Australia to break China's lithium grip

Leading the lithium rush, the Pilgangoora project in Western Australia's mine-friendly and resource-rich Pilbara region is sporting one of the largest hard rock lithium deposits in the world.

Nearly all the lithium produced at Pilbara Minerals' gigantic Pilgangoora processing plant is sold to China for processing into lithium carbonate and hydroxide.

But Pilbara Minerals, along with a few of Australia's more daring mining companies, is working to break China's grip on lithium trade and bring the electric vehicle battery manufacturing business to its own shores.

Slightly more than half of the world's supply of lithium is currently mined Down Under, but handing the lion's share of the mineral over to only one country for processing into battery materials is a key reason lithium is now considered a critical mineral.

The true environmental and social impacts of this most vital element in the energy transition are essentially invisible to the rest of the world, and its supply is extremely vulnerable to disruption, a lesson learned during the COVID pandemic.

Poking the dragon

In a risky move that invites punitive trade bans as similarly happened in 2020, Aussie mining industry leaders are coming around to embrace new geopolitical forces focused on green resource and processing provenance over cheapest supply, throwing a long and profitable relationship with mainland China onto rocky ground.

This new focus is driving Australia, Japan, South Korea, and others to seek to diversify away from China's decades-long lead on critical mineral processing and EV battery production.

China's monopoly on lithium processing is due to low production costs, shrewd investment very early on, hefty government subsidies, and lax environmental standards. Investment needed to establish a single Australian lithium hydroxide plant, on the other hand, is roughly two-and-a-half times higher, according to John Stover, a portfolio manager at Tribeca Investment Partners.

Chinese companies are by far the biggest fish in the lithium pond, controlling half of its global production and more than 70% of lithium-ion battery manufacturing, per Benchmark Mineral Intelligence.

But Madeleine King, Australia's resources minister, said the Great Southern Land has an important role to play in pushing back against the "concentration" of critical minerals industries in China, which has led to "fragility, volatility and unreliability."

Partnering up

For resources dependent on location, developing alternative supplies is extremely difficult. International cooperation will play an important role in strengthening supply chains. But the barrier for entry is steep, and it's hard for companies to turn away from the familiar, especially trade relationships so long-standing and lucrative.

Each new business deal brings Australia and its trade partners closer to a fortified industry and a more circular lithium supply chain.

Increased domestic mineral processing will also take advantage of the U.S. Inflation Reduction Act's loans and subsidies to companies in countries sharing free trade agreements with the United States. In that spirit, President Biden and Australia's Prime Minister Anthony Albanese jointly announced a compact that "[I]ntends to coordinate policies and investments to support the expansion and diversification of responsible clean energy and critical minerals supply chains, accelerate the development of markets for established and emerging technologies, meet the growing energy and adaptation needs of the Indo-Pacific, and enhance the region's role as a driver of resilient and sustainable global prosperity."

In April of 2023, a delegation of Australian company representatives went to Tokyo to court Japanese investment capital and long-term acquisition contracts in hopes of engendering support for the mining industry in the way Australia's iron ore and gas resources have enjoyed.

Likewise, United Kingdom-based Tees Valley Lithium is investing in a lithium-sulfate refining facility in Australia, which is expected to help massively reduce the volume of lithium-related materials shipped out by almost 80%.

Meanwhile, Tees Valley Lithium's parent company, Alkemy Capital Investments, announced it would supply lithium hydroxide to Recharge Industries, an Australian battery-manufacturing startup.

Spearheading change

Pilbara Minerals is the leading miner at the forefront of a new industry for the country-producing batteries and battery chemicals closer to where the lithium is mined and sold – supporting various nations' imperatives to develop transparency and reduce CO2 emissions in every aspect of the EV manufacturing process.

Its two locations are ideal, supported by infrastructure including roads and port access, with the mines and processing facilities upheld by strong environmental and safety regulations and social policies.

Rigorous workplace standards make it harder to compete with China on price, but counter with a more trustworthy, premium product rising in demand. Socioeconomic influences are transforming industries seeking heightened company stewardship, closed-loop practices, and green supply chains in the long run.

Domestic lithium refining would create jobs and help secure a valuable fair trade supply chain, as well as massively cutting shipping costs.

"Consumers will vote using their feet, and they will buy electric vehicles, or even solar panels at home, based on the costs," said Marina Zhang, a researcher at the Australia-China Relations Institute at the University of Technology Sydney.

Pilbara Minerals and Australian tech company Calix are also partnering on a project to refine spodumene to a lithium phosphate salt for battery production, with a final decision to be made by the end of the year whether to invest up to the Australian equivalent of US$47 million to build a demonstration plant along those lines.

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

Breaking ground

So far, Australia has just two facilities to produce battery-grade lithium hydroxide – China-owned Tianqi and U.S.-owned Albemarle – with a third under construction.

The largest facility, co-owned by Albemarle and the Australian miner Mineral Resources, is being expanded with the goal of becoming "one of the world's largest lithium production facilities," according to a statement from Albemarle. Fighting all manner of financial and labor delays, coming in at more than a year behind schedule, the plant finally produced its first battery-grade lithium hydroxide last year.

Australia mines about 53% of the world's lithium and is currently the third-largest producer of cobalt and fourth-largest of rare earths in the world. The Australian government has already put hundreds of millions of dollars toward supporting a home-grown lithium refining industry.

The country "needs to have a little bit more of a say over the destiny of its resources," said Ross Gregory, a partner at the advisory firm New Electric Partners.

The ambition is to become the world's most important producer of battery minerals by 2030.

A government report forecast that 20% of global lithium refining could take place in Australia by 2027, up from less than 1% now, with some officials aiming even higher.

"I want to make sure that we use the lithium and nickel and other products that we have to make batteries here," said Australian Prime Minister Anthony Albanese. "That's part of the vision of protecting our national economy going forward."

Despite the uphill climb, Australia's control of the raw material is ideal footing to take command of more aspects of the EV battery supply chain in the near future.

Joe Lowry, founder of the advisory firm Global Lithium isn't worried.

"The guy with the rock wins," he said. "And Australia's got the rock."