The results showed that the increase in cash flows generated by selling higher-value products will make the payback periods of concentrate and chemical projects similar. Over time, a carbonate chemical plant will generate a higher return within its operational period. By year 19, when the modeled average concentrate plant ceases production, the average carbonate plant will have generated around $550 million more in free cash flow.
If a concentrate project plans to produce lithium chemical products, it will have lower payable production compared with the original concentrate plans. We input these factors and the discount rate to the "average concentrate plant", the results showed that adding a hydroxide plant will generate more—although not significantly higher—cash flows than a carbonate plant from the ninth year. This implies that hard rock miners will have more flexibility in plant development planning, as hydroxide and carbonate plants will bring similar economic returns. Brines can usually only be processed into carbonate, and then further processed into hydroxide at additional cost.
Latin America, North America and Africa host most of the lithium project pipeline. Production guidance from companies' technical studies and presentations indicate that most potential lithium chemical projects are in Latin America, specifically Argentine brines. Additional concentrate production will come from Africa, mainly from the Democratic Republic of Congo, or DRC, and Mali.
The large difference in margins between chemical plants and concentrate plants may also push operating concentrate producers to seek opportunities for adding new conversion facilities to produce lithium chemicals; for example, IGO's Greenbushes. The mine currently has three plants with total capacity of around 1.6 million tonnes per year of concentrate, and IGO has spent $700 million on a hydroxide plant in the Kwinana Industrial Area of Western Australia. The company reported that hydroxide plant construction is complete and that the plant is expected to complete its ramp-up by The December 2022 quarter, with a potential increase in hydroxide production to 48,000 t/y.
Based on S&P Global's consensus forecasts, margins of chemical products will remain strong for the next five years. We expect more concentrate projects to move forward with supporting chemical conversion facilities. This may push up the cost curve but will increase margins due to the higher product value.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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