M&A

Shortages afoot

Chinese firms’ lithium rush gathers pace

Elon-Musk-w

Musk: “Lithium’s like minting money”

“Do you like minting money?” Tesla’s CEO Elon Musk asked during the company’s first quarter results meeting on April 20. If the answer is yes, then he suggested that the lithium mining and processing business “is for you”.

It might also be for Tesla itself after Musk complained that lithium prices are “insane”, because of massive bottlenecks in trying to get the metal out of the ground and process it quickly enough for usage in electric vehicle (EV) batteries. Few expect prices to decline anytime soon given a widening supply-demand imbalance, as lithium miners cannot get projects going fast enough to keep up with end-users’ enthusiasm for the transition away from fossil fuels.

Xuan Jiyou, head of research at Qianmen Assets, tells China’s National Business Daily that lithium carbonate prices are likely to fluctuate around the level of Rmb500,000 per tonne for a “long time”. In January 2021, they were at the Rmb77,000 level.

The scramble to create secure lithium supply chains is intensifying. And much like the semiconductor sector, countries are starting to seek projects onshore.

As we wrote in WiC569, the brokerage Guotai Junan estimates that China imports about 70% of its lithium needs, despite sitting on the world’s third largest known reserves (about 4.5% of the global total) behind Australia on 6.3% and Chile 9%.

That is starting to change. In February, for example, the Chinese Academy of Sciences reported the discovery of a potentially large lithium deposit in the Qiongjiagang region of the Himalayas.

The estimated one million tonnes resource could represent China’s third largest, behind one in Xinjiang and another in Sichuan province. Scientists believe that it is also close to the surface making it far easier to extract.

Likewise in the US, California may have ‘struck gold’ for the second time in almost 200 years, after scientists uncovered the world’s potentially largest source of brine lithium under the inland Salton Sea, bigger even than the salt flats in South America. California Governor Gavin Newsom is now calling the state “the Saudi Arabia of lithium”.

In recent years, Chinese companies have been very adept at securing overseas projects, but they are starting to face higher hurdles. This month, Canada’s bipartisan parliamentary committee issued a report recommending that the sale of any Canadian assets to “state-owned companies from authoritarian regimes” will require a security review.

The move follows fierce criticism of Zijin Mining’s purchase of Toronto-listed NEO Lithium, which closed in January. It was waived through on the grounds that while the assets were Canadian-owned they were located in South America.

One way Chinese companies are trying to work around the regulators is buying assets at the project level rather than the ultimate parent. The latest example is Sichuan Yahua Industrial Group’s purchase of a 60% stake in a project owned by Canada’s Ultra Lithium Corp – the Forgan Lake and Georgia Lake hard rock spodumene projects. One investor told Sina Finance that the Shenzhen-listed group had “struck a bargain”.

At the other end of the industry chain, a new unicorn has also been born after Shanghai-listed Ningbo Shanshan executed a capital raising for its battery materials subsidiary Shanshan Lithium Battery.

The company now has an Rmb11.8 billion ($1.8 billion) valuation following the funding round, which saw participation from key customers such as BYD, CATL and Kunlun Energy (a PetroChina unit), plus (the lengthily named) Ningbo Meishan Free Trade Port Zone Wending Investments.

Financial analysts note that Shanshan has managed to stay at the forefront of industry development since it diversified into battery materials at the turn of the century. CICC analyst Wei Wuxiong highlights how the company started to mass-produce silicon-carbon composite anodes in 2021.

The brokerage believes that they represent “the next generation anode for lithium-ion batteries” and have strong growth potential given their many advantages over the graphite anodes most commonly used for lithium batteries. 


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