By Gavin Wendt, Founding Director and Senior Resource Analyst, MineLife
Australia is in the box seat to benefit from the commodity demand growth, particularly as the global energy transition ramps up. As the world accelerates towards decarbonisation, global demand for critical energy minerals will grow exponentially, and Australia is perfectly positioned to be a major and reliable supplier of these materials.
Demand for lithium is expected to grow by up to 41 times by 2040, while the value of both the nickel and cobalt markets is expected to be 30 times higher in 2040 than it is in 2023. By 2050, the cobalt market is expected to be worth US$214 billion, making it the biggest of the critical minerals. These three minerals – lithium, nickel and cobalt – are particularly promising for Australia, which hosts 27 per cent of the world’s known lithium resources, 22 per cent for nickel, and 21 per cent for cobalt.
While Australia has long been a global mining leader, importantly, its downstream capability is becoming more pronounced, including the emergence of a battery manufacturing industry. In addition to value-adding, Australia has the opportunity to move even further up the value chain to make the end products the world will need. This could be economical, where minerals processing is energy-intensive (notably nickel processing), given Australia’s access to abundant low-cost wind and solar energy.
There are also opportunities to move into metals processing, such as the production of green steel, where Australia could replace metallurgical coal used in the steel production process with renewable hydrogen based on renewable energy resources.
In contrast with minerals – such as iron and steel, where Australia focused on mining – for critical minerals, our renewables energy resource means the optimal location of mining, minerals processing, and downstream manufacturing can deliver significant economic benefits to Australia and, particularly, to its regions. Mining is increasingly mechanised and automated, and workers are increasingly fly-in fly-out, especially in remote areas where many of these deposits are found. On the other hand, regional jobs will be created if Australia moves up the value chain into processing or manufacturing.
Lithium hydroxide production – the great value-adding leap
A pertinent example of Australian mining’s ambitions to value-add is our lithium sector. While Australia ranks as the world’s biggest producing country of lithium raw materials, we only export a small amount of refined lithium. China, by contrast, dominates the global lithium refining industry, producing close to 60 per cent of the world’s lithium chemicals and 80 per cent of the world’s lithium hydroxide – a key ingredient in the lithium-ion batteries used in electric vehicles.
Australia is, however, taking active steps to close the gap by capitalising on our position as a global-leading spodumene-concentrate producer. Australia’s first refined lithium was produced in May 2022 in the form of lithium hydroxide from the Kwinana plant in Western Australia. Kwinana represents a joint venture between Tianqi Lithium Corporation (51 per cent) and IGO (49 per cent), with the partners looking to ramp up to nameplate production capacity of 24,000 tonnes per annum.
The onshore lithium refining industry saw support from the Morrison Government through its $1.3-billion Modern Manufacturing Initiative. This has helped support ventures, such as the ‘midstream’ lithium project being developed by Pilbara Minerals and Calix, where lithium salts will be produced via an innovative refining process. If successfully developed and proven, the new process could mean spodumene concentrate is replaced by a higher-grade lithium salts product.
There are numerous other examples, too. Covalent Lithium’s Mount Holland project, in Western Australia, aims to produce an initial 45,000 tonnes per annum of lithium hydroxide during the first half of 2025. Meanwhile, Liontown Resources is investigating the potential for an integrated refinery at its Kathleen Valley lithium project in Western Australia, which would see spodumene upgraded to lithium hydroxide monohydrate, another form of refined lithium.
There’s also the Kemerton joint venture between Albemarle Corporation (60 per cent) and Mineral Resources (40 per cent), involving the construction of the Kemerton Lithium Hydroxide Processing Plant in Western Australia. Kemerton achieved first production in mid 2022, and could potentially expand to 100,000 tonnes per annum.
The bottom line is that, within a few years, Australia will account for up to 10 per cent of global (lithium) hydroxide capacity, before doubling that prior to the end of the decade.
Could battery production be the next big opportunity?
This brings us to the potential for our domestic resources sector to ‘go the whole hog’, embracing full-scale battery production.
A recent report from the Future Battery Industries Cooperative Research Centre (FBICRC) suggests that Australia’s battery production opportunity has doubled over the past 18 months – and could contribute $16.9 billion to our economy by 2030. The FBICRC report, titled Charging Ahead – Australia’s battery powered future, suggests that Australia should leverage its mining and geological upside, particularly in the production and endowment of critical minerals, to support capabilities further downstream. This should encompass not only battery manufacturing, but also other segments within the value chain – such as refining and active materials.
The report states that, ‘Australia has critical mineral resource wealth and is already an effective mining nation. Australia has competitive advantages for refining, which indicate only moderate (government) support is necessary. Australia has lower levels of comparative advantage in cell manufacturing and active materials, but both have significant economic and strategic value. These segments support jobs and industrial complexity, and should be prioritised by government. For both segments, attracting an established leader with access to markets is essential to delivering at pace.’
