1 00:00:05,850 --> 00:00:08,160 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean 2 00:00:08,160 --> 00:00:11,070 Sean Aylmer: Aylmer. Lithium miners have had a pretty tough time lately. 3 00:00:11,070 --> 00:00:13,770 Sean Aylmer: The price of the metal fell 80% last year despite 4 00:00:13,770 --> 00:00:16,410 Sean Aylmer: the need for critical minerals as the world transitions to 5 00:00:16,410 --> 00:00:20,369 Sean Aylmer: cleaner technology. But this year's federal budget includes a $15 billion 6 00:00:20,610 --> 00:00:23,880 Sean Aylmer: boost to help with the transition, and that includes critical 7 00:00:23,910 --> 00:00:28,080 Sean Aylmer: minerals processing. So does it change the outlook for Australia's 8 00:00:28,080 --> 00:00:31,469 Sean Aylmer: miners and particularly the lithium miners, and how should investors 9 00:00:31,469 --> 00:00:34,799 Sean Aylmer: think about this sector? This is general information only and 10 00:00:34,799 --> 00:00:38,190 Sean Aylmer: you should always seek professional advice before making investment decisions. 11 00:00:38,490 --> 00:00:41,700 Sean Aylmer: Gaurav Sodhi is the Deputy Head of Research at Intelligent 12 00:00:41,790 --> 00:00:46,019 Sean Aylmer: Investor. He's also their Resources Analyst. Very handy. Gaurav, welcome 13 00:00:46,019 --> 00:00:46,770 Sean Aylmer: to Fear and Greed. 14 00:00:47,130 --> 00:00:47,940 Gaurav Sodhi: Hi Sean. Thanks. 15 00:00:48,598 --> 00:00:50,968 Sean Aylmer: So maybe a one- on- one first. What's behind the 16 00:00:50,969 --> 00:00:53,189 Sean Aylmer: slump in lithium prices? 17 00:00:54,059 --> 00:00:58,110 Gaurav Sodhi: There's never any magic in price moves, Sean. It's always 18 00:00:58,110 --> 00:01:02,160 Gaurav Sodhi: dependent on demand and supply. Now, you would've noticed that 19 00:01:02,190 --> 00:01:04,170 Gaurav Sodhi: we had a bit of a lithium boom there going for 20 00:01:04,170 --> 00:01:08,549 Gaurav Sodhi: a few years. And the price escalated dramatically. I think 21 00:01:08,549 --> 00:01:13,560 Gaurav Sodhi: we went from about $ 800 a ton for spodumene concentrate, 22 00:01:13,620 --> 00:01:17,700 Gaurav Sodhi: which is the raw material that gets produced from the 23 00:01:17,700 --> 00:01:21,690 Gaurav Sodhi: rock, and prices went to about $ 8, 000 a ton, 24 00:01:21,690 --> 00:01:25,319 Gaurav Sodhi: which is completely unheard of, well above any known cost 25 00:01:25,319 --> 00:01:28,439 Gaurav Sodhi: curve. And so prices really have come back and then 26 00:01:28,440 --> 00:01:30,600 Gaurav Sodhi: they're back at about a thousand dollars a ton or so. So it's 27 00:01:30,750 --> 00:01:34,050 Gaurav Sodhi: a huge fallback, but when you look at what's happened 28 00:01:34,110 --> 00:01:37,500 Gaurav Sodhi: throughout the cycle, we're probably back at cyclical lows and 29 00:01:37,500 --> 00:01:41,880 Gaurav Sodhi: it's no real disaster to see a commodity going up 30 00:01:41,880 --> 00:01:44,070 Gaurav Sodhi: and down. That's kind of the nature of the beast, 31 00:01:44,370 --> 00:01:47,549 Gaurav Sodhi: but the unusual part of the whole cycle was just 32 00:01:47,549 --> 00:01:51,810 Gaurav Sodhi: how far lithium prices rose, and I'd say that decline 33 00:01:51,810 --> 00:01:52,830 Gaurav Sodhi: was probably inevitable. 34 00:01:53,460 --> 00:01:56,940 Sean Aylmer: Okay, so where does Australia sit in terms of being 35 00:01:56,940 --> 00:01:59,970 Sean Aylmer: a lithium producer? Are we a major player? 