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

Deep in rural Western Australia, the massive Pilbara Minerals processing plant looms above the red dirt, vibrating as tons of lithium ore slurry move through the pipes.

The plant turns the ore from a nearby quarry into spodumene, a greenish crystalline powder that is about 6 percent lithium. about $5,700 per ton. From there, the spodumene is shipped to China, where it is further refined so that it can be used in the batteries that power goods such as mobile phones and electric cars.

Australia mines about 53 percent of the world’s lithium supply and virtually all of it is sold to China. But now the Australian government wants to break the world’s dependence on China for processing the minerals that power the green revolution.

Pilbara Minerals, the country’s largest independent lithium miner, is one of several companies exploring a new model for battery chemical production – closer to where the lithium is extracted and sold to allies such as the United States and South Korea.

The challenges of getting such an industry up and running are enormous. China has a huge lead, with years of experience and hundreds of lithium refining plants, and a steadily tightening grip on the world’s battery factories. Australia’s stricter workplace standards will also make it more difficult to compete with China on price, analysts said, even though some in Australia have argued they 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, based on cost,” said Marina Zhang, a researcher at the Australia-China Relations Institute at the University of Technology Sydney.

Pilbara Minerals is working with Australian technology company Calix on a project to refine spodumene into a lithium phosphate salt – an important 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 AUD 70 million or approximately $47 million. building a demonstration plant.

Dale Henderson, the CEO of Pilbara Minerals, and other proponents have argued that refining lithium at home would create jobs, reduce the impact of shipping — 94 percent of spodumene shipped is discarded as waste — and secure battery chemical supply chains. amid rising geopolitical tensions.

Refining lithium could also allow Australia to benefit from the Inflation Reduction Act, the Biden administration’s policy enacted last year. The law aims to break China’s green energy dominance by offering loans or grants to companies in countries, such as Australia, that have free trade agreements with the United States.

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

The Australian government has already done that spent hundreds of millions of dollars toward supporting the lithium refining industry, betting that customers will seek lithium in a country that is more environmentally friendly and has a strong rule of law.

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

A government report last year predicted that 20 percent of global lithium refining could take place in Australia by 2027, up from less than 1 percent. In some cases, top officials have set even higher targets.

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

But Australia would need to make significant strides to get closer to China in refining.

So far, Australia has only two facilities to produce battery-grade lithium hydroxide, which is used to make cathodes, and a third is under construction. All have suffered major construction delays associated with labor shortages and cost overruns.

The largest facility, co-owned by US chemical producer Albemarle and Australian miner Mineral Resources, is being expanded with the goal of becoming “one of the largest lithium production facilities in the world,” it said. a statement from Albemarle. Last year it produced its first lithium hydroxide for batteries — more than a year behind schedule.

A major challenge for Australia is cost. The investment required to set up 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 the bank UBS.

“Historically, Australia has shipped unprocessed ore to other countries for processing,” he said. “That change of mindset will be difficult, I think.”

Chris Ellison, the owner of Mineral Resources, said the government should make it easier for foreign companies to invest in Australia’s lithium refinery through incentives such as financing and tax breaks.

“They’re being offered grants to build in Europe, the US and places like Vietnam from the US government,” he said in a February presentation to investors. “We need the Australian government to come to the party about that.”

The Australian government must also weigh up acute geopolitical concerns. Lithium plays an important role in the country’s relationship with China, said Corey Lee Bell of the Australia-China Relations Institute at the University of Technology Sydney.

“If we reduced that supply, I think it would be a very, very big problem,” said Dr. Bell.

Still, Australia has hinted it might be comfortable doing just that.

Last month, Madeleine King, Australia’s resource minister, said the country has an important role to play in reducing the “concentration” of critical mineral industries in China, which she says has led to “fragility, volatility and unreliability”. The government has also indicated that it could restrict foreign ownership of critical mineral resources.

In 2020, previously cordial relations between Australia and China took a turn for the worse after Scott Morrison, then Prime Minister, ordered an investigation into the origins of the coronavirus pandemic. China then blocked some of Australia’s imports, including coal and wine. Australia escalated the dispute to the World Trade Organization and withdrew Victoria’s participation in China’s Belt and Road Initiative.

In recent months, there have been signs that tensions are cooling. China announced last week that its suspension of timber imports from Australia after ending an unofficial embargo on Australian coal.

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

Despite the barriers, Australia’s control of the raw material gives the country the opportunity to exert influence further down the supply chain, said Joe Lowry, the founder of global lithium consultancy.

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