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

Deep in rural Western Australia, Pilbara Minerals’ vast processing plant looms over red dirt, quivering as tons of lithium ore slurry move through its pipes.

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

Australia extracts about 53 percent of the world’s supply of lithium, almost all of which is sold to China. But now the Australian government wants to break the world’s dependence on China to process the minerals that are driving the green revolution.

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

The challenges of starting such an industry are daunting. China has a huge start, with years of experience and hundreds of lithium refineries, and a steadily tightening grip on the world’s battery manufacturing facilities. Analysts said tougher workplace standards in Australia would also make it harder to compete with China on price, even as some in Australia argued it would lead to a more trustworthy premium product.

“Consumers will vote with their feet, and they will buy electric cars, or even solar panels at home, based on costs,” said Marina Chang, a researcher at the University of Technology Sydney’s Institute of Australia-China Relations.

Pilbara Minerals is working with Australian technology company Calix on a project to purify spodumene into lithium phosphate salt – a key step in processing the material for use in batteries. The companies are expected to make a final decision by the end of the year on an investment of up to A$70 million, or about $47 million, To build a demonstration plant.

Dale Henderson, 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 shipped spodumene is disposed as waste — and secure supply chains for battery chemicals amid the surge. Geopolitical tensions.

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

At the G7 summit last weekend, President Biden and Australian Prime Minister Anthony Albanese announced projects aimed at strengthening the supply chain for “critical minerals” used in clean energy.

The Australian government has already committed hundreds of millions of dollars to support the lithium refining industry, and is betting that customers will seek lithium supplies from a country that is greener and has a strong rule of law.

said Alison Brett, a director at Geoscience Australia, a government agency.

A government report last year predicted that 20 per cent of global lithium refining could be done in Australia by 2027, up from less than 1 per cent. In some cases, higher-ups set even higher 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. “This is part of the vision to protect our national economy in the future.”

But Australia will have to make great strides to move closer to China in the refining arena.

So far, Australia has only two facilities to produce lithium hydroxide used in the battery industry, with a third under construction. All of them experienced significant construction delays due to labor shortages, as well as cost overruns.

The largest facility, owned by US chemical manufacturer Albemarle and Australian mining company Mineral Resources, is being expanded with the goal 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-class lithium hydroxide — more than a year behind schedule.

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

“Historically, Australia has shipped unprocessed crude to other countries for processing,” he said. “This change of mindset, I think, is going to be difficult.”

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

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

The Australian government must also weigh acute geopolitical concerns. Cory Lee Bell, of the Institute of Australia-China Relations at the University of Technology Sydney, said lithium is instrumental in the country’s relationship with China.

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

However, Australia hinted that it might be a relief to do just that.

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

In 2020, friendly relations between Australia and China took a turn after Scott Morrison, then prime minister, ordered an investigation into the origins of the coronavirus pandemic. China subsequently blocked some Australian imports, including coal and wine. Australia escalated the dispute to the World Trade Organization and canceled Victoria’s participation in China’s Belt and Road Initiative.

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

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

Despite the barriers, Australia’s control of raw materials gives it an opportunity to assert influence in the supply chain, said Jo Lowry, founder of consulting firm Global Lithium.

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

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