Staff Editor

Amid a surge in demand for rechargeable batteries, companies are scrambling for supplies of lithium

SQM, Chile’s biggest lithium producer, is the kind of company you might find in an industrial-espionage thriller. Its headquarters in the military district of Santiago bears no name. The man who for years ran the business, Julio Ponce, is the former son-in-law of the late dictator, Augusto Pinochet.

He quit as chairman in 2015, during an investigation into SQM for alleged tax evasion. (The company is co-operating with the inquiry.) Last month it emerged that CITIC, a Chinese state-controlled firm, may bid for part of Mr Ponce’s controlling stake in SQM, as part of China’s bid to secure supplies of a vital raw material.

The focus of CITIC’s interest appears to lie on a lunar-like landscape of encrusted salt in Chile’s Atacama desert. It is a brine deposit washed off the Andes millions of years ago, containing about a fifth of the world’s known lithium resources. (Even more are in adjacent Bolivia but they are mostly untapped; see chart 1.) Just weeks before, CITIC had bought a stake in a Hong Kong electric-vehicle maker that uses lithium-ion batteries, indicating its growing interest in clean-energy technologies.

At SQM’s facilities the brine is pumped from an underground reservoir into hundreds of ponds. As it evaporates it turns into shades of blue and green, making the plant resemble a giant artist’s palette. It produces mostly potassium compounds but also a viscous liquid, lithium chloride. This is taken by tanker to a plant near the coast where it is turned into finely powdered lithium carbonate and hydroxide, which are then shipped around the world.

It is not a big business: lithium accounts for only about 5% of the materials in some car batteries, and for less than 10% of their cost. Worldwide sales of lithium salts are only about $1 billion a year. But the element is a vital component of batteries that power everything from ca

rs to smartphones, laptops and power tools. With demand for such high-density energy storage set to surge as vehicles become greener and electricity becomes cleaner, Goldman Sachs, an investment bank, calls lithium “the new gasoline”.

SQM is part of a global scramble to secure supplies of lithium by the world’s largest battery producers, and by end-users such as carmakers. That

has made it the world’s hottest commodity. The price of 99%-pure lithium carbonate imported to China more than doubled in the two months to the end of December, to $13,000 a tonne (see chart 2).

The spike mostly reflected concerns about the future liquidity of China’s spot market. China gets much lithium from spodumene rock in Australia, an alternative to South American brine. Albermarle, an American miner, and Tianqi, its Chinese joint-venture partner, plan to use spodumene from a big Australian mine to process more battery-grade lithium carbonate and hydroxide. That will mean less ore available on the spot market in China.

The industry is fairly concentrated, which adds to the worry. Last year Albermarle, the world’s biggest lithium producer, bought Rockwood, owner of Chile’s second-biggest lithium deposit. It and three other companies—SQM, FMC of America and Tianqi—account for most of the world supply of lithium salts, according to Citigroup, a bank. What is more, a big lithium-brine project in Argentina, run by a joint venture of Orocobre, an Australian miner, and Toyota, Japan’s largest carmaker, is behind schedule. Though the Earth contains plenty of lithium, extracting it can be costly and time-consuming, so higher prices may not automatically stimulate a surge in supply.

Demand is also on the up. At the moment, the main lithium-ion battery-makers are Samsung and LG of South Korea, Panasonic and Sony of Japan, and ATL of Hong Kong. But China also has many battery-makers. Adam Collins of Liberum, another investment bank, talks of an “inflection-point” in Chinese demand for lithium salts. Its government is stepping up the promotion of lithium-ion batteries and electric vehicles, with the biggest emphasis on buses. Sales of “new energy” vehicles in China almost tripled in the first ten months of 2015 compared with the same period in 2014, to 171,000 (though they remain less than 1% of total vehicle sales).

Tesla Motors, an American maker of electric cars founded by Elon Musk, a tech tycoon, is also on the prowl. It is preparing this year to start production at its “Gigafactory” in Nevada, which it hopes will supply lithium-ion batteries for 500,000 cars a year within five years. J.B. Straubel, Tesla’s chief technical officer, says the firm wants to secure supplies of many battery materials, not just lithium. “There’s so much hype in the lithium market right now…people look at it as this magical element,” he says. Nonetheless, in August Bacanora, a Canadian firm, said it had signed a conditional agreement to supply Tesla with lithium hydroxide from a mine that it plans to develop in northern Mexico. Bacanora’s shares jumped on the news—though analysts noted that shipping fine white powder across the United States border would need careful handling.

Bigger carmakers also have a growing appetite for lithium. In a recent shift, Toyota has begun offering lithium-ion batteries instead of heavier nickel-metal hydride ones in its Prius hybrid. Mr Collins notes that tougher emissions standards in Europe and America are likely to boost carmakers’ need for lithium.

Another big source of demand may be for electricity storage. The holy grail of renewable electricity is batteries cheap and capacious enough to overcome the intermittency of solar and wind power—for example, to store enough power from solar panels to keep the lights on all night. Tesla says that next month it will start installing “Powerwall” battery packs in American and Australian homes to store solar energy, at a cost of $3,000. Enel, an Italian utility, is launching similar storage products this year in South Africa, where homes and businesses suffer frequent black-outs.

Power utilities will increasingly use giant battery packs, charging them at times of low demand and tapping them to provide short bursts of electricity at peak times, an alternative to building a fossil-fuel plant that will sit idle the rest of the time. AES Energy Storage, a big provider of energy storage, won a contract in 2014 to provide a “peaker plant” in Southern California that will provide up to 100 megawatts (MW) of power into the grid at moments of maximum demand. In December, the firm agreed to buy, over several years, enough lithium-ion batteries from LG to provide ten times this level of peak power—that is, 1 gigawatt, or more than the output of an entire, typical-size coal-fired power station. “We’re hybridising the power grid,” says John Zahurancik, its boss.