36 00:02:00,540 --> 00:02:04,230 Gaurav Sodhi: Oh, yes. Australia is... If not the world's largest producer 37 00:02:04,230 --> 00:02:07,950 Gaurav Sodhi: of lithium Now, certainly it will be once the next 38 00:02:07,950 --> 00:02:10,560 Gaurav Sodhi: batch of projects comes off the line. There are two 39 00:02:10,560 --> 00:02:13,980 Gaurav Sodhi: ways to make lithium mostly, and that comes from a 40 00:02:13,980 --> 00:02:17,730 Gaurav Sodhi: hard rock, which is the mining of spodumene, and that 41 00:02:17,730 --> 00:02:21,418 Gaurav Sodhi: then gets turned into a concentrate, which gets then refined 42 00:02:21,419 --> 00:02:25,200 Gaurav Sodhi: into a usable material for batteries. Or you can pump 43 00:02:25,230 --> 00:02:28,980 Gaurav Sodhi: briny water out of the ground, which they do in 44 00:02:28,980 --> 00:02:33,210 Gaurav Sodhi: Chile, in Argentina, and that water then sits in evaporation 45 00:02:33,210 --> 00:02:35,580 Gaurav Sodhi: ponds. You have to wait sort of 18 months or 46 00:02:35,580 --> 00:02:38,549 Gaurav Sodhi: so for the material to evaporate and to get highly 47 00:02:38,820 --> 00:02:41,969 Gaurav Sodhi: concentrated into a lithium material, but that material then has 48 00:02:41,969 --> 00:02:45,690 Gaurav Sodhi: to then be processed further into a battery grade material 49 00:02:45,690 --> 00:02:49,200 Gaurav Sodhi: as well. So two different approaches there, and the approach 50 00:02:49,200 --> 00:02:52,650 Gaurav Sodhi: you take is really determined by your geography, your geology, 51 00:02:53,099 --> 00:02:57,150 Gaurav Sodhi: and the final material you're trying to produce. Australia produces 52 00:02:57,240 --> 00:03:00,210 Gaurav Sodhi: hard rock, lithium, we don't have any brine projects in 53 00:03:00,240 --> 00:03:04,079 Gaurav Sodhi: Australia. We're very good at digging, crushing and moving rock, 54 00:03:04,350 --> 00:03:06,120 Gaurav Sodhi: and so a lot of that expertise is brought to 55 00:03:06,120 --> 00:03:09,179 Gaurav Sodhi: bear when we produce lithium. So it's been a couple 56 00:03:09,179 --> 00:03:11,820 Gaurav Sodhi: of new projects of the cycle, perhaps to say, considering 57 00:03:11,820 --> 00:03:15,660 Gaurav Sodhi: where prices were, the extent of the lithium boom and 58 00:03:15,660 --> 00:03:17,819 Gaurav Sodhi: the amount of money, the amount of capital that was 59 00:03:17,820 --> 00:03:21,870 Gaurav Sodhi: thrown into finding new lithium deposits, it is surprising to 60 00:03:21,870 --> 00:03:25,500 Gaurav Sodhi: me that we haven't had more supply come online in 61 00:03:25,500 --> 00:03:28,320 Gaurav Sodhi: Australia. A lot of the new supply has come from 62 00:03:28,320 --> 00:03:32,340 Gaurav Sodhi: brine projects in South America and a smattering of supply 63 00:03:32,758 --> 00:03:33,870 Gaurav Sodhi: in other countries as well. 64 00:03:34,799 --> 00:03:37,260 Sean Aylmer: Okay. Let's take it... Have a look at budget measures 65 00:03:37,260 --> 00:03:41,190 Sean Aylmer: that were announced last week. What do they mean for 66 00:03:41,190 --> 00:03:45,389 Sean Aylmer: the lithium sector and you need to be downstream processing 67 00:03:45,389 --> 00:03:47,488 Sean Aylmer: of lithium, is that correct with those budget measures? 