The unfulfilled promise of lithium mining
Lithium’s promise casts a spell across the Australian political spectrum.
Senator Matt Canavan, when minister for Resources, talked about value-adding Australian-mined lithium onshore for the batteries found in phones, renewable energy storage and electric vehicles. Labor leader Anthony Albanese has talked about lithium as one of the “key ingredients” of a “renewables revolution” – an enticing prospect, given Australia is the world’s largest lithium producer. The Greens have talked about lithium as the source of new mining jobs to replace the ones that have to go in coal.
But this rhetoric obscures the fact Australia’s lithium-mining industry is in trouble. Mines founded in a rush of enthusiasm over the past five years have paused production and are now mothballed. The companies involved are in financial trouble or under strain. Things have gone wrong very quickly.
In 2015, some predicted lithium would soon rival iron ore, Australia’s top earner of export income, as a contributor to national wealth. The statement was probably overhyped at the time. Today, it looks ridiculous.
The story may still have a happy ending, but by the time lithium regains its lustre the corporate landscape is likely to be transformed. The price of Australia’s main lithium-containing export, the mineral spodumene, dropped from about $US900 a tonne to less than $US600 a tonne at the end of 2018. In 2019, prices dropped by another third.
At the same time, lithium is set to become a hotspot in the relationship between China and Australia.
The world’s largest lithium mine, and one of the oldest – Greenbushes, 250 kilometres south of Perth – is the only one in Australia still producing and has put off its expansion plans. It is owned by the United States-based Albemarle Corporation, which has a 49 per cent stake, and the Chinese Tianqi Lithium, which owns the controlling stake. This makes the two companies both collaborators and competitors in the lithium market, when their home countries are increasingly opposed. Greenbushes is responsible for a third of the world’s lithium supply and satisfies 75 per cent of Chinese demand.
But Tianqi is in serious financial trouble, laden with debt. The company is reported to be approaching debt repayments of about $US3.5 billion after borrowing to buy in to lithium projects in Chile, which gave it control of almost half the global supply. The financial press has speculated that Tianqi may sell its Australian interests to Albemarle, but there are problems with that possibility. As Albemarle chief executive Kent Masters told analysts last month, the Chinese government “will probably have influence on where that asset ends up”.
Analysts and mining executives who spoke to The Saturday Paper were more blunt. They believe Beijing will go to great lengths to prevent Chinese enterprises from losing access to Australian lithium, suggesting Tianqi may be sold to a state-owned enterprise or propped up by the Chinese government.
This comes at a time when the Morrison government is increasingly inclined to block Chinese investment in Australian companies. The Australian government has announced a sweeping overhaul of foreign investment review rules aimed at protecting national security. The Foreign Investment Review Board will have to approve all investments in “sensitive national security business”. Signs suggests lithium may fall within that definition.
In April, the Foreign Investment Review Board blocked Chinese investment in the Perth-based AVZ Minerals on the grounds that it was “contrary to the national interest” – even though the investment was to develop a lithium mine not in Australia, but in the Democratic Republic of Congo.
The Saturday Paper approached Tianqi for an interview to inform this article. A public relations firm responded that the company was “not focusing on media at the moment” and declined the request.
The answer to the question of what went wrong for Australian lithium is not a story about opportunity missed, but rather opportunity naively seized, and the complications that underlie the rhetoric about Australia’s advantages in a clean, green future.
The lithium narrative has many tendrils, but shallow roots – a reminder of just how fast our world has changed. It’s hard to remember that the first iPhone, the device that started our dependence on high-performance batteries accompanying us at all times, was launched only 13 years ago.
Joe Lowry, president of Global Lithium, who has for decades worked for and advised lithium producers, investors and international governments, recalls visiting one of the first lithium battery plants in China in 2000. Before this, the metal had been used mainly to make glass products, high-performance greases, rubber soles and plastic bottles.
The factory was basic, by his description. “It was kind of a pitiful thing. I was served tea, and if you didn’t drink it fast it was all over the table because the paper cups were so thin … Three years later they had tens of thousands of employees and were making cellphone batteries.”
He says most of the employees were young girls, “getting carpal tunnel syndrome making batteries by hand”.
