In The Australian today. Format not great https://www.theaustralian.com.au/business/rio-tintos-hidden-lithium-messages-to-albanese-government/news-story/292c2d352772324448b669c7ce129880
Robert Gottliebsen
The last slide of Rio Tinto chief executive JakobStausholm’s presentation on the $10bn Arcadium Lithium takeover had a hidden message for Energy Minister Chris Bowen and Resources Minister Madeleine King.
There was also a subtle dig at BHP chief executiveMike Henry, Bowen and King for the government-backed investment of $230m,mainly in convertible notes to support the hard rock lithium mining andtreatment operations of Liontown Resources. Rio believes brine is a muchlower-cost source of lithium. Two years ago, Henry explained that one of thereasons BHP was not investing in lithium was the fact that in 2022 it wasdifficult to find a project that had a substantial cost advantage over the restof the market.
Stausholm’s final slide showed the situation wouldchange and there was now a major “cost curve” ahead in lithium, which would bevery similar to the “cost curve” in copper mining.
At the bottom of the “cost curve” – that is, thelowest-cost producers – were those producing lithium from brine, led by Rio’stakeover of hard rock lithium producers that use conventional mining. TheStausholm slide did not name companie,s and indicated that some hard rocklithium producers would be low-cost and some lithium via brine producers wouldbe high-cost, but overall there was a clear pattern.
Given the projected rise in lithium demand, thereis scope for hard rock miners like Liontown to do well.
But in the good times it will be the low-costproducers that make the most money and when the price is depressed, low-costproducers will handle the tough times much better.
It is remarkable that the ASX has funded two of themajor global brine processing technologies.
Stausholm makes it very clear that a key reason whyRio is prepared to pay $10bn for Arcadium is that they are buying a companywith excellent technology.
Arguably, Arcadium has the most experienceoperating the high efficiency form of lithium brine production system, A-DLE.
The company has been using the technology inArgentina since 1996 and this project is next door to a lithium asset Riopurchased for $800m in 2022.
Although Arcadium is an ASX-listed company, itstechnology was developed in the US.
By contrast, Vulcan used the risk appetite ofAustralian ASX investors to fund its technology development. It is nowcompleting a $2bn loan raising from European trade funding banks includingExport Finance Australia to apply the Vulcan technology to extract lithium frombrine waters in Germany.
It will use geothermal heat in its lithiumextraction process to produce a carbon-free lithium, as well as supplying baseload renewable power to local communities.
Brine with lithium is common around the world, butthere are relatively few technologies available to extract the lithium. And itis remarkable that Australia should fund one of the technologies and havesubstantial equity in the second.
Among the groups most familiar with suitable brinedeposits are oil companies. Exxon, Chevron and the Norwegian state oil companyare entering the field but will need to buy access to the technology fromArcadium, Vulcan or one of the other groups with suitable technology.
Carmaking is one of Europe’s biggest industries,and carmakers do not want to be dependent on non-European sources for lithiumand batteries. Vulcan has supply contracts with major European motor companies’battery operations.
Geographical diversification is going to beimportant in the lithium industry because supply chains are localising.
China has more than three quarters of the lithiumbattery market, and both the US and Europe are increasing production to lowerdependence on China.
Australia also has suitable brine deposits in theCooper Basin, and we may eventually produce lithium from brine.
The Rio bid timing is important. Because of thefluctuating demand and limited supply, the price of lithium has fluctuatedwildly. Over the last four years we have seen lithium rise from $US8000 ($1202)a tonne to $US80,000 and then back to $US10,000.
Stausholm and his Rio board believe there is agreat future for low-cost lithium producers. While the company is biddingaround twice the old market price for Arcadium, it is buying an established,proven operator with excellent resources when the price of lithium is low. Notsurprisingly, there have been rumbles from some institutional shareholders thatRio is getting the company too cheaply.
Vulcan is still Australian owned with keyshareholder Gina Rinehart owning about 7.5 per cent of the capital, but she isalso an investor in Liontown, so has a stake in both forms of lithiumproduction