68 00:03:47,820 --> 00:03:51,330 Gaurav Sodhi: Yeah, the budget measures have been done for a very 69 00:03:51,389 --> 00:03:55,110 Gaurav Sodhi: specific purpose and it's nothing new. We have seen these 70 00:03:55,110 --> 00:04:01,080 Gaurav Sodhi: before. Governments always want to encourage value add. In the 71 00:04:01,080 --> 00:04:04,650 Gaurav Sodhi: past, they've tried to create a steel industry with a 72 00:04:04,650 --> 00:04:08,250 Gaurav Sodhi: raw iron ore endowment. They've tried to create a car 73 00:04:08,250 --> 00:04:12,690 Gaurav Sodhi: industry after steel was produced in Australia. Those things haven't 74 00:04:12,690 --> 00:04:15,060 Gaurav Sodhi: worked in the past and over time a lot of 75 00:04:15,060 --> 00:04:16,770 Gaurav Sodhi: money was wasted and we didn't have a lot to 76 00:04:16,770 --> 00:04:19,620 Gaurav Sodhi: show for it. And ultimately, both those industries have died 77 00:04:19,620 --> 00:04:23,460 Gaurav Sodhi: in Australia. The new attempt is to use the raw 78 00:04:23,460 --> 00:04:26,789 Gaurav Sodhi: lithium material, the spodumene that gets produced from Australia and 79 00:04:26,790 --> 00:04:30,180 Gaurav Sodhi: try and process that into the battery- grade metal. This 80 00:04:30,300 --> 00:04:34,380 Gaurav Sodhi: happens on masse in China mostly, and there's a whole 81 00:04:34,920 --> 00:04:41,099 Gaurav Sodhi: supply chain surrounding turning spodumene concentrate into usable battery material. 82 00:04:41,099 --> 00:04:44,309 Gaurav Sodhi: There's also a supply chain being built in North America 83 00:04:44,309 --> 00:04:46,919 Gaurav Sodhi: as well for that same function. The Australian government is 84 00:04:46,920 --> 00:04:50,790 Gaurav Sodhi: trying to encourage the development of a similar supply chain 85 00:04:50,790 --> 00:04:54,210 Gaurav Sodhi: here in Australia. Look, you can understand why they'd want 86 00:04:54,210 --> 00:04:56,190 Gaurav Sodhi: to do this. You get a lot more money per 87 00:04:56,190 --> 00:04:58,620 Gaurav Sodhi: ton of battery- grade material than you would per ton 88 00:04:58,950 --> 00:05:02,790 Gaurav Sodhi: of spodumene concentrate. It creates jobs. There's a lot of 89 00:05:02,790 --> 00:05:05,580 Gaurav Sodhi: boasting rights about doing a lot more value add. But 90 00:05:05,699 --> 00:05:07,470 Gaurav Sodhi: I think when you look at the value chain of 91 00:05:07,470 --> 00:05:10,919 Gaurav Sodhi: lithium, it's become clear. I mean, we should make clear 92 00:05:10,920 --> 00:05:13,770 Gaurav Sodhi: by the way, that lithium is a nascent industry. It's 93 00:05:13,770 --> 00:05:18,030 Gaurav Sodhi: a young metal. It's been used throughout history mostly as 94 00:05:18,599 --> 00:05:22,739 Gaurav Sodhi: a treatment for euphoria and depression, for mental disease. It's 95 00:05:22,740 --> 00:05:26,250 Gaurav Sodhi: not been used too much as an industrial metal of 96 00:05:26,250 --> 00:05:29,310 Gaurav Sodhi: scale, so it's a niche metal that's now being asked to 97 00:05:29,310 --> 00:05:32,729 Gaurav Sodhi: become a bulk metal. And to do that, you have 98 00:05:32,730 --> 00:05:35,729 Gaurav Sodhi: to throw capital at it and try and grow the 99 00:05:35,730 --> 00:05:40,589 Gaurav Sodhi: entire global volume of this stuff. There's probably a role 100 00:05:40,650 --> 00:05:44,969 Gaurav Sodhi: to play, but look, I'm not sure that given our 101 00:05:44,970 --> 00:05:47,488 Gaurav Sodhi: track record that trying to build an alternate supply chain 102 00:05:47,490 --> 00:05:50,580 Gaurav Sodhi: