By David Stringer and Martin Ritchie
The only things hotter than Western Australia's scorched outback are the mining companies preparing to supply the lithium needed by the likes of Nissan and Tesla Motors to meet booming demand for electric cars.
Lithium is providing a rare bright spot for miners, amid cratering prices of raw materials tied to heavy industry such as iron ore to coal. The material, also used in tablet computers and power storage, promises gains from China's shift to consumer-driven growth and global attempts to curb reliance on fossil fuels.
Prices of lithium carbonate – an industrial chemical used in lithium ion batteries – have surged 47 per cent in 2016 from last year's average, according to London-based Benchmark Mineral Intelligence. Two of Australia's five best-performing stocks in the past 18 months among a Bloomberg Index of 2035 listed companies are developers of lithium materials operations. From 2015 to 2024, the market to supply lithium ion batteries for light vehicles may total $US221 billion ($310 billion), according to Navigant Consulting.
'Step Change'
"There's a step change going on right now," as electric car sales rise and hybrid vehicles switch to lithium ion batteries, said Michael Fotios, executive chairman of General Mining, which is seeking to begin exports by July of the lithium-bearing mineral spodumene from Western Australia's Mt Cattlin project. "Raw material supply hasn't kept pace, and probably can't keep pace with the projected demand."
Electric vehicle charging facilities would become more widespread under the new proposals.Credit: Mark Jesser
Perth-based General Mining, with a market value of $86 million, has seen its shares rise more than 1000 per cent since it announced a plan in February 2015 to resume production at the previously shuttered Mt Cattlin. Pilbara Minerals, with a market value of $286 million, is accelerating development of its Pilgangoora project in Western Australia and forecasts production from about 2018. The company has advanced about 1200 per cent since it acquired the site in July 2014.
Greenbushes, the world's largest spodumene mine, is also located in Western Australia and owned by the Talison joint venture between China's Chengdu Tianqi Industry Group and Albemarle Corp, the world's biggest lithium producer.
Lithium carbonate's price gains will extend to 2017 on weak supply, while demand is likely to soar 64 per cent by 2020 from 2015 levels, Citigroup forecasts. This rising demand is intensifying a race to deliver new sources of lithium raw materials, spurring gains for developers poised to enter production before the end of the decade.
Lithium-ion batteries have grabbed the limelight with demand for them expected to grow in coming years.Credit: Bloomberg
China is targeting the goal of five million electric vehicles on its roads by 2020, under President Xi Jinping's strategic initiative to upgrade the nation's auto industry. Nissan and Renault SA said this month that sales of battery- powered vehicles rose to a record last year, while Volkswagen's Audi plans to start building its first purely electric sport utility vehicle in 2018.
"The demand in vehicles, electric bikes, trucks and buses is going to be enormous, and the electric storage market is also going to be significant," said Neil Biddle, executive director of Perth-based Pilbara Minerals, which holds the world's second- biggest deposit of spodumene. Prices of spodumene have jumped to about $US480 a tonne this year from around $US380 a tonne in 2014, according to Benchmark Mineral Intelligence.
Tesla's CEO Elon Musk has plans for a giant battery plant.Credit: Bloomberg
Lithium products used in batteries come from three sources: hard rock mining of mineral ores including spodumene; battery recycling; and the evaporation of brine from salt ponds, the technique that has historically dominated production. While hard rock miners such as General Mining and Pilbara Minerals are higher cost than brine projects, they have lower capital spending needs and are quicker to production, making them the best placed to exploit surging prices, according to Foster Stockbroking.
The cheapest source of lithium is brine and the biggest reserves are in Chile, where companies such as Albemarle and Sociedad Quimica & Minera de Chile SA harness the sun and the world's driest desert to evaporate brine from ponds. Codelco, the world's largest copper producer, plans to develop lithium holdings in Chile's northern desert salt flats. Rio Tinto, the world's second biggest miner, has a lithium-borate project in Serbia.
Previous booms
Just as in previous booms, when miners responded to increasing demand for materials by providing too much supply, a potential risk in lithium is that growth for new energy vehicles in China is being overestimated, Elsa Wang, senior analyst at consultancy Asian Metal in Beijing, said. If all current lithium projects proceed as planned, they would deliver about 330,000 tonnes of lithium carbonate-equivalent by 2020, creating "a bit of an oversupplied market," according to Citigroup analyst Matthew Schembri.
Tesla, the producer of electric vehicles and power storage products led by billionaire Elon Musk, is preparing to open its giant Gigafactory battery plant in Nevada. It will probably require 25,000 tonnes of lithium hydroxide a year when it reaches capacity, according to Simon Moores, managing director of Benchmark Mineral, an industry advisory company. That's equivalent to about 45 per cent of current global supply, he said.
LG Chem last year completed construction of an electric-vehicle battery plant in Nanjing, China, with capacity to supply batteries for 50,000 high-performance electric cars annually. Boston-Power is expanding its plants in China, and Panasonic, which makes batteries for Tesla cars, has added a joint venture there.
New supply from all lithium sources "will have a critical role to play in sourcing lithium for the battery supply chain," Mr Moores said. "As things stand, there will not be enough lithium to supply the battery megafactories coming onstream."
Bloomberg