSTANCE_puYLh9Vd66QY_=https%3A%2F%2Fwww.kitco.com%2Fnews%2Fvideo%2Flatest%3Fshow%3DBMO-2020

https://www.gep.com/mind/blog/are-global-lithium-prices-on-the-rise-again-an-outlook-for-202021

https://www.mining-technology.com/news/lockdown-argentina-affects-lithium-miners/

https://resourceworld.com/lithium-triangle/

https://investingnews.com/daily/resource-investing/battery-metals-investing/lithium-investing/lithium-reserves-country/

https://www.bnamericas.com/en/features/mining-in-latin-america-an-essential-activity

https://www.delcotimes.com/livent-resumes-operations-in-argentina/article_7d7ca288-2aaa-576c-b0fd-549a276f031f.html

https://www.mining.com/south-america-lockdown-starting-to-hit-base-metals-supplies/

https://business.financialpost.com/midas-letter/midas-letter-in-argentina-650-million-tonnes-of-lithium-to-be-exploited

https://investingnews.com/daily/resource-investing/battery-metals-investing/lithium-investing/top-lithium-producers/

https://www.kitco.com/news/video/show/Kitco-NEWS/2778/2020-04-06/Talk-of-gold-price-manipulation-is-proving-to-be-not-so-crazy-says-EB-Tucker#_48_INSTANCE_puYLh9Vd66QY_=https%3A%2F%2Fwww.kitco.com%2Fnews%2Fvideo%2Flatest%3Fshow%3DKitco-NEWS

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