Miners turn to Government for assistance as China flips battery metals on their head
- Miners call for more Government support as Diggers and Dealers have a rough time in the battery metals sector
- Ken Brinsden says “wheat desk” style price-setting could help rare earths developers outside China, and that the West should get serious about pouring public money into refineries
- Australian spodumene still in demand as miners warn of unknowns for converters relying on ‘rushed’ African supply
China’s control of prices in rare earths, lithium, nickel and other specialty metals key to defence and the future of energy security are leading to increasing calls for government intervention to support the mining industry, in a reversion of the typical approach of miners to the regulation of the sector.
The most strident calls arguably came from lithium legend Ken Brinsden, the Australian boss of Canadian explorer Patriot Battery Metals (ASX:PMT), who called on the West to bankroll lithium refining in a game of catch-up on electric vehicle supply chains against China and suggested the Australian Government could revive bodies akin to the Wheat and Potato boards to set profitable prices for rare earths producers.
The calling cry from the sector is often around red tape and approvals, with the best thing Government can do being ‘getting out of the way’.
There were plenty of those at the Diggers and Dealers Mining Forum in Kalgoorlie, with Capricorn Metals (ASX:CMM) chair Mark Clark using his toast to the industry at the awards dinner to say the mining industry needed to tell its story better in the face of negative perceptions in the wider community.
But the recent collapse in nickel and lithium prices, as well as the persistently low prices of rare earths caused to a large extent by ramped up production quotas in China last year, has the industry thinking differently about the way forward.
“I would establish the equivalent of the wheat desk,” Ken Brinsden said on the sidelines in Kal.
“I would set a price in the market that I thought represented a reasonable rate of return to the average rare earths company.
“If it’s truly strategic, you would set that price and you would buy that product to facilitate the investment that’s required upstream. In the absence of an intervention, there will be no Western supply response, because China doesn’t play by our rules.
“I’ve come to the conclusion that the rules by which China plays the raw materials game actually can’t be beaten by the West.”
Ken Brinsden went HAM on the final day of Diggers. Pic: Supplied/Stockhead
Cap in hand
With a muted mood at Diggers driving fears money men smell the whiff of a downturn, outside the antiquated and ironically booming gold sector, more miners are calling on government support to preserve the next egg in our nickel and lithium industries.
Liontown Resources (ASX:LTR) boss Tony Ottaviano called for royalty relief from the WA Government to support lithium miners as it ramps up its Kathleen Valley operation, which recently poured first concentrate.
Despite delivering solid cashflows at current prices, Pilbara Minerals (ASX:PLS) boss Dale Henderson was also supportive, though miners like Brinsden, the previous PLS boss who led the company through the 2018-2020 ‘Lithium Winter’, said support was normally too slow to flow.
WA Mines Minister David Michael stopped short of offering a bone to lithium or nickel players when pressed by media last week. A day later news of another potential mine closure came, with Arcadium Lithium (ASX:LTM) announcing it would pause investment on the James Bay lithium project in Canada and potentially mothball the Mt Cattlin mine in WA early.
Equally, Australia’s nascent refining industry is suffering as prices, a dearth of expertise and weak supply chains resulted among other reasons in poor performance at Albemarle’s Kemerton plant, where investment on three of the four trains has now been halted, and IGO (ASX:IGO) and Tianqi’s Kwinana refinery.
IGO’s Ivan Vella said Australia’s inability to compete with Chinese manufacturers was related to the skill base built in Chinese plants, many of which are heavily automated, while supplies for shutdowns and breakages are also on their doorsteps.
Albemarle also decided not to progress a refining MoU with Patriot over its Shaakichiuwaanaan project, which now contains over 140Mt of high grade spodumene ore, earlier this year, a sign the commercial appetite is not there in the West in the current climate.
Brinsden says governments need to step in to ensure refining is done close to our world class mines in order to drive down Western EV battery cell prices and reduce reliance on China.