in Australia makes a whole lot of sense. As I 103 00:05:50,580 --> 00:05:54,269 Gaurav Sodhi: was saying, the value add in the lithium supply chain, 104 00:05:54,719 --> 00:05:58,259 Gaurav Sodhi: I'm not sure it comes from the upstream, the refining 105 00:05:58,260 --> 00:06:01,200 Gaurav Sodhi: of the concentrate into the battery grade. I think most 106 00:06:01,200 --> 00:06:04,080 Gaurav Sodhi: of the profit pool seems to be in the mining 107 00:06:04,080 --> 00:06:08,160 Gaurav Sodhi: of the raw material. Now, Chris Ellison, the MD of 108 00:06:08,250 --> 00:06:10,800 Gaurav Sodhi: Mineral Resource, who is one of the largest lithium producers 109 00:06:10,800 --> 00:06:13,409 Gaurav Sodhi: in the world, very large mining business out of WA. 110 00:06:15,089 --> 00:06:17,488 Gaurav Sodhi: He has said it many times that he thinks the 111 00:06:17,490 --> 00:06:20,310 Gaurav Sodhi: person who controls the rock is the one who controls 112 00:06:20,310 --> 00:06:23,910 Gaurav Sodhi: the profit, and I think that's bearing fruit across the 113 00:06:23,910 --> 00:06:26,938 Gaurav Sodhi: industry. You look at the companies who are actually mining 114 00:06:26,940 --> 00:06:29,909 Gaurav Sodhi: lithium, their returns are a lot more attractive than the 115 00:06:29,910 --> 00:06:32,789 Gaurav Sodhi: companies that are producing the manufactured good at the end. 116 00:06:32,790 --> 00:06:37,890 Gaurav Sodhi: So the government's trying to encourage this more downstream approach, 117 00:06:38,310 --> 00:06:40,830 Gaurav Sodhi: but I'm not sure that's where the majority of the 118 00:06:40,830 --> 00:06:41,940 Gaurav Sodhi: profit will ultimately lie. 119 00:06:42,600 --> 00:06:44,579 Sean Aylmer: Stay with me Gaurav. We'll be back in a minute. 120 00:06:51,630 --> 00:06:54,448 Sean Aylmer: I'm speaking to Gaurav Sodhi, Deputy Head of Research and 121 00:06:54,480 --> 00:07:00,210 Sean Aylmer: Resources Analyst at Intelligent Investor. Okay. I'm just going to stick 122 00:07:00,210 --> 00:07:01,980 Sean Aylmer: with the budget for a moment. There was money for 123 00:07:01,980 --> 00:07:06,870 Sean Aylmer: hydrogen. What about other critical minerals like rare earths and 124 00:07:06,870 --> 00:07:10,619 Sean Aylmer: mineral sands and things like that? Again, I'm not totally 125 00:07:10,619 --> 00:07:12,870 Sean Aylmer: across the detail of what the budget said specifically on 126 00:07:12,870 --> 00:07:15,900 Sean Aylmer: hydrogen and some of those other critical minerals, but certainly 127 00:07:15,900 --> 00:07:20,220 Sean Aylmer: the government seems to be putting money into those areas 128 00:07:20,220 --> 00:07:21,930 Sean Aylmer: in the hope of developing those sectors. 129 00:07:22,410 --> 00:07:25,020 Gaurav Sodhi: Yeah, that's the aim. Look, it's too early to say 130 00:07:25,020 --> 00:07:29,160 Gaurav Sodhi: this. Hydrogen supply chains haven't really been built anyway. I 131 00:07:29,160 --> 00:07:32,820 Gaurav Sodhi: don't think we've really decided what the best way to 132 00:07:32,820 --> 00:07:35,850 Gaurav Sodhi: build those supply chains in there. There is a line 133 00:07:35,850 --> 00:07:39,840 Gaurav Sodhi: of thinking that you can use existing LNG supply chains 134 00:07:39,900 --> 00:07:44,459 Gaurav Sodhi: and switch those over to hydrogen simply because LNG is 135 00:07:44,460 --> 00:07:46,499 Gaurav Sodhi: mostly just refrigerated gas and you