By Dave Brown — Exclusive to Lithium Investing News
Two top lithium producing companies filed quarterly financial reports over the last week and another filed its annual report for the year ending last December. The three companies provided lithium investors with interesting details on their respective operations, and all seemed to indicate that demand for lithium is expanding.
This overall consensus provides a good context for industry stakeholders, investors, and lithium exploration projects, as demand and higher realized prices for the underlying resource should stimulate additional investment interest.
Rockwood Holdings, Inc. (NYSE:ROC), the parent of Rockwood Lithium and a global producer of specialty chemicals and advanced materials, reported strong earnings per share with continuing operations of $0.94 for the first quarter compared with $0.80 for the same period last year. This quarter is the first period that the company has reported segmented revenues for the lithium business.
During a conference call, Seifi Ghasemi, CEO of Rockwood, explained the company’s strategy within the lithium business unit. Last year the company made a tactical decision to build and operate a processing facility in order to distribute finished potash by-product directly to the consumer market, opting to no longer sell it exclusively in semi-finished form to a Chilean company. Rockwood believes that this will provide expanded profit margins and that the potash will be realized as a by-product of the company’s lithium operations.
The rest of the lithium business “grew by double digits in the first quarter” if potash sales are excluded. Another key point underscored in the conference call was that Rockwood’s battery-grade lithium sales in the first quarter more than doubled compared to the same period last year.
Offering a positive outlook for the lithium industry in general, Ghasemi said, “[l]ithium products, especially battery grade lithium, should continue to show double-digit sales growth. In addition, we expect stronger volumes in our Surface Treatment business and expect to continue to benefit from productivity gains across our businesses. We expect our new lithium hydroxide plant in North Carolina to be operational in July of this year.”
FMC Corporation (NYSE:FMC) reported first quarter net income of $119.1 million, or $1.71 per diluted share, compared with $94 million or $1.30 per diluted share for the same period last year. First quarter revenue of $940.7 million was 18 percent higher than the previous year’s revenue of $795 million.
FMC President, CEO, and Chairman Pierre Brondeau explained challenges that the company’s lithium operations have faced, stating, “Specialty Chemicals’ results met our expectations with strong commercial performance in BioPolymer offset by higher weather-related operating costs in lithium and plant downtime effects associated with capacity expansion projects as we position both businesses for continued premium growth.”
Operational impediments for FMC’s lithium expansion plans provided a headwind as segment earnings of $44.3 million declined one percent. Higher selling prices in lithium primaries were more than offset by higher weather-related operating costs in lithium and downtimes related to capacity expansions. The weather-related issues included challenges to bring some of the equipment required to the operating sites as well as very significant dilutions of the ponds, which forced the company to operate with the brine which was less concentrated, with less product from the plant at a higher operating cost.
In terms of guidance for the rest of the year, Brondeau was cautiously optimistic about the company’s lithium results, saying, “[w]e are seeing higher processing cost and a slightly lower ramping production volume as a result of the dilution. The impacts will be largely behind us by the end of the second quarter. Therefore, sequentially, we anticipate a significant pickup in lithium sales and earnings in the second half of this year compared to the first half.”
SQM (NYSE:SQM) reported strong results for last year with revenues from lithium sales amounting to $183.4 million, representing nine percent of the company’s total revenue. Expanded sales of 22.8 percent within the lithium business were due to higher volumes resulting from a “healthy demand…mainly driven by rechargeable batteries and also by uses related to construction, such as ceramic and glass.” The report also indicated that “other producers experienced some supply constraints during part of the year, allowing SQM to strengthen its position as the leader in lithium carbonate supply.”
Asia demand rising
Lithium products were marketed to over 300 customers in approximately 50 countries, with increased exposure to Asian markets. This included 28 percent of total global sales in Europe, ten percent to customers in North America, and 61 percent to customers in Asia. Compared to the previous year, business in Europe and North America declined slightly from 34 and 12 percent respectively, while the customer base in Asia expanded significantly from 53 percent. The customer base was diversified, with no single customer responsible for more than 14 percent of sales. The ten largest customers represent less than 51 percent of sales.
The company offered an optimistic outlook, commenting, “[w]e believe that Lithium production will increase in the near future. A number of new projects to develop lithium deposits have been announced recently, of which some could materialize in the short to medium term.
We estimate that worldwide sales of lithium chemicals expressed as lithium carbonate equivalent…amounted to approximately 135,000 metric tons in 2011.”
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.