天齐锂业(002466)

Growth to continue till 2020

Mr. Bo Li, Deputy General Manager and Secretary of Tianqi Lithium’s Board ofDirectors, attended our 2018 dbAccess China conference in Beijing this week. Mr.Li shared his view on industry development and the company’s expansion planfor Tianqi. We summarize below the key highlights from the investor meetings.Maintain Hold.

Expect relatively resilient pricing for high-quality battery grade lithiumcompounds in 2018

The battery grade lithium carbonate price corrected by RMB5k/t from its peak atover RMB170k/t by end-2017, but Tianqi does not expect meaningful correction oflithium compound pricing due to a supply shortage of high-quality battery gradelithium compounds with high purity levels. The company believes the incrementalsupply from brine extraction in Tibet/Qinghai will be limited, as several issuesneed to be resolved : a) utilities and infrastructure , b) access to pure water, c)extraction difficulties in high altitude, and d) SOE ownership in mining rights.

Better margin performance compared to industry peers

Tianqi exhibits a superior gross margin at 70% vs. other industry players due to:a) in-house high quality spodumene supply from the Greenbushes mine, b) highexposure in battery grade lithium compounds, which charges a pricing premiumcompared to industrial grade or subpar battery grade lithium compounds, andc) onshore lithium pricing premium at RMB10-20k/t in China due to strong enddemand. As the quality of battery grade lithium compounds is directly linkedto the stability and performance of lithium batteries, Tianqi believes lithiumcompound converters that can provide meaningful and stable volume output willbe the major beneficiaries riding the EV tide.

Kwinana expansion in Western Australia to fuel production volume growth till2020

The 24ktpa Kwinana phase 1 lithium hydroxide plant is on track to commenceproduction by YE18 with spodumene ore grading at 2.4%, with the utilization rateexpected to reach 80% in 8-10 months after commencement and full capacityin 24 months. Another 24ktpa lithium hydroxide plant in Kwinana phase 2 isscheduled to complete construction by YE19 with spodumene ore grading at1.7%. Coupled with the 20ktpa lithium carbonate capacity addition in Suining,Tianqi targets the company’s total processing capacity to reach 110ktpa in 2020, and lithium compound production volume to surpass 80kt (on LCE basis),implying a 3-year CAGR of near 40% from 32kt in 2017.

Open to asset acquisition opportunities overseas

Although the annual volume of Greenbushes’ spodumene should nearly doubleto 1.34mt in 2019 from 740kt this year, the in-house spodumene volume mightnot be fully sufficient for Tianqi in 2020. The scheduled rapid production ramp-uphas compelled the company to continually look for high-quality lithium resourcesoverseas. After SQM turned down outside offers, Tianqi’s 2.1% SQM stake iscurrently considered to be a financial investment only. The company will seekmore brine-based opportunities, potentially in South America