The conditions that have slowed growth in WA’s lithium sector won’t last forever and there are some great opportunities for companies taking the long-term view.
The conditions that have slowed growth in WA’s lithium sector won’t last forever and there are some great opportunities for companies taking the long-term view.
The state government’s dream of creating a world-class technology metals industry based on abundant supplies of lithium, nickel and rare earths has not been killed by COVID-19, but the disease is a factor in what could be a dramatic transformation.
Most investments in tech metals, which seemed to be no-brainers in the boom years, started to unravel two years ago under a wall of supply that killed a brief period of high prices
Today there is the added pressure of decaying demand as the world slips into a severe recession.
Companies that borrowed heavily to expand in the belief there would be a boom in demand for the batteries used to power electric cars are bearing the brunt of the downturn, with EV sales suffering a setback caused by low oil prices and consumers putting a stop on discretionary spending.
Rather than a rash of new lithium mines and processing plants getting the go-ahead during the past year, there have instead been more closures and delays to construction plans.
But the tough times will not last forever and the case for EVs and other battery-powered machines and appliances remains as strong as ever, albeit requiring a return to some form of normality.
Not all of Western Australia’s current crop of tech-metal projects will survive the downturn in their current form, with the first sign of a shake-up emerging as leading Chinese company Tianqi Lithium tries to reshape a portfolio of assets acquired with bank debt during the boom.
Atop what appears to be Tianqi’s bank-driven sales program is its 51 per cent stake, or part of that holding, in the world’s best lithium mine at Greenbushes in the South West.
Other Tianqi assets could also pop free if Chinese banks, which are owed $US3.5 billion, step up their demands for loans to be serviced as agreed or repaid in full.
Tianqi’s 100 per cent owned and recently completed lithium processing plant at Kwinana, which turns Greenbushes ore into battery-grade lithium hydroxide, might be available at the right price, as would a 24.3 per cent stake Tianqi bought at the top of the market in Chile’s lithium champion, SQM.
A North American buyer would be the natural owner of the SQM stake if it became available, whereas interest in Tianqi’s WA assets is likely to be led by two of the state’s top companies, Wesfarmers and Mineral Resources.
Trying to follow the web of interlocking business interests is not easy, and a simple solution to their future ownership is not clear, if only because corporate interests and personal egos will need to be managed delicately.
The position of Wesfarmers in the tech-metals business is interesting because it has already paid $776 million for a half-share in the Mt Holland lithium deposit, with SQM owning the other half.
Wesfarmers is also planning to build a lithium processing facility at Kwinana with SQM adjacent to the processing plant completed last year by Tianqi.
In a perfect world, Wesfarmers would acquire the Tianqi plant at Kwinana and save itself the trouble of building an identical facility, or it could join the bidding for a slice of the Greenbushes mine and get a quick start to becoming a lithium producer, leaving Mt Holland for later.
And if Wesfarmers is serious about making a substantial splash in the tech-metals world, now might be a perfect time to offer banking services to rare-earth specialist Lynas Corporation, which rebuffed a Wesfarmers takeover bid last year but is now struggling to fund a new processing facility in WA to overcome problems with its plant in Malaysia.
Mineral Resources also has reasons to take a seat at the lithium-assets carve up, because while it has been an early mover in the sector its assets are poorly located, with its best mine at Wodgina, near Port Hedland, and its processing interest at Kemerton, near Bunbury.
Those two assets, Wodgina and Kemerton, are 40 per cent owned by Mineral Resources with the outstanding 60 per cent owned by US specialty chemical maker Albemarle Corporation (which, in turn, has a 49 per cent stake in the Greenbushes mine).
Albemarle has the best configuration of all the players in WA lithium, with its share of Greenbushes ore trucked a short distance to Kemerton.
Mineral Resources faces the challenge of hauling its Wodgina ore to Kemerton, a distance that might destroy any profits on the deal, or exporting upgraded ore (spodumene grading 6 per cent lithium) to China, a business that looked good in the boom, but not now.
The Mineral Resources asset structure makes it a natural buyer of Tianqi’s stake (all, or part) in Greenbushes so it could enjoy the same economies as its partner, Albemarle.
There is, in all this, a grand bargain to be had and it is one the WA government would be keen to happen (at the risk of its lithium dream being delayed, or abandoned).
A possible solution is for Wesfarmers and Mineral Resources to strike a deal that would satisfy their interests, with one (or both, in a new company) buying Tianqi’s interest in the Greenbushes mine and for Wesfarmers and SQM to buy Tianqi’s Kwinana processing plant.
In that way: Mineral Resources gets the South West mine interest in needs; Wesfarmers gets a start in lithium after its ill-timed Mt Holland deal; SQM keeps a toe in the water through its SQM interest; and Albemarle and Mineral Resources can decide what to do with Wodgina when the market is ready for a north-west lithium processing plant.
Somewhere in that witch’s brew of assets, ambitions, and boom-time bloopers lie a couple of deals that could get WA’s tech-metal dream back on the road.
Scarp find
The discovery of palladium near the Julimar State Forest between Toodyay and Bindoon promises to be a game-changer in more ways than one for WA.
Not only could Julimar plug a hole in the state’s minerals inventory by becoming the first palladium mine at a time when the precious metal is in high demand in the catalytic converters of petrol-powered vehicles, it could rekindle interest in what other metals might be found along the boundaries of the Darling Scarp.
A detailed geological explanation of Julimar is yet to be published but it is not the first discovery in a region better known for farming.
However, it does seem significant that Julimar is located close to the intersection of the Darling and Dumbleyung faults, with locations like that often the site of significant geological activity eons ago, which led to the up-thrust of mineralised fluids that later become orebodies.
It’s a long shot, but it wouldn’t surprise to see the Darling Scarp attract increased exploration attentions, especially if Julimar really is a viable platinum discovery.