Lithium-ion technology nonetheless attracts legions of sceptics—and not just petrolheads. In a paper published last month, researchers linked to the federally-funded Argonne National Laboratory in Chicago wrote that large-scale batteries need to offer hundreds of miles of driving range, be rechargeable in minutes instead of hours, and provide power at costs comparable with natural gas. These demands are “beyond the reach” of lithium-ion technology, they argued. Tesla’s Mr Straubel, however, foresees at least another doubling in the performance of lithium-ion batteries, and thinks lithium will continue to shape the battery of the future.

The juice still to be squeezed from lithium-ion batteries can be seen at the Angamos power plant on Chile’s northern coastline. It uses 1m lime-green battery cells in ten shipping containers to regulate the electricity grid across the Atacama region at times of peak demand, including at SQM’s lithium-mining operations hundreds of miles away across the desert. For the lithium the power plant uses, it is a homecoming. Extracted at SQM, it was sent to China to be turned into cells, put into battery packs in America, and shipped back to Chile by AES Energy Storage. That is a long journey for a tiny element of a little battery cell—but one that may embody the future of the world’s energy supplies.

The Australian mining industry is on the verge of a new mining boom based around so-called tech metals.

And as the race cranks up across the nation to find new deposits of rare earths and other metals, industry itself is calling for the development of a value-adding component.

Australia’s two largest mineral commodities, iron ore and coal, are shipped offshore in bulk form where other countries, most notably China, value add by using them to manufacture many different products.

These include a lot of imported products Australia buys that are made from the very minerals it exported.

The tech metals complex is made up of rare earths and other minerals and metals that are used in what is referred to as the new economy.

They are essential to making high technology componentry such as mobile phones, solar cells and autonomous vehicles.

They are also used to make the different kinds of batteries needed to store power from renewable sources, and new types of lightweight engines to replace traditional combustion engines.

Lessons from the last mining boom

Australian Vanadium has a high-grade vanadium deposit in central Western Australia, and chief executive Vincent Algar insists there is every opportunity to create new value adding businesses.

He said the way the last mining boom petered out quickly should be a salutary lesson.

“I don’t think that anyone in the lithium space, or the vanadium space, or the cobalt space for that matter, should not do that given our experience in the last boom, where we shipped a lot of tonnes away overseas,” Mr Algar said.

Vanadium is a metal that has traditionally been used as a strengthening agent for steel in the form of rebar, but Mr Algar said its real value in the technological age was as a key component in redox batteries, also known as flow batteries.

“We’ve got this new developing industry with growing demand, and I think we should be able to make the redox flow batteries in Australia because we do have a lot of technology,” he said.

“We’ve already successfully produced our first batch of vanadium electrolyte, needed for the batteries, at the University of Western Australia.”

The company has already entered into a venture with the world’s largest flow battery producer, German company Gildermeister.

Rare earth hunters also want local value-adding industry

There are 17 rare earth elements on the periodic table, falling into the heavy rare earths or light rare earths depending on their atomic weight.

Up until recently, all rare earths were mined and exported from China, which has had a stranglehold on the industry and its pricing.

Given their global importance, the race is well and truly on to find more rare earth deposits, and Australia is a favoured hunting ground.

“They’re actually quite ubiquitous in the Earth’s crust,” Arafura Resources managing director Gavin Lockyer said.

“Why they’re associated with the term rare is the fact that it’s rare to find them in an economically recoverable quantity.”

Australia the perfect place for processing

Arafura Resources has done that with its Nolans Bore project 135 kilometres north-west of Alice Springs in the Northern Territory.

The find is considered significant, featuring a 56-million-tonne deposit with a 40-year mine life.

It is full of neodymium and praseodymium, which is used to make magnets, the bulk of which are now sourced from China.

“We really think there’s much more value-add to be had by doing downstream processing, and Australia is the perfect place to do that.

“We’ve got an existing regulatory environment that covers things like water usage, environmental aspects, air pollutants, transport and disposal.

“There’s already a well-established regime and bureaucracy in place to regulate that, and we think it’s better to do that at the mine site where it all happens, rather than trying to do it offshore and making it somebody else’s problem.”

Politics and technology the key to new industries

Historical and contemporary drilling and grade results show that without a doubt, there is an abundance of rare earth metals in Australia.

But George Bauk, of Northern Minerals, said the problem with growing the industry, and value adding, was a lack of political will.

“It’s not only business. Governments should be asking how do we maximise the value for Australia,” he said.

“How do we do what the Chinese did, set up an industry downstream to make sure we capture as much value as possible?”

The Northern Minerals rare earths project, Browns Range, is in the central northern Australia Tanami desert, and runs across WA and the NT.

It contains the rare earth dysprosium, another key ingredient in modern magnets that China has the monopoly on.

“But we can compete with the Chinese if we look at the quality of the product that is here.

“Their grades are a 10th of what we have. Our grades are about 6,600 parts per million. Their grades are about six parts per million.

“We’ve got the product, now we need the collaboration and the political leadership and look beyond existing systems and look to the future.”

Jobs growth through developing a supply chain

Mr Bauk said a rare earth mine itself could employ 100 people, but if a supply chain could be developed for in-demand products, it could employ 1 million people.

“It has to be cost competitive, but it can be,” he said.

“It’s a journey that’s not going to happen tomorrow, but we need leadership and direction to extract more value,

“They’re part of it, but there’s so many opportunities in this sector. We’ve got some brilliant people in Australia, but we’re not levering off it.”