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Australia’s Electric Vehicle Raw Materials Landscape

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INN explores Australia's electric vehicle raw materials landscape and what could be ahead for the country.

With plenty of natural resources and a key geographical location, there's little doubt Australia will play an important role in the global transition to green energy.

The country is a top producer of key raw materials needed for electrification, from lithium to rare earths.

Here the Investing News Network (INN) explores Australia's electric vehicle (EV) raw materials landscape and what could be ahead for the country in a space that keeps evolving at a rapid pace.

Australia's resources to feed the EV and energy storage revolution

Australia is well known for its resource-rich land, with mining taking place all around the country.

"Australia is a politically stable and low-risk jurisdiction which is very familiar with mining," Harry Fisher of CRU Group told INN. "There is a high level of domestic mining expertise, enabling Australia to produce a large number of commodities and be a major producer in numerous different markets."

The mining industry accounts for 75 percent of the country's exports, which vary from coal to iron ore. And despite being a top producer of many commodities, close to 80 percent of the country is yet to be explored.

When looking at demand from the EV and energy storage industries, Australia has a unique opportunity, as it hosts many of the critical minerals needed.

But it's not just about resources — developing secure supply chains for raw materials has become a top priority for global governments, and the push for a green future has put EVs centre stage.

For its part, the Australian government has outlined a strategy "to enable the development of Australia's critical minerals sector, including downstream processing and manufacturing opportunities, by attracting investment, supporting innovation and connecting opportunities with infrastructure."

The plan includes lithium and cobalt, which are essential in cathodes for lithium-ion batteries, and rare earths, which are used in permanent magnets to power EVs.

Lithium in Australia

Although its output has decreased in the last couple of years, Australia is the world's top lithium producer, with exports of the raw material reaching AU$1.1 billion from 2019 to 2020.

"Australia was responsible for about 45 percent of global lithium mine supply in 2020," Fisher said. "There is strong potential for that to increase with expansions in the pipeline."

According to the US Geological Survey, Australia accounted for 40,000 metric tons of lithium in 2020, and holds over 4.7 million metric tons of identified lithium reserves.

Most lithium found in the country is in hard-rock, pegmatite-hosted resources, which are largely located in Western Australia, with most of the country's lithium supply being exported to China as spodumene.

Notably, the country is home to Greenbushes, the world's biggest lithium mine. It is operated by Talison Lithium, owned by Albemarle (NYSE:ALB) and joint venture partners Tianqi (SZSE:002466) and IGO (ASX:IGO).

Aside from Greenbushes, major Australian operations include Pilbara Minerals' (ASX:PLS,OTC Pink:PILBF), Pilgangoora tantalum-lithium mine, as well as Mineral Resources' (ASX:MIN) Mount Marion, which it is developing with Ganfeng (OTC Pink:GNENF,SZSE:002460), and Wodgina, which it holds in a joint venture with Albemarle. There is also Mount Cattlin, which is being developed by soon-to-be named Allkem ― the proposed company brand for the merger of Galaxy Resources (ASX:GXY) and Orocobre (ASX:ORE,OTC Pink:OROCF).

Oversupply fears paired with delays in conversion capacity hit the market in 2018, with price pressures leading to halts in expansions and production. Following a tough few years, lithium prices have been on the rebound in 2021 as demand from the EV sector continues to show strength despite the pandemic.

Lithium demand is forecast to almost triple by 2025, with the Australian government expecting spodumene exports to increase from 1.4 million tonnes in 2020 to 2.1 million to 2.2 million tonnes from 2022 to 2023.

But miners still have challenges going forward. Labour costs and shortages have been flagged as potential issues for construction and restarts of operations in Australia, according to CRU Group.

Additionally, as mentioned, Australia primarily sources lithium from hard rock, which is inherently more costly to convert into lithium carbonate compared to producing lithium carbonate from brine. However, this is expected to be more competitive in terms of producing hydroxide directly from hard rock.

"On the hard-rock mining cost curve, Australian assets are generally lower cost due to grades and economies of scale," James Jeary of CRU said when asked about the challenges lithium miners in the country face at the moment. "Junior Australian lithium miners face tough competition from incumbent domestic producers, but also other junior miners around the world."

Cobalt in Australia

Lithium is not the only battery metal the land down under is looking to develop. Cobalt, another essential element in cathodes for lithium-ion batteries, is also found in the country.

The metal is mostly mined in the Democratic Republic of Congo (DRC), which has often been linked to human rights abuses and child labour, bringing worries over security of supply.

"While the DRC will remain the dominant source of cobalt for the battery industry, we forecast Australia's share of mined cobalt supply to increase from 3.6 percent in 2021 to 4.4 percent by 2030," Greg Miller, analyst at Benchmark Mineral Intelligence, told INN.

Australia has the second largest cobalt resource in the world, estimated at around 19 percent of the global total; however, it currently only contributes 4 percent of global mine supply. The country's mined cobalt is typically a by-product of nickel laterite resources.