might be able to 136 00:07:46,500 --> 00:07:49,860 Gaurav Sodhi: do with gas what you can do with hydrogen. Look, 137 00:07:49,860 --> 00:07:53,190 Gaurav Sodhi: there might be some element to that. Look, I'm afraid 138 00:07:53,400 --> 00:07:55,980 Gaurav Sodhi: you're interviewing someone here who is very skeptical of government 139 00:07:55,980 --> 00:08:00,450 Gaurav Sodhi: involvement in the mining industry. I think philosophically, I don't 140 00:08:00,450 --> 00:08:03,210 Gaurav Sodhi: agree with it. You look at the results. It's very 141 00:08:03,210 --> 00:08:05,819 Gaurav Sodhi: hard to support it. I think the only thing going 142 00:08:05,820 --> 00:08:09,060 Gaurav Sodhi: for it is the intention is the right one. I 143 00:08:09,060 --> 00:08:12,210 Gaurav Sodhi: mean, we want to see a developed and value- added 144 00:08:12,810 --> 00:08:18,060 Gaurav Sodhi: industry in Australia, but my suggestion with humility would be 145 00:08:18,509 --> 00:08:20,880 Gaurav Sodhi: to leave that to the industry. These guys are very, 146 00:08:20,880 --> 00:08:24,059 Gaurav Sodhi: very good at what they do and there's plenty of capital. 147 00:08:24,599 --> 00:08:27,990 Sean Aylmer: Yeah. Okay, so let's just shift away from budget then. We 148 00:08:27,990 --> 00:08:30,660 Sean Aylmer: have a lithium industry, which we've discussed a lot about. 149 00:08:30,660 --> 00:08:34,260 Sean Aylmer: We haven't mentioned nickel, but nickel is struggling against supply- 150 00:08:34,260 --> 00:08:36,269 Sean Aylmer: demand. Indonesian suppliers come onto the market. 151 00:08:36,270 --> 00:08:42,360 Gaurav Sodhi: You're being polite. Nick Nickel is stuffed, Sean. Nickel is stuffed. 152 00:08:42,360 --> 00:08:46,380 Sean Aylmer: Okay, nickel's stuffed. We have uranium, we have rare earths. Of those 153 00:08:46,380 --> 00:08:48,870 Sean Aylmer: sorts of sectors, I mean, are they all sectors that 154 00:08:48,870 --> 00:08:51,809 Sean Aylmer: Australia can play in? Should we be focused more on 155 00:08:52,020 --> 00:08:55,559 Sean Aylmer: lithium and uranium, for example? How do we think about 156 00:08:55,559 --> 00:08:57,629 Sean Aylmer: it and particularly from an investment viewpoint? 157 00:08:57,870 --> 00:09:02,910 Gaurav Sodhi: Yeah. Mining is easy that way because the thinking has 158 00:09:02,910 --> 00:09:06,870 Gaurav Sodhi: been done for you. The geological endowment determines where the 159 00:09:06,870 --> 00:09:12,630 Gaurav Sodhi: material is, where uranium or lithium or rare earths is 160 00:09:12,630 --> 00:09:15,600 Gaurav Sodhi: has been decided by the earth millions of years ago. 161 00:09:15,780 --> 00:09:17,939 Gaurav Sodhi: There's not much we can do about where the material 162 00:09:17,940 --> 00:09:22,530 Gaurav Sodhi: actually is. And prices will make it attractive or unattractive 163 00:09:22,530 --> 00:09:25,078 Gaurav Sodhi: to dig out of the ground. There's not a lot 164 00:09:25,080 --> 00:09:28,020 Gaurav Sodhi: to be done. I mean, Australia has a large lithium 165 00:09:28,020 --> 00:09:31,170 Gaurav Sodhi: endowment. We have a huge mining industry expertise in moving 166 00:09:31,170 --> 00:09:33,929 Gaurav Sodhi: rock, makes a lot of sense to use that expertise, 167 00:09:34,350 --> 00:09:37,410 Gaurav Sodhi: to use the developed capital markets we have here to 168 00:09:37,410 --> 00:09:40,740 Gaurav Sodhi: create lithium mines. We haven't needed any intervention to do 169 00:09:40,740 --> 00:09:44,909 Gaurav Sodhi: that. The lithium industry in Australia is enormous and successful. 