Australia is right in the thick of a criticalminerals problem
There is a crisis in criticalminerals, one that does not have an easily foreseeable solution. And Australiais in the thick of it.
Last year, the government jumped on the bandwagon highlightingAustralia’s resource-blessed position as a home to many of the critical minerals needed for energy transition. Fast-forward to today and there’s carnage in this sector.
Electric vehiclesdemand is growing, but not fast enough.© AP
Prices are in free fall, the shares of many companies that producecritical minerals have plunged, and those miners without big balance sheetsface an existential crisis.
Until last year, many of the world’s largest miners, including BHP andRio Tinto, had been in a race to build or buy what they describe asfuture-facing minerals, in a breathless effort that recognised the increasingdemand and helped to beef up their environmental bona fides.
And smaller miners and wannabe critical minerals producers popped uplike mushrooms seeking to capitalise on the nickel rush or lithium rush.
The party music has now stopped, and the mop-up is ugly.
It’s not just nascent or aspiring companies that are feeling the pinchof the collapse in pricing.
With each day, there is now a fresh slew of bad news from companies thatmine or refine (particularly) nickel and lithium.
This ranges from the mothballing of operations and job losses towithdrawal of bank funding.
And it’s not just nascent or aspiring companies that are feeling thepinch of the collapse in pricing. Australia’s richest man, Andrew Forrest, hasannounced he is about to put his privately owned nickel mines in care andmaintenance, and BHP’s nickel refining operations fed by nearby Forrest’smines are to be mothballed from June.
And only a couple of months ago, Gina Rinehart splashed out $1.3 billionto grab a 19 per cent stake in lithium hopeful Liontown,demonstrating timing that could only be described as impeccably poor butincredibly lucky for suitor Albemarle, which withdrew its takeover bid forLiontown after being thwarted by Rinehart.
Gina Rinehartsplashed out $1.3 billion for a 19 per cent stake in lithium hopeful Liontown.© Getty
This week, Liontown revealed it had lost access to a $760 million loan offeredonly three months ago. The banking syndicate was apparently frightened offafter experts Wood Mackenzie released price forecasts which, if correct, wouldput Liontown under pressure to meet lending covenants.
This is more than a bumpy ride for these commodities, with lithiumplunging 90 per cent in a year and nickel falling 40 per cent.
What’s behind what might seem like a counterintuitive collapse is afamiliar tale of a free market’s response to fresh demand fundamentals. Theseminerals are typically used in batteries that will power, among other things,electric vehicles.
Demand has risen sharply, but supply has risen more steeply, and thesting in the tail is that supply is coming from parts of the world that canproduce and sell it at a cheaper price, such as Indonesia, Africa and China.
The nickel sector’s problems in particular stem from the explosion ofproduction in Indonesia, whose government has played the game particularly wellby demanding that those wanting access to its laterite nickel deposits mustbuild downstream refineries. Indonesia is now producing more than half globalsupply.
Forrest rightly argues that the price of nickel produced in a moreenvironmentally friendly way should receive a premium over production thatdepends on cheap coal-fired power, such as the nickel coming out of Indonesia.But this isn’t happening.
There are a couple of ways in which this imbalance between supply anddemand can be ameliorated over time.
Lower prices have already begun to remove high-cost supply. Theimbalance could also be addressed by increasing demand for EVs.
And while EV demand has been strong, the cost to the consumer remainssignificantly higher than the cost of petrol vehicles, which is a disincentivefor consumers who have already been assaulted by a cost of living crisis.
There is a self-correcting element in this as well. If cheaper batterymaterials lead to cheaper electric vehicles, then demand will ultimately catchup.
But this rebalancing could be years away, according to predictions.
In the meantime, Houston, we have a problem.
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So it seems that many mines are becoming marginal, closing down or being put on care and maintenance, meaning the essential minerals for battery production will stall.