Australia’s battery opportunity has benefited from rising global battery demand, which is now forecast to be 64 per cent higher by 2030 than previous estimates; however, governments across the globe also recognise the opportunity, and are adopting increasingly ambitious policies to grow their own battery industries. Chief among them is the United States, with its Inflation Reduction Act of 2022 representing a total of $500 billion in new spending and tax breaks that aim to boost clean energy, and improve US economic competitiveness, innovation and industrial productivity.
It’s all about reducing China’s industry dominance, with many countries seeking to diversify their battery supply chains – creating opportunities for alternative suppliers, such as Australia. Australia’s strategic and defence partnerships within the Asia-Pacific region have strengthened, creating an opportunity for Australia to partner with its allies to develop its battery industries.
In light of recent geopolitical developments, the FBICRC’s report has shown that Australian policymakers should explore more aggressive industry policies, target markets that are looking to diversify their supply chains, and partner with geopolitical allies to enable and enhance the potential growth of Australia’s battery industry.
The biggest challenge is to help build the Australian manufacturing ecosystem and get it to scale, which is where measures like the Albanese Government’s National Reconstruction Fund are essential in terms of giving Australian business an opportunity to compete at world scale. The initiative represents a $15-billion initiative aimed at helping Australia ‘capture the opportunities of today and tomorrow by growing and creating industries over the long term’.
Several Australian mining companies are already advancing their capabilities to capture new opportunities downstream. This includes lithium miners Pilbara Minerals (ASX: PLS), IGO (ASX: IGO) and Mineral Resources (ASX: MIN), all of which have become involved in midstream and downstream lithium-processing projects.
should we stick to what we do best?
While downstream processing and manufacturing offer a significant opportunity for Australia, there is, however, a caveat. If Australia was to pursue a battery manufacturing future, there is a view that a comprehensive economic assessment into the battery value chain should be carried out.
As the Grattan Institute indicated in a recent report, downstream processing and manufacturing should be supported in Australia ‘only as far as we can create and maintain a competitive advantage. An abundance of raw materials does not necessarily translate into an advantage as a manufacturer. Australia’s advantages in energy and materials are maintained when turning ores to metals and metals to active materials, but shrink on turning active materials to cells’.
Cost dynamics change the further up the value chain Australia goes. As energy comprises a smaller percentage of the overall cost further up the value chain, other cost pressures, such as tax and imported materials, increase.
Australia has 50 per cent of the world market for the raw materials required for battery manufacture, but less than one per cent of the market for the next stages in the chain: metallurgy to turn ores into metals and then producing active materials, followed by cell manufacturing and assembly. And the battery market is highly fragmented across applications and technologies, implying that some up-front choices will be required.
Grattan opines moving beyond cell manufacture to battery assembly further dilutes Australia’s comparative advantages because, at that stage, labour costs would make up a greater percentage of costs, or the process would need to be highly automated. ‘There is no fundamental reason why highly automated manufacturing should not be pursued in Australia, although we have few successful examples to build on,’ says the report.
It is suggested that before the federal government is to subsidise manufacturing of advanced products that use Australia’s critical minerals, an independent assessment of the costs of the full value chain should be carried out. This encompasses costs for tax, logistics, labour and imported materials, when compared to competitor countries.
‘Any policy to promote moving up the value chain can then focus on areas where Australia truly has a competitive advantage,’ Grattan says. ‘We note the national security concerns that China’s dominance of parts of the supply chain endangers Australia’s access to materials and products.
‘The best way to mitigate this risk is not necessarily to manufacture something ourselves,’ says the report. ‘We should also explore diversifying supply; stockpiling; signing agreements with friendly allies to allow access to reserves; and making an effort to switch to products, practices or technologies that are less vulnerable to supply chain disruptions.’
Attention on Australia’s downstream opportunity has gathered pace in recent years, as local miners, such as Mineral Resources, IGO and Pilbara Minerals, establish their own downstream processing projects and operations. But such a significant transformation should be supervised closely, given the multifaceted and precise nature of a value chain, such as battery manufacturing.
The challenge for Australia is that battery manufacture will become a commodity business, with sales won on the basis of lowest cost for given parameters of energy density and storage capacity. In commodity manufacture, scale is all important to lowering the unit cost.
The key to achieving scale while the industry is in its rapid growth phase is to underwrite investment with secure relationships with end customers. It would be very difficult for Australia to achieve manufacturing on a scale that is competitive with China in the absence of established customer partnerships.
The more logical focus for Australia is beneficiating its raw materials, with government support aimed at investment in refining nickel, lithium and, if production rises, cobalt. Australia’s plentiful mineral reserves, skilled workforce, abundant infrastructure, transparent fiscal regime, and overall political stability will ensure that we have a strong basis to benefit from the process of energy transition – with flexibility around how far deep into the supply chain we ultimately want to be.