China’s quest for iron ore resources in Australia has long been a bumpy road. Citic Group, for example, has yet to make any profit from its hefty investment in an iron ore mine in 2006, which has so far run up $4.5 billion in provisions. Other state firms have also found their acquisition plans running into political resistance.
The experience doesn’t seem to have deterred the Chinese from trying their luck in securing lithium reserves, which have become one of the hottest spots in the global mining industry. With nearly A$500 million ($380.7 million) of investment coming from China, Western Australia alone may go from having just one large lithium project to seven big mines by next year.
The potential for a second mining boom based around Chinese demand, and with significant Chinese investment, is a boon for the state, which has the highest unemployment rate in Australia.
Brian Wilson, chairman of the Foreign Investment Review Board, even said last month that Chinese capital is welcome in the severely depressed state. Though the FIRB boss also suggested that Chinese investors should avoid Australian ‘icons’, mining projects have largely escaped the attentions of his watchdog. There seems to be no national security nor ‘iconic’ element to any of the lithium projects too.
Currently the largest lithium mine in the world, Greenbushes, is a joint venture between Albemarle of the US and China’s Tianqi Lithium. It has just announced that it will double annual production by mid-2019 to 160,000 tonnes, whilst several other mines will come online soon. Altura Minerals new Pilgangoora lithium project, also in Western Australia, will sell its lithium to China’s Lionergy, which will take 100,000 tonnes of spodumene concentrate (the mineral lithium is sourced from) for five years. One of Altura’s largest shareholders is Chinese battery producer Shaanxi J&R Optimum Energy, with a stake of 19.9%.
In Mount Marion a new project co-owned by China’s Ganfeng Lithium has been sending monthly lithium shipments to China since January – each of around 15,000 tonnes. Other major lithium miners include Kidman Resources whose Earl Grey mine in Western Australia could have one of the world’s single largest lithium deposits, according to the Australian Broadcasting Corporation.
All these mines are counting on big increases in demand. According to the Financial Times the global lithium market is currently around 175,000 tonnes per year. But demand has gone up 68% in the past five years and analysts from Deloitte estimate the market may triple or even quintuple in the decade to come. The demand is driven by lithium’s use in batteries, much of it related to China’s fast-growing electric car market and likewise smartphones. Yet it is also China’s increasing generation of power from renewable sources that is moving the dial.
China’s 13th Five-Year Energy Plan (running from 2016 to 2020) includes a goal of generating 15% of the country’s power from non-fossil fuel energy. To be sustainable, renewable energy needs to incorporate batteries, otherwise supply only meets demand when the renewable source is working (i.e when the sun is out). Lithium batteries remain the best current means of storage.
Four producers dominate lithium sales: Chile’s SQM, Albemarle, Tianqi and Philadelphia-headquartered FMC. However, China is believed to be sitting on one of the world’s largest lithium reserves, with an estimated 3.2 million tonnes, the United States Geological Survey said in January last year, or more than double the size of Australia’s estimated reserves.
So what is at stake as Chinese companies flock to snap up Australian lithium? A greater control of supply? “The new OPEC,” CNBC reckons, suggesting that the largest lithium miners will have the biggest say in the “fuel cost” of future electric cars.
Chinese Premier Li Keqiang’s visited Australia this week and WiC suspects the topic of lithium probably cropped up. His hosts know a disproportionate amount of the new demand looks likely to be Chinese and a major chunk of the new supply will be sent to China from Western Australia.
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