Talison celebrates best Q3 ever

Cash-rich Talison Lithium (TLH-T) has booked record third-quarter sales volume, revenue and net income from its high-grade Greenbushes operation in southwestern Australia sending its shares higher.

The pure-play lithium producer reported revenues of A$37 million (US$37.1 million) in the three months ended Mar. 31, up 27% from A$29 million in the year-earlier quarter, while earnings before interest, taxes, depreciation and amortization reached A$11.96 million, up 90% from A$66.31 million.

Net profit soared 112% to A$8.2 million from A$3.9 million in the third quarter of 2011, with earnings per share rising 100% year-on-year to 7.6¢. Cash at the end of March stood at A$85.1 million.

In Toronto the news sent shares of Talison up 3.99% to close at $3.13 apiece. At press time Talison was trading at $3.20 per share.   

The Perth-based company, which has been supplying lithium for more than 25 years, also reported that construction of its second-stage expansion remains on schedule and on budget with commissioning  to be completed by the end of June. The company is doubling its lithium plant capacity to 740,000 tonnes of lithium concentrate and is undertaking a scoping study to determine the viability of going downstream to produce lithium carbonate.

Jonathan Lee, a mining analyst at Byron Capital Markets in Toronto, has a buy rating on the stock with a target price of $6.55 per share.

“The tight supply market and continued expansion at Talison’s production facilities have contributed to this success,” Lee wrote in a research note following the release of financial results. “During the past few quarters Talison has been producing at capacity and selling all that it can.”

Lee noted that management has been able to maintain stable margins and believes the markets will continue to work in Talison’s favour.

“With the increased capacity of the expansion plant, investors can expect to see even higher margins due to economies of scale,” he reasons. “Operating costs have been stable, with an average cash cost of $193 per tonne over the past four quarters. We expect higher pricing and lower cash costs going forward.”

The lithium Talison produces is used in batteries for consumer electronics, electric bicycles, buses and passenger vehicles. It is also used in aerospace alloys, wind turbines, glass and ceramics, according to the company’s website.

Of the world’s big four lithium producers—Talison Lithium, FMC Corp. (FMC-N), SQM (SQM-N) and Rockwood Holding’s Chemetall (ROC-N)—Talison is the only one that is 100% lithium-industry oriented, Lee adds. By contrast, lithium is just a minor percentage of the business at the other three large producers. Meanwhile, Talison is the only major lithium producer that produces from a hard-rock source called spodumene, Lee says.  

Looking at the lithium sector overall in a broader report on electric metals Byron Capital Markets distributed at its third annual electric metals conference in April, the independent investment dealer forecasts demand for lithium will grow 10% annually over the next few years and noted that existing mines are expanding their production lines..

“For those producing companies, we see growth in margins widening in the near term with higher selling prices as companies are becoming price makers, rather than price takers,” Byron concluded in its report, which also included analyses of graphite, uranium, titanium, silver, tin, cobalt and vanadium.   

In addition, Byron noted that with a difficult outlook for financing, it doesn’t expect to see a dramatic oversupply in lithium as some predict. “There is still room for a few junior projects to supply this increase in demand, but not for all,” the report argued. “Lithium projects aren’t on the top of the list to be financed, and only the A-grade projects will be gifted with funds.”

In terms of the scale of future demand for lithium-ion batteries in the electric vehicle market, Byron said it was more upbeat than many.

“While there are some people who are less optimistic about the growth in electric vehicles and its lithium-ion battery use, we see macro events happening around the world that may prove otherwise,” it concluded. “Lithium-ion battery plants are springing up and battery manufacturers’ capital expenditures are in the billions.”