As global automobile manufacturers gear up for the boom in electronic vehicles (EVs) a once in a century shake-up in global supply chains is under way. For example, in North America there are now 18 massive new Lithium-Ion battery factories under construction, with an estimated completion cost of US$52 billion. When complete these factories will produce, in a single year, batteries that can store 690 Gigawatt Hours (GWh) of electric power. That’s 2.8 times the total amount of electricity Australia consumes in a single year. The US auto Giga-factories, as they are known, will require absolutely staggering volumes of Lithium carbonate. Once a boutique mineral used in tiny amounts, lithium is about to become one of the largest minerals traded on our planet.
Australia and Chile dominate the world’s supply of raw lithium, shipping 76 percent of the world supply. Australia’s share of the lithium trade – more than 50 percent last year – is about to take off again.
Last year Chile signaled that it wanted to re-nationalize lithium production, which soured most investors in that country. Chile’s lithium hara-kiri meant that if you’re a global minerals player, and you don’t have a stomach for dealing with third-world war-lords and despots, dealing yourself into the battery metals jamboree means buying an Australian lithium producer or an explorer that’s on the verge of production.
In recent times America’s Livent Corporation agreed to purchase, by way of a scrip-based merger, all of Allkem Ltd, the fourth-largest lithium player on the ASX. Albermarle Corporation, a big US minerals processing group, has been nibbling away at the share register of Liontown Resources, the fifth largest. Elsewhere a bevy of US and global players have dealt into Australia by investing as junior partners in individual lithium miners, not the companies that operate them.
My suspicion is that over the next decade, the majority of Australia’s lithium producers will be acquired by an American minerals’ processor or battery producer. Besides the powerful industrial logic of owning the whole value chain, from mine to finished battery, American plays have an added advantage. The US tax system is extraordinarily generous to companies processing minerals associated with reducing fossil fuels.
I’ll spare you the boring details but, on my estimates, an American minerals processor can basically get the US taxpayer to pay for almost the entire cost of acquiring an Australian lithium miner over a 7–10-year period. With most of the bigger Australian mines having a potential life of more than 100 years, the attraction of taking a slice of down under lithium would appear obvious.