There are currently four producing companies in the country: Glencore (LSE:GLEN,OTC Pink:GLCNF), BHP (ASX:BHP,LSE:BHP,NYSE:BHP), First Quantum Minerals (TSX:FM,OTC Pink:FQVLF) and IGO. Glencore's Murrin Murrin is the largest cobalt producer in Australia.

Australian miners with cobalt projects in the country include Sunrise Energy Metals (ASX:SRL,OTCQX:SREMF), formerly Clean TeQ, which is developing the Sunrise project. The asset is considered one of the largest and most cobalt-rich nickel laterite deposits in the world.

Additionally, Jervois Mining (ASX:JRV) is developing its Nico Young deposit, and Cobalt Blue Holdings (ASX:COB,OTC Pink:CBBHF) has its efforts on the Broken Hill cobalt project in New South Wales.

The biggest advantage of Australian cobalt is its enhanced environmental, social and governance credentials compared to material mined in other regions, particularly the DRC, Miller said.

"For OEMs and cell makers alike, sourcing cobalt from Australia allows for greater supply chain transparency through improved traceability and audibility," he added.

Indeed, the analyst pointed out that BMW (OTC Pink:BAMXF,ETR:BMW) chose to source a portion of its cobalt through to 2025 from Murrin Murrin in Australia for these very reasons, avoiding mines in the DRC.

"Further to this, as the US accelerates the build out of a domestic lithium-ion battery supply chain and moves to reduce its exposure to Chinese dominated supply chains, western automakers sourcing cobalt from Australia would satisfy the Biden administration's strategy of sourcing critical battery raw materials from 'strategic allies,'" Miller said.

Similarly, Fisher said Australia is a politically stable and low-risk jurisdiction that is very familiar with mining.

"There is a high level of domestic mining expertise enabling Australia to produce a large number of commodities and be a major producer in numerous different markets," he explained to INN. "Quality and economic cobalt resources are therefore likely to be developed to support rising global demand, with a number already in operation."

According to CRU Group data, Australia produced just under 6,000 tonnes of cobalt in 2020, equating to around 4 percent of global mine supply.

"We forecast that this could rise to close to 9,000 tonnes by 2025," Fisher said. "New projects that could come online over the next few years include Western Areas' (ASX:WSA,OTC Pink:WNARF) Cosmos and (formerly) Clean TeQ's Sunrise project; however, both need further development and funding to progress. There are also production expansions expected at a number of existing operations."

Rare earths in Australia

Other critical minerals worth looking at are rare earths, a group of 17 elements found in everything from batteries to wind turbines. Some of the most important rare earths used in permanent magnet production for EVs are neodymium, praseodymium and dysprosium.

Despite lagging far behind China, Australia is in fact a top producer, with output reaching 17,000 metric tons last year. Australia accounts for about 10 percent of the total rare earth element (REE) production and it is the fourth largest producer of REEs.

ASX-listed Lynas (ASX:LYC,OTC Pink:LYSCF) is the owner and operator of the Mount Weld REE mine in Australia, and it could potentially double production if its processing plant in Malaysia is expanded, Luisa Moreno of Tahiti Global told INN.

Additionally, Iluka Resources' (ASX:ILU) Eneabba project is expected to reach production of monazite mineral concentrate this year.

"Unfortunately, Australia does not have commercial-scale REE processing capacity to produce REE mixed chemicals concentrate or to separate and refine REE elements," she said. "However, there are several other REE projects in the feasibility stage … so yes, Australia is definitely moving in the right direction."

Companies moving forward with REE projects in the country include Arafura Resources (ASX:ARU,OTC Pink:ARAFF), which is updating its feasibility study for the Nolans Bore project and actively looking for project financing; there is also Enova Mining (ASX:ENV), which is completing a new drilling program at Charles Creek and performing new metallurgical tests, and Hastings Technology Metals (ASX:HAS), which is optimising Yangibana's feasibility study.

Looking over to the outlook for the rare earths market, production of these critical minerals would have to increase by more than 50 percent by 2030 to fulfill demand.

"But without the support of the markets and governments to develop the Australian projects — and others around the world — REEs may become the most critical materials for the green industrial revolution, with China as the ultimate supplier," Moreno said.

Junior miners developing rare earths projects in Australia face challenges similar those in the rest of the world, according to Moreno, with one of them being metallurgical.

"One important step in the REE flowsheet is the production of a mineral concentrate with at least 30 percent total REE," she said. "And although most of the projects in Australia have as the dominant minerals monazite and bastnaesite, which are the common minerals in commercially operated mines, many junior companies are still not able to economically produce the essential REE mineral concentrate."

The other big hurdle is financing.

"As part of the feasibility study, companies should build demonstration plants to de-risk the projects," Moreno said. "These demo plants could cost tens of millions to build and operate, and after proving the process at that scale, the construction of a fully integrated plant could cost hundreds of millions depending on the size."

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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