Most of today’s leading battery-manufacturing plants didn’t exist at the time. Japan was a centre of battery manufacture and the business in China was in its infancy, but that changed at lightning speed as mobile devices became ubiquitous. The Chinese company CATL – which is partnered with Tesla – was founded in 2011. Other companies, such as BYD and Beijing Pride Power, today supply the great majority of the world’s battery inputs.
Then came the development of electric vehicles. Where a mobile phone contains only grams of lithium, a battery in an electric vehicle needs about 12 kilograms.
The Chinese government in 2012 announced a target of making two million electric vehicles by 2020, and from 2013 supported the industry with subsidies. Meanwhile China swept the world for strategic partnerships to gain access to the resources.
The Greenbushes mine was the only Australian producer at the time. Previously owned by Sons of Gwalia, Greenbushes was taken over in 2009 by the company Talison Lithium, which is based in Western Australia. Tianqi bought its stake in Talison in 2012 and Albemarle in 2014.
The cornering of the Greenbushes mine by these companies caused a price spike, and the lithium rush was on. Over the next few years, six more lithium mines were established, all in Western Australia. They included Wodgina, south of Port Hedland, which is the mine with the largest-known resource in Australia. It is owned by Mineral Resources – which sold a 60 per cent stake to Albemarle just before the lithium price dived and the mine was mothballed.
Other mines were Mount Marion, south-west of Kalgoorlie, half owned by Chinese company Jiangxi Ganfeng Lithium; Earl Grey, near Southern Cross; and Pilgangoora, also south of Port Hedland.
Lithium resources were also being developed in Chile and Argentina, where the metal is extracted from salt lakes through an evaporative process. That is cheaper, but also slower and, Australian miners claim, more problematic for quality.
Figures on worldwide lithium production vary widely depending on what source you consult, but there is a consensus that sometime between 2016 and 2017, Australia overtook Chile as a lithium producer. According to Geoscience Australia’s Resource Review, in 2017 Australia produced 47 per cent of the world’s supply, compared with Chile on 31 per cent and China on just 7 per cent.
In 2017, the new Australian mines and expanded operations resulted in a 70 per cent surge in supply. It had all the makings of a bubble.
Mining barons weren’t the only ones getting excited. The Clean Energy Finance Corporation, the child of the Gillard minority government’s deal with the Greens to establish an emissions trading scheme, invested $20 million into the Pilgangoora lithium mine, quoting a CSIRO report that described lithium as a vital advance for Australia in the global clean energy transition.
But two years later, it had all begun to fall apart. Prices plummeted and the Pilgangoora mine was also largely mothballed, with the focus shifting to selling stockpiled ore.
By 2019, the financial press was describing the industry, now fed by seven mines, including Greenbushes, as being “in survival mode”.
Australia had brought on too much supply too quickly. The spiral was compounded by the fact the electric vehicle market in China didn’t develop as fast as predicted because its government pulled back from subsidies.
But there were other problems as well, and these tell us more about Australia’s strengths and weaknesses when it comes to capitalising on the lithium advantage, and mining advantages more generally.
The mining industry didn’t really understand what lithium entailed.
One mining executive involved in the lithium fever says that for years Australian miners had grown rich on iron ore, and on an attitude of “pull it out of the ground, ship it out and get rid of it”.
Issues of quality were less important than meeting China’s insatiable demand.
But lithium was different. Lowry describes it as being “not so much a mining business as a chemical production business”. Australians excelled at the former, but not the latter.
In its pure state, lithium is a beautiful metal – silvery white and soft enough to cut with a knife. Not many people ever see it that way. It doesn’t occur in its pure form in nature.
Instead, it has to be extracted, and that is complicated. Lithium processors talk about the work with the same kind of passion and attention to detail that Breaking Bad’s Walter White brought to “cooking” methamphetamine. Every resource has its differences, impurities and complications.
While any old lithium is useful for glass or grease, lithium carbonate used for batteries must be 99.5 per cent pure – and with the increasing need for battery performance, the competitive edge is all about that remaining 0.5 per cent.
In Australia, lithium is mined as spodumene, which contains only about 2 per cent lithium. The rock must be crushed and cooked to make a concentrate, which is then milled into fine powder before being mixed with acid and roasted again to produce the material needed for batteries.
