With China ramping up production of electric vehicles, demand is on the rise for battery minerals. Australian miners are eager to meet it.
For decades, Chinese demand for raw materials has strengthened the Australian economy, helping to keep it recession-free. The demand for base metals fuelled by China’s building boom may have dwindled a few years ago, but it has been replaced by demand for minerals such as lithium, cobalt and nickel, used to make batteries for electric vehicles (EVs).
Amongst the big winners are Pilbara Minerals, owner of the Pilgangoora lithium mine in Western Australia. Seizing on the skyrocketing price of battery-grade lithium, Pilbara ramped up production from the country’s lithium-rich spodumene, and has seen its market cap rise from AUD$25 million to AUD$1.5 billion since 2015. Chinese carmaker Great Wall Motor has bought a stake in the company, and agreed to take a large share of its spodumene concentrate.
Altura Mining is also developing a lithium mine in Pilgangoora, and likewise, much of its production is destined for China. Another miner, Clean TeQ, one of whose big shareholders is Chinese firm Pengxin International Mining, is focusing its energies on battery minerals as well. Its value has shot up 240% this year, buoyed by its plans to produce nickel and cobalt sulphates.
Australia is the supplier of choice, the Australian miners maintain, because they offer Chinese battery manufacturers a more secure source of raw materials. Lithium, for example, can be produced more cheaply from brine in South America, but the business landscape in Australia is far easier to navigate. As for cobalt, Clean TeQ points out that its production will be free of the ethical issues associated with cobalt from the Democratic Republic of Congo (DRC). A full 60% of supply currently comes from the DRC, but the industry is known to use child labour.
Will Australia be able to meet sustained demand? Cobalt has outpaced the value of nickel due of its scarcity. Given the expected demand from the lithium-ion battery industry, shortages are expected within a few years. Phil Thick, General Manager of Tianqi Lithium Australia, majority owner of the world’s largest lithium mine, said he foresees no shortage of lithium. However, he points out, there is a lack of processing capacity. Chinese-owned Tianqi and its American partner, Albermarle, plan to lift production of lithium hydroxide in Western Australia for export to China, The Economist reports. The company is constructing a $400 million lithium processing plant in Western Australia.
The biggest risk attached to these projects is the investment, since returns will depend on whether carmakers follow through on their plans to go big on electric vehicles. Ken Brinsden, CEO of Pilbara, believes China will “surprise the world” with its role in the battery revolution. However he also acknowledges that Chinese carmakers, in the short term, see hybrid vehicles as a stepping stone towards EVs, indicating that full electrification will happen only at a later stage.
There is also the risk that mining giants such as Australian-British Rio Tinto will want to take over. It is rumoured that Rio considering a bid for SQM, Chile’s biggest lithium producer, but Tianqi’s Thick isn’t concerned: “It’s a tough business. Even Rio with its huge chequebook won’t find it easy.”