Mineral Resources has ditched its strategy of building lithium hydroxide refineries in China, with founder Chris Ellison saying the returns don’t justify the cost of moving fully downstream into battery chemicals – and the company is not prepared to “lock up capital in China”.
Mr Ellison told analysts on Wednesday that MinRes abandoned its deal with lithium giant Albemarle to invest in lithium hydroxide plants in China because the company believes it will make more money from producing a lithium sulphate product in Australia than it can from owning refineries in China – despite lower construction costs offshore.
“You can go and build a plant in China, that’s fine. Once you start operating, it’s far more expensive than operating in Australia – and that’s where the real cost is.
“If you go into China, you’ve got 13 per cent VAT on your (spodumene concentrate). If you sell your hydroxide in China you pay the Chinese tax, obviously, but then your money is caught there for a year,” he said.
“And when you bring it out – if you bring it from China direct to Australia – there’s another 10 per cent withholding tax that disappears. And if you send your hydroxide out of China and sell it here, it was another 14 and a half per cent VAT – add all that up, and you’ve still got to operate. So that’s half the reason we’re not going to be in China.”
The MinRes boss said the company was negotiating with potential buyers in Europe and US for its long-term plans, but for the interim would either sell lithium concentrate direct to buyers, or pay Chinese refiners to treat its concentrate and then sell it on to other chemical companies.
Under MinRes’s latest restructure of its joint venture with global lithium major Albemarle, announced on July 20, the company will exit any ownership stake in the US lithium giant’s lithium hydroxide refinery in WA in exchange for $US380m to $US400m cash, and increase its stake in their jointly-owned Wodgina lithium mine in the Pilbara to a 50 per cent operating share.
And, instead of jointly investing with Albemarle in Chinese lithium refining capacity, Mr Ellison said MinRes would look to build a local plant to turn the concentrate it produces – which grades from 3.7 to 6 per cent – to a lithium sulphate with 25 to 30 per cent lithium concentrate.
Mr Ellison said the company’s flirtation with downstream processing – and the recent swings in chemical pricing – had confirmed the company’s view that most of the value was “in the rock”.
“We don’t want to build hydroxide here, that is difficult and it’s expensive, but we can take our spodumene concentrate out to lithium sulphate at 25 to 30 per cent – we can get rid of a lot of the bulk,” he said.
“And our intention is we’re going to send that directly into Europe and the US. We’re well advanced in our discussions around that. And we want to have long-term contracts direct with the original equipment manufacturers, and we’re advanced on those discussions.”
MinRes released its June quarter production report on Wednesday, saying the company had met its revised guidance for total iron ore and lithium shipments, and in the company’s mining services division.
Shares in the company were up $2.55, or 3.6 per cent, to $73.50 in afternoon trade.
(20min delay)