170 00:09:45,540 --> 00:09:49,139 Gaurav Sodhi: Pilbara Minerals probably is the best lithium miner in the 171 00:09:49,139 --> 00:09:52,109 Gaurav Sodhi: world, and that's a business that's come out of nowhere 172 00:09:52,170 --> 00:09:54,900 Gaurav Sodhi: in the last decade, less than a decade. It's come 173 00:09:54,900 --> 00:09:58,858 Gaurav Sodhi: from nowhere to being a $ 10 billion business, and the 174 00:09:58,920 --> 00:10:02,098 Gaurav Sodhi: capital markets have supplied everything it needs. International markets have 175 00:10:02,160 --> 00:10:04,949 Gaurav Sodhi: bought everything it's sold. I think the same sort of 176 00:10:04,950 --> 00:10:07,290 Gaurav Sodhi: dynamic will happen in rare earths and uranium as well. 177 00:10:07,290 --> 00:10:09,660 Gaurav Sodhi: I mean, uranium is a special case. We probably need some 178 00:10:09,839 --> 00:10:14,010 Gaurav Sodhi: clear rules about where uranium can be mined and it's 179 00:10:14,010 --> 00:10:17,250 Gaurav Sodhi: a lot more regulatory heavy, so that's probably a special 180 00:10:17,250 --> 00:10:19,738 Gaurav Sodhi: case. But if you're an investor, I think you need 181 00:10:19,740 --> 00:10:22,980 Gaurav Sodhi: to be cold and rational in your calculations here. A 182 00:10:22,980 --> 00:10:25,739 Gaurav Sodhi: business is a business is a business. You should be 183 00:10:25,799 --> 00:10:29,879 Gaurav Sodhi: completely agnostic, whether it's manganese, copper, uranium, or whatever it 184 00:10:29,879 --> 00:10:32,460 Gaurav Sodhi: is. What you're trying to do is maximize your returns. 185 00:10:33,059 --> 00:10:36,120 Gaurav Sodhi: If that sounds clinical, it's because the task is clinical. 186 00:10:36,300 --> 00:10:38,820 Gaurav Sodhi: The job is clinical, and we need to remove emotions 187 00:10:38,820 --> 00:10:42,389 Gaurav Sodhi: from the task. When you're an investor, the emotions of 188 00:10:42,389 --> 00:10:45,540 Gaurav Sodhi: the enemy, you want to bury them down as far 189 00:10:45,540 --> 00:10:48,119 Gaurav Sodhi: as you can, and then think about the returns on 190 00:10:48,119 --> 00:10:53,670 Gaurav Sodhi: offer. There's a path for emotional output elsewhere in life. It's 191 00:10:53,670 --> 00:10:54,420 Gaurav Sodhi: not an investment. 192 00:10:55,320 --> 00:10:58,290 Sean Aylmer: Oh, Gaurav, spoken like a Resources Analyst. Thank you very 193 00:10:58,290 --> 00:11:00,270 Sean Aylmer: much for talking to Fear and Greed this morning. 194 00:11:00,750 --> 00:11:01,860 Gaurav Sodhi: Pleasure, Sean. Thank you. 195 00:11:02,460 --> 00:11:05,010 Sean Aylmer: That was Gaurav Sodhi, Deputy Head of Research and Resources 196 00:11:05,010 --> 00:11:08,490 Sean Aylmer: Analyst at Intelligent Investor. This is the Fear and Greed 197 00:11:08,490 --> 00:11:11,309 Sean Aylmer: business interview. Remember, this is general information only and you 198 00:11:11,309 --> 00:11:14,820 Sean Aylmer: should seek professional advice before making investment decisions. Join us 199 00:11:14,820 --> 00:11:16,830 Sean Aylmer: every morning for the full episode of Fear and Greed 200 00:11:16,830 --> 00:11:18,929 Sean Aylmer: at Daily Business News for people who make their own 201 00:11:18,929 --> 00:11:21,300 Sean Aylmer: decisions. I'm Sean Aylmer. Enjoy your day.