INSIDER MAGAZINE: Perth’s streets are paved in gold and iron ore, and soon they may be paved in lithium, too

Tesla has long taken for granted its pole position in the electric vehicle market but the competition is gaining ground. It is predicted by 2024 the Volkswagen group, which owns Audi, Bentley, Skoda, Porsche and Lamborghini, will overtake Elon Musk’s market leader in EV sales. Across the globe, industry giants as well as new players like China’s BYD, are also jostling for their place in the market as manufacturers pledge to either go fully or predominantly electric in the near future. Forecasts predict global EV sales will reach around 400 million by 2030 — a significant jump from about 16 million today. The rush on plug-in models is largely driven by the fact most major economies have committed to phasing out the manufacturing of internal combustion engine vehicles by the 2030s. Now most drivers, Australians included, are contemplating when, not if, to buy an EV. Added choice is good news for buyers. But the transition to electric, which will also see businesses and governments move to electrify their buses, trucks and other heavy vehicle fleets, is great news for WA as the world’s largest supplier of lithium — if we can keep up with demand. To put it in perspective, to build an electric vehicle battery requires about 8kg of lithium. Simple enough. However, if that’s extrapolated to 2022, when the International Energy Agency estimates about 10 million EVs were built, then the enormity of the figure, which equates to 80 million kilograms of lithium, comes into focus. Taken one step further, the IEA estimates 14 million EVs will be built this year alone. That means global lithium supplies will need to grow a whopping 40 per cent in just 12 months to meet burgeoning demand in the EV manufacturing space. At present, there’s enough supply — barely — to meet demand. Statista pegs global lithium production hit about 130 million kilograms in 2022, when Australia was responsible for about half the total at 61 million kilograms, or enough to build about 7.6 million EVs. Mineral Resources lithium chief executive Josh Thurlow sees the situation in rather straightforward terms. Mineral Resources is perhaps better known for its extensive iron ore interests, including its massive Onslow project in WA’s minerals-rich Pilbara region; lithium and iron ore are “completely different”, in Thurlow’s reckoning. But “you can draw comparisons”, even if he “wouldn’t run around using it as (his) first comparison”. “We see there’s some price volatility (with lithium) even in the last five years,” he tells Insider. “That’s going to happen, and we’re not focused on those ups and downs. What we do know is that there is and will continue to be an ongoing, increasing demand for lithium. And from what we can see, that demand will outstrip supply over the next 10 years.” It would seem he and plenty others in WA’s well-heeled mining sector have come to a similar conclusion. Gina Rinehart, who for years has held stakes in Vulcan Energy and Future Battery Minerals, has perhaps been the most visible having sunk US-based Albemarle’s attempted takeover of local lithium success story Liontown Resources after hoovering up shares in the Tim Goyder-led market darling. She’s now set to play kingmaker as the miner’s biggest shareholder, leaving the door open to buying up more stock in pursuit of a board seat for her preferred nominee. None of this is exactly new for WA, which is home to Greenbushes, the world’s oldest and largest lithium spodumene concentrate mine. Corporate intrigue has been highly public, though, with the likes of Rio Tinto buying up swathes of land near Liontown’s promising Kathleen Valley deposit and individuals such as former Woodside Energy boss Peter Coleman getting involved in what’s tipped to be a sector on the cusp of a rapid and lucrative boom. Allan Trench, who has had a seat on the boards of Australian Securities Exchange-listed companies and is now an academic at the University of Western Australia, has seen hype come and go for a host of metals — including uranium and nickel — in WA in recent decades. Still, he tells Insider the extent to which lithium is now being discovered and mined means it’s the real deal. “Fashion, fads — ‘magic buses’, you might say — are not unusual in the mining world. They come along every few years,” he says. “It will be vanadium one year, it will be cobalt next year, it’ll be uranium the year after that; It will be rare earths, then it’ll be lithium. But this one’s a bit bigger than most.” Historically speaking, lithium’s hype isn’t unusual. Gold discoveries near Kalgoorlie in the late 1800s helped transform WA and, as trade was liberalised in the 1970s, iron ore became the next big thing with Lang Hancock and Peter Wright becoming billionaires on the back of mining the State’s Pilbara region. Much of WA’s development in the 2000s is often attributed to its concurrent iron ore mining boom. Chinese demand for the metal surged at the time amid the country’s rapid development, propping up the State’s private sector and major infrastructure projects. And government coffers would arguably not have been as full were it not for its royalty take, which, as of the 2022 financial year, totalled $9.92 billion. As Budget papers note, though, iron ore’s share of royalty income overall is set to slide in the next five years, so much so that government returns on lithium mining are set to quadruple as a proportion of its overall royalty revenue. The money is an important part of lithium’s success: it explains almost everything about why it’s suddenly in vogue. Businesses don’t invest for altruistic reasons, after all; many have calculated that lithium is a commodity that, redolent with an impending manufacturing boom, government subsidies and a relatively low barrier to entry, will be highly profitable. It’s why Albemarle — which jointly owns and operates the gigantic Greenbushes lithium mine near Bunbury — spent months courting Liontown, which ignored the miner’s entreaties until it tabled an eye-watering $6.6b bid that caught the eye of company doyen Tim Goyder. Similarly, it’s why Rinehart began buying up shares in an attempt to get in on the deal. It makes sense that businesses with existing expertise and capital are well placed to explore lithium; mining the stuff is similar enough to iron ore that there’s little fuss in interchanging the two commodities — which are predominantly being purchased by Chinese buyers — in a global economic environment that is increasingly