Australia is trying to break its reliance on China for lithium mining

Deep in rural Western Australia, the sprawling Pilbara Minerals processing plant towers over the red earth, shaking as tons of lithium ore slurry moves through its pipes.

The plant processes ore from a nearby quarry into spodumene, a greenish crystalline powder that contains about 6% lithium and sells for around $5,700 a ton. From there, the spodumene is shipped to China, where it is further refined so it can be used in batteries that power goods like cell phones and electric cars.

Australia taps into around 53% of the world’s lithium supply, and almost all of it is sold to China. But now the Australian government wants to break the world’s reliance on China to process the minerals that fuel the Green Revolution.

Pilbara Minerals, the country’s largest independent lithium miner, is among companies exploring a new model for producing battery chemicals – closer to where lithium is mined and sold to allies like the United States. United and South Korea.

The challenges associated with setting up such an industry are considerable. China has a huge head start, with years of experience and hundreds of lithium refining plants, and a growing grip on battery manufacturing facilities around the world. Australia’s tougher workplace standards will also make it harder to compete with China on price, analysts said, although some in Australia have argued it will result in a more reliable premium product.

“Consumers will vote with their feet, and they will buy electric vehicles, or even solar panels at home, depending on the cost,” said Marina Zhang, a researcher at the Institute of Australia-China Relations at the University of Technology of Sidney.

Pilbara Minerals is working with Australian technology company Calix on a project to refine spodumene into a lithium phosphate salt – a key step in preparing the material used in batteries. The companies are expected to make a final decision by the end of the year to invest up to A$70 million, or around $47 million, build a demonstration plant.

Dale Henderson, chief executive of Pilbara Minerals, and other supporters argued that refining lithium at home would create jobs, reduce the impact of shipping – 94% of spodumene shipped is thrown away as waste – and would secure supply chains for battery chemicals amid surge. geopolitical tensions.

Refining lithium would also allow Australia to take advantage of the Cut Inflation Act, the Biden administration’s policy enacted last year. The law aims to reduce China’s dominance of green energy by offering loans or grants to companies in countries, like Australia, that have free trade agreements with the United States.

At the Group of 7 summit last weekend, President Biden and Australian Prime Minister Anthony Albanese jointly announced plans to strengthen the supply chain of “critical minerals” used in clean energy.

The Australian government has already invested hundreds of millions of dollars to support the lithium refining industry, betting that customers will seek to source their lithium from a country that is more environmentally friendly and has a state. of strong law.

“If you have more of the supply chain in a country that has very strong governance and a very, very safe and trustworthy business environment, then consumers can have more confidence in the products they buy. “said Allison Britt, director of Geoscience Australia, a government agency.

A government report last year predicted that 20% of global lithium refining could take place in Australia by 2027, up from less than 1%. In some cases, senior officials have set even more ambitious goals.

“I want to make sure that we use the lithium, nickel and other products that we have to make batteries here,” Mr Albanese, the Prime Minister, said in a speech. “It’s part of the vision to protect our national economy in the future.”

But Australia should make significant progress to get closer to China in refining.

So far, Australia has only two facilities to produce battery-grade lithium hydroxide, used to make cathodes, and a third is under construction. All suffered significant construction delays related to labor shortages, as well as cost overruns.

The largest facility, jointly owned by US chemical maker Albemarle and Australian miner Mineral Resources, is being expanded with the aim of becoming “one of the largest lithium production facilities in the world”, according to a statement from Albemarle. Last year, it produced its first battery-grade lithium hydroxide, more than a year late.

A big challenge facing Australia is cost. The investment needed to establish a lithium hydroxide plant is about two and a half times higher in Australia than in China, said John Stover, portfolio manager at Tribeca Investment Partners, citing data from UBS Bank.

“Australia has historically shipped unprocessed ore to other countries for processing,” he said. “That change of mindset, I think, is going to be tricky.”

Chris Ellison, owner of Mineral Resources, said the government needed to make it easier for foreign companies to invest in Australian lithium refining through incentives such as funding and tax breaks.

“The US government is giving them grants to build in Europe, the US and places like Vietnam,” he said during an investor presentation in February. “We need the Australian government to come to the party on this.”

The Australian government must also weigh acute geopolitical concerns. Lithium is key to the country’s relationship with China, said Corey Lee Bell of the Institute of Australia-China Relations at the University of Technology Sydney.

“If we were to cut off that supply, I think that would be a very, very big problem,” Dr Bell said.

Yet Australia has hinted that it might be comfortable doing just that.

Speaking last month, Madeleine King, Australia’s resources minister, said the country had an important role to play in tackling the “concentration” of critical mining industries in China, which she said had led to “the fragility, volatility and unreliability”. The government has also indicated that it may limit foreign ownership of critical mineral resources.

In 2020, previously cordial relations between Australia and China took a turn after then-Prime Minister Scott Morrison ordered an inquiry into the origins of the coronavirus pandemic. China then blocked some Australian imports, including coal and wine. Australia took the dispute to the World Trade Organization and revoked the state of Victoria’s participation in China’s Belt and Road initiative.

There have been signs in recent months that tensions are cooling. China announced last week that it would lift its suspension on Australian timber imports after ending an unofficial embargo on Australian coal.

But the relationship remains volatile. Australia “needs to have a little more say in the fate of its resources,” said Ross Gregory, a partner at New Electric Partners, a consultancy.

Despite the barriers, Australia’s control of the raw material gives it a chance to assert its influence further down the supply chain, said Joe Lowry, the founder of consultancy Global Lithium.

“The guy with the stone wins,” Mr. Lowry said. “And Australia has the rock.”