“My personal view is absolutely, and we should have done it a decade ago. China’s got the best part of a decade’s lead as a function of the West kind of sitting on their hands, and the time to change the game is absolutely now, or should have happened already,” Brinsden said.
“China’s in such a dominant position that it represents a huge threat to a lot of industries in the West, the least of which is the car industry and we’ve got a lot of catch up to do.
“So there is going to have to be a change in behaviour.”
Brinsden said there is a ‘big issue here that cannot be solved by free markets’.
“There’s no logic now in the West saying, ‘well, we’re just going to wait to see how it gets resolved’, because in the intervening period, China just gets better,” he argued.
“Exactly what they’re doing today: lower cost EVs, lower cost cells, dominance in energy storage. That’s actually what’s happening, so you’ve got to change the game.”
Brinsden’s comments came two days after Labor heavyweight, ex-politician and diplomat Kim Beazley called for up to $5bn in State funding to be directed towards Australian rare earths producers to compete with China.
How bad is it really?
The lithium conundrum has emerged as weaker economic numbers in China and pullbacks in investment from western automakers have conspired with supply side surges to force chemical prices down from over US$80,000/t in late 2022 to a little over US$11,000/t today.
Spodumene concentrate prices have tumbled from US$8000/t to under US$900/t in the same period.
But lithium explorers and producers are sceptical some of the supply sources Chinese converters and battery makers have relied on are sustainable in the long-term.
Lepidolite producers are well into the cost curve, while African hard rock supply, outside the newly established Goulamina mine in Mali, is believed by ASX producers to have quality control issues.
Brinsden said the current downturn was nothing like 2020.
“That was a demand problem more than it was a supply problem. In fact, it really didn’t matter what price you wanted to sell your product for. Basically, China was saying, don’t send the ships,” he recalled.
“That has not happened in the current market. West Australian spodumene supply has continued. And you have to ask yourself, why?
“If China’s supply response is so good, if it’s so good domestically in China or in Africa, why wouldn’t they, at some point in time in the cycle say, we don’t need your s**t from Western Australia.
“And that hasn’t happened in this cycle. So what’s fallen out of the market? The other crap that they’ve supplied to market, either domestically in China or some of those lesser lights in Africa, and this is, in my view, this is actually a really important point about the structure of the industry.
“Even if an analyst tells you this product from China is actually good or it’s low cost, I would be very sceptical and simply say it’s not.”
Tighten up
Other lithium experts in Australia think the market will tighten up again despite the shockwaves of the past 12-18 months.
“The market, when it does tighten up, it’ll be projects like ours that will be first and foremost on the radar for development,” Global Lithium Resources (ASX:GL1) exec chair Ron Mitchell told delegates last Wednesday.
An executive at Talison Lithium when its Greenbushes mine was the sole supplier of spodumene from WA, competing against African petalite deposits to sell into the Chinese market, Mitchell says it remains uncertain what the quality and cost profile is of many African lithium operations.
He says the rush to supply a hot market has brought ‘unpredictable’ material online.
“There was a rush to market, China Inc. went into Africa in a big way and there was a mandate about getting tonnes to market in whatever shape possible,” he told Stockhead.
“I know from previous experience, I was involved in competing against an African petalite deposit, the orebodies are quite complex, they have lithium and other mineralisation and not all spodumene dominant, which is what you want.
“A real metallurgical test work campaign is 18-24 months of work, infill drilling needs to be done and sampling that’s representative of the orebody. Clearly what happened, and Ken is attuned to this, with the rush to get more lithium out there a lot of shortcuts were taken.”
He said this has seen material come into the supply chain where recoveries at converters are “up and down like a yo yo”.
“It’s about sustainability and it’s got nothing to do with ESG. The point is are they sustainable from a production perspective and a recovery perspective?” Mitchell said.
“That’s the great unknown in terms of what’s been coming out of Africa.”
MinRes-backed GL1 owns the ~51Mt at 1% Li2O Manna project near Kalgoorlie, where a DFS is due at the end of 2024.
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