Guolian Minsheng Securities: The production of the new Australian mining project in the second quarter of 25Q2 is lower than expected, and the mainstream mines are facing pressure to reduce costs.

Guolian Minsheng Securities released a research report stating that according to statistics, in Q2 2025, the total production of lithium concentrate in major Australian mines was 1.0122 million tons, a month-on-month increase of 12.1%; and sales volume was 1.0703 million tons, a month-on-month increase of 16.8%. New projects that started production in 2024 are still in the ramp-up stage, and overall performance is below expectations. Based on data disclosed by various companies, the mainstream mines in Q2 2025 still maintain relatively low production costs, with cash costs basically below $600 per ton. Taking into account that the main cost reduction measures in Australian mines are reducing labor, increasing feed grade, and optimizing processing processes, after several quarters of cost optimization and control, the downward space for costs of mainstream Australian mines has significantly decreased, with some mines even experiencing cost increases. Main points of Guolian Minsheng Securities: Production rebound in Q2 2025, new project production lower than expected According to the statistics from Guolian Minsheng Securities, in Q2 2025, the total production of lithium concentrate in major Australian mines was 1.0122 million tons (absolute numbers were added due to some companies not disclosing the grade, without adjusting for the same grade, excluding the Cattlin mine), a month-on-month increase of 12.1%; and sales volume was 1.0703 million tons, a month-on-month increase of 16.8%. The production rebound was mainly due to the Pilbara not being affected by extreme weather and the commissioning of the P1000 project, which significantly increased production. New projects that started production in 2024 are still in the ramp-up stage, and overall performance is below expectations, with both the Holland and Kathleen Valley mines producing lower than previously expected in the 2025 fiscal year. Kathleen Valley is undergoing a transition from open-pit to underground mining in parallel mode in the 2025 fiscal year, transitioning to 100% underground mining production. Production guidance for the 2026 fiscal year is expected to increase by 24%-53% compared to the 2025 fiscal year. Lithium prices were low in 2025, putting pressure on costs of new producing mines The Holland mine continued to operate at a loss, and the cost of Kathleen Valley skyrocketed. In 2024, two projects were commissioned in Australia, the Mt Holland and Kathleen Valley projects, with lithium concentrate capacities of 380,000 tons per year and 500,000 tons per year, respectively. Due to the low lithium price, Mt Holland has been operating at a loss for two consecutive fiscal years since production started, and it is expected that the losses will further increase in the 2026 fiscal year. Kathleen Valley, due to open-pit mining in Q2 2025, saw a decrease in recovery rates due to low-grade ore, resulting in a significant cost increase, a month-on-month increase of 12.5% compared to Q1 2025. Since the 2026 fiscal year is a year of mining strategy transformation for the company, the cost guidance of 855-1045 Australian dollars per ton is significantly higher than the second half of the 2025 fiscal year (775-855 Australian dollars per ton). In the midst of consistently low lithium prices, the cost side of new producing mines will face more challenges. Mainstream mine cash costs fluctuate, limited downward cost reduction space Based on data disclosed by various companies, the cash costs of mainstream mines in Q2 2025 still maintain relatively low levels, with cash costs basically below $600 per ton. Considering that the main cost reduction measures in Australian mines are reducing labor, increasing feed grade, and optimizing processing processes, after several quarters of cost optimization and control, the downward space for costs of mainstream Australian mines has significantly decreased, with some mines even experiencing cost increases. It is expected that the further downward space for cost reduction in Australian mines is limited, and a decline in lithium prices will impact the operations of Australian enterprises. Investment advice In the previous lithium cycle, lithium mining stocks bottomed out ahead of lithium prices. Currently, lithium prices have reached the cash costs of high-cost suppliers, significantly increasing supply risks, while downstream demand remains strong. In the new cycle, targets with secure internal resources and increasing production year by year are more resilient. Recommendations include: Qinghai Yanhu Industry (000792.SZ), Sinomine Resource Group (002738.SZ), Yongxing Special Materials Technology (002756.SZ), and others. Risk warning Risk of fluctuation in lithium carbonate prices; geopolitical risks; risks of new projects not meeting production expectations.