Albemarle’s president of lithium, Eric Norris, told an industry conference in 2018 it was becoming clear that success in lithium depended on a matrix of political, legal, social and technical factors.
“The lithium industry is still maturing from a technical and commercial perspective – it does not behave like a commodity industry,” he said. Only a few producers had demonstrated the ability to produce material for safe, high-performance, long-life batteries.
When the lithium supply glut caused prices to drop, spodumene was stockpiled both in Australia and at the rapidly developing processing plants in China, and it became clear that many of those involved had not adequately understood the business.
In recent years, both Albemarle and Tianqi have invested in processing plants in Western Australia. The Tianqi plant, in the industrial suburb of Kwinana in Perth, has yet to produce any processed lithium, and the Albemarle plant is on hold due to the market downturn.
At the moment, Australia ships minimally processed spodumene to China, capturing what some estimate to be less than 1 per cent of the value of the resource.
So, what does the future hold? Some analysts draw comfort from a view that when it comes to lithium, China needs Australia more than we need China – but that’s a hollow promise as long as we lack alternative markets and processing abilities.
China is already investing in developing its own lithium resources in Argentina and Chile.
Mining executives who have travelled to China in recent months say West Australian spodumene is stockpiled there “as though they are preparing for the worst”.
But most of them still believe lithium will, ultimately, be a success story. Germany is increasing subsidies for electric vehicles. Britain has banned the sale of new petrol cars from 2035.
The Covid-19 crisis has caused short-term pessimism though, with sales of electric vehicles in China dropping by 56 per cent in the last quarter, and new battery production falling by a similar amount.
Forecasts published by the Department of Industry, Science, Energy and Resources predict a continuing slump in lithium prices for the next few years, but they expect demand to increase by 2024-25, when lithium will be worth $3 billion in export income.
However, previous forecasts from the same source failed to predict the depth of the current slump.
An industry and research consortium in Western Australia has proposed that the Australian government invest in developing a “lithium valley” in the state to rival California’s Silicon Valley, with processing, battery manufacture and recycling here in Australia.
Joe Lowry has met the people involved and is sceptical. The fact is that, at the moment, almost all investment in lithium mines in Australia is from overseas companies.
“It’s cheap to mine in Western Australia. It’s not cheap to make chemicals in Western Australia,” says Lowry. “The infrastructure is not great. You’re a long way from anywhere. Your energy costs aren’t super cheap, and labour costs are high.”
He says that if he were advising Australian companies, he would suggest they establish processing plants not in Australia, but in Poland or Texas, closer to battery manufacture and with lower labour costs.
On the upside, our resource is some of the best in the world. Threats from China to embargo the export of rare earth minerals in trade war retaliations have meant the US and Europe are increasingly focused on building resource supply chains that are not vulnerable to China’s displeasure. That includes lithium.
Lowry says that in recent months he has talked to companies planning processing plants in America and Europe. “They all want Australian spodumene,” he says. Our relative political stability gives us an edge over Chile and Argentina.
But in the meantime, says Lowry, the industry needs billions of dollars of investment – mostly in processing – over the next few years. The companies currently involved lack the balance sheets to do that, while China is likely to streak ahead with government backing.
If the Coalition government or Labor has plans to back that kind of investment, it has yet to announce the detail.
Meanwhile, Australia’s biggest companies, which might be able to invest in processing, have mostly stood aside.
That might change. Lowry mentions Wesfarmers among those that may buy in.
He believes growth in the electric vehicle market will eventually mean that lithium regains its glow.
He predicts that before the end of the decade “every bit of spodumene in Western Australia will be needed, and we’ll be talking about shortages again”.
“It will be the overnight success story that took 25 years,” he says.
But not all the corporations currently involved in Australian lithium will make it that far.
The way ahead will involve either continuing to work with China, or if the government is determined to unwind Chinese investment, navigating the politics and economics of that.
Neither path will be easy.
This article is supported by the Judith Neilson Institute for Journalism and Ideas.
This article was first published in the print edition of The Saturday Paper on Jun 13, 2020 as "Losing their mines".
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