29/10/2021 - 14:00

Critical battery minerals coming of age

29/10/2021 - 14:00

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WA producers poised to ride a lift in export volumes of refined chemicals, but it won’t all be smooth sailing.

Critical battery minerals coming of age
Demand for electric vehicles is increasing rapidly. Photo: Waldemar Brandt on Unsplash

There has been some quiet recognition over the past few months of the arrival of the next phase of Western Australia’s participation in the battery supply chain.

In August, lithium hydroxide was produced from the IGO and Tianqi Lithium joint venture, while earlier this month the first nickel sulphate was produced at BHP Nickel West’s plant.

In the near and medium, similar projects will come on stream, with Albemarle and Mineral Resources remaining focused on commissioning their plant, with first production due next year.

Covalent Lithium (Wesfarmers and SQM) made a final investment decision earlier this year for a 45,000tpa lithium hydroxide plant.

Lynas is building its rare earths processing facility at Kalgoorlie, expected to be operational in 2023. In addition to these projects which have the go-ahead, several other companies are actively exploring opportunities in both mining and refining.

Given this phase of project commissioning, waves of positive commentary on the decarbonisation agenda and incredibly healthy share prices of companies in this segment, it is easy to forget that just recently, the outlook seemed far from certain.

Following a period of buoyancy and high hopes in 2015-17, depressed prices followed, leading to local proponents reshaping projects and delaying investment decisions.

As the market turned for the worse, it was clear WA was a relatively small fish in a pond where much larger market players have a dominant influence.

Since 2015, lithium chemical refining capacity has more than doubled, of which most has been established in China.

Despite a very healthy increase in chemical lithium demand, the ability for other jurisdictions to bring on supply speedily and more cheaply meant WA’s would-be producers miss out.

Commodity prices have increased rapidly in 2021, with many reaching plus 10-year highs.

For refined lithium (priced as lithium carbonate equivalent), the price is up to levels seen in 2017 and early 2018. Lithium spodumene prices hit a record in September.

While risks remain, the state is better placed now than a few years ago to weather market volatility.

While still young, the first is the maturing of the industry – having lived through the pains and gaining project execution experience, the local know-how has grown and there will likely be an appetite to build from this position.

There is also a maturing from state and federal governments, with the implementation and progression of the WA government’s Future Battery Industry Strategy and the federal government’s Critical Minerals Facilitation Office.

While the respective work of state and federal governments has a different emphasis at times, there does tend to be a recognition further value adding will be a staged process and won’t be the subject of overnight success.

Another key change to hold WA in good stead is the growing emphasis on transparency and digitisation.

As a jurisdiction that is well regarded, and whose provenance suppliers want to emphasise, (WA is fourth on the oft-quoted Fraser Institute list of attractive mining jurisdictions), we will be a beneficiary of increasing customer drivers, to fully understand where their materials come from and how they were produced.

There have been early signs of segments in the mining sector marketing themselves more akin to a consumer product so as to differentiate from competitors.

As the percentage of electric vehicles increase on the back of growing consumer awareness, being supplied from a jurisdiction such as WA will likewise increase in importance.

A key factor of just how important this consideration will be is how and when this transfers to a predictable and attractive premium, and the efforts made to decarbonise individual mining and refining operations.

A final strength in WA’s favour is a growing emphasis on diversification of supply, which one can anticipate only to lift further as batteries and other technologies requiring critical minerals increase in importance and saturation.

It will be fascinating to see how prices fare over the short term.

With prices so hot and supply taking time (often several years) to catch-up, there’s a risk that battery factories currently on the cards won’t get built.

This could well take steam out of the market and cause a quick turn in sentiment.

Several more risks remain, including those facilitating the downturn a few years ago.

The tide has turned with the export of significant volumes of refined chemicals in sight, but it won’t all be smooth sailing.

  • Joe Doleschal-Ridnell is director at JDR Advisers, where he works with clients in mining, energy and industry

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