rewarding decarbonisation. Mineral Resources, which is geared towards iron ore and mining services, is among the most bullish on it. It’s been mining lithium since 2017, when its Mount Marion mine near Wiluna in WA’s Mid West region entered production. Thurlow, who has led the miner’s lithium-specific division for about a year, says the potential should not be underestimated. “I don’t think people have fully understood the scale and the size or exactly what’s required across the globe to transition from where we are now to where our aspirations are, whether that be 2030, 2035 or 2050,” he says. “Just like iron ore boomed from the early 2000s — and I guess people didn’t necessarily see that coming — that set a new benchmark for a developing world and bringing people up to a new standard of living. No one really predicted that. I think something very similar could happen with lithium and we’re already seeing it.” Such enthusiasm for lithium comes with a sense of deja vu. Investors last flung money at the battery-making metal in the 2010s, when, over the course of about a decade, the price rose steeply before supply rose dramatically and its value lulled. That, too, came amid a flurry of battery manufacturing activity in China. Nowadays, the price has grown exponentially with recent market ructions proving unable to knock it off its pedestal. But the last crash still lingers over the industry with Alita Resources, one of that era’s most notable casualties, reappearing in headlines in recent months after well-heeled Mineral Resources bought its flagship Bald Hill mine from the company’s administrators. History may yet repeat with analysts at JPMorgan in October predicting an oversupply of the critical mineral could again lower prices in the foreseeable future. Further tempering lithium’s parallels with iron ore is the former’s relative minnow status. WA, with more than 20 billion tonnes of iron ore in the ground and annual production of about 800mt, houses by far the world’s greatest deposits of the steel-making mineral. Lithium isn’t quite as bountiful, though, with Australia home to just 6mt of the stuff and annual production of 60,000t. That’s still more than any other nation puts to market in a year but, with Chile’s deposits about 50 per cent greater than Australia’s, the potential for huge returns — a la the mining boom of the early 2010s — is suspect. Lithium in its rawest form is also not an especially high-margin product. For those chasing better prices, brine — which has wider applications and is most commonly found in South America — or processed lithium fetch far more than the hard rock equivalent that’s abundant in WA. Few companies are exploring so-called value-adding opportunities, either, with Pilbara Minerals showing willingness to go down this route by building a $105m mid-stream demonstration plant — essentially a facility that can prove local processing of lithium is technically feasible and economic — in the Pilbara courtesy of mining technology manufacturer Calix. Indeed, some of Australia’s biggest miners are unconvinced of lithium’s merits, with BHP — which has divested from coal, oil and gas in favour of nickel, potash and copper — a considerable holdout. “(We) have a belief that lithium is so plentiful around the world that over time you (will) see a lot more lithium production being brought on and that the industry structure is such that you have a relatively flat cost curve, meaning that the margin opportunity offered up by lithium is less than it will be for some other commodities that we’ve chosen to invest in,” the Big Australian’s chief executive Mike Henry told investors in September. “That’s not to say (lithium isn’t) going to be attractive ... for some players. But we have to be able to ensure that we’ve got focused management effort, that we’re targeting that focus on the commodities we believe give us the greatest opportunity to create value for BHP shareholders at scale.” Offsetting some of lithium’s questionable economic fundamentals is the countless globs of money governments all over the world have been willing to lob at the mineral. Australian industry has been green with envy that the US, under President Joe Biden, has been spending billions of dollars to incentivise decarbonising industries like electric vehicle manufacturing and critical minerals mining. The scale of that country’s $US1 trillion Inflation Reduction Act dwarfs Australia’s scattershot swathe of grants and expedited approvals processes. But some, including Henry at BHP and the Productivity Commission, have been openly suspicious of replicating those programs, with the latter body warning in July that concessional finance (among other initiatives) risked “winding back some of the gains in living standards of recent decades” by redirecting resources towards inefficient industries. Of course, that’s hardly the case for lithium, which many successful WA businesspeople and companies are calculating will be highly profitable for many years to come. Thurlow doesn’t resile from that assertion when it’s put to him. After all, investors who bought into Mineral Resources in 2006 and have held their shares since then have seen the value of their stock grow by more than 5000 per cent. As nice as it is to see Australia accrue the benefits of decarbonisation, Thurlow concedes he’s running a business, not a charity. “If we can’t make money out of it, we can’t pay people,” he says. “We can’t pay royalties. We can’t pay taxes. We can’t do all the good things that good businesses do.” Some observers simply argue perspective rather than scepticism may be warranted. Estimating how much will be returned by way of mining lithium is hard because, as Trench points out, even the most bullish growth estimates mean the industry will go from being about “10 per cent to 20 per cent” the size of the State’s iron ore operations. Given the speed at which the sector’s now evolving — coupled with price fluctuations that can be difficult to parse as indicative of a trend or simply ephemeral — he’s agnostic about the economic and cultural role lithium will play in WA in 2050, when the State and the rest of the world are committed to operating at net zero emissions. “Even five years ago, people were forecasting (the lithium industry’s size to be a) fifth of what we’re at now,” Trench says. “So I wouldn’t believe what anybody’s really forecasting anyway.”

INSIDER MAGAZINE: Perth’s streets are paved in gold and iron ore, and soon they may be paved in lithium, too

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