A successful transition away from a fossil fuel-based economy and towards a renewable energy-based economy depends on creating greater access to ‘green metals’ like lithium. With its high energy density and light weight, lithium is pivotal to the green energy transformation. It is a key component of lithium-ion batteries that are used in energy storage systems such as in EVs.

Australia is the world’s biggest lithium producer by a long way. According to the Energy Institute’s Statistical Review of World Energy, its 2023 output of lithium content was 86,000 tonnes, just under the combined output of next two biggest producing countries; Chile (56,500 tonnes) and China (33,000 tonnes). Much of Australia’s production growth has occurred in the last decade, over which it has experienced annual growth of 23.9%.

Although market fluctuations have resulted in a drop in the lithium market over the past couple of years, demand for the metal is expected to increase significantly in the next decade. Indeed, some Australian miners have begun to defy the severe market downturn and are ramping up production in anticipation of the eventual market upswing. One such miner is Pilbara Minerals, which is increasing production at its Pilgangoora mine in Western Australia.

What do brokers say about lithium now?
Three major brokers, Morgan Stanley, Macquarie and Goldman Sachs, recently released their forecasts on the lithium sector. Most remain cautious on the outlook for the market.

Morgan Stanley notes ‘a significant ramp-up of investment in new supply capacity’ in Australia, China, Chile and Africa. The broker argues that this has been the ‘driving force’ behind the oversupply that has plagued the lithium market since 2022. Morgan Stanley doesn’t expect the problem to go away any time soon, suggesting lithium markets will remain in surplus until beyond 2030.

It also notes that some Australian Stock Exchange listed lithium mine companies could be significantly overvalued. For example, in July 2024 Pilbara was trading on an ‘implied spodumene [a lithium containing mineral] price of US$1,350/t and $1,370/t, respectively’. This is way above the current spodumene price that is closer to $950/t.

‘A significant ramp-up of investment in new supply capacity [of lithium] is about to be unlocked in Australia, China, Chile and Africa’, notes a Morgan Stanley report.

Goldman Sachs, meanwhile, notes a silver lining for investors in Australian lithium stocks, which have outperformed both the underlying commodities and their international peers in 2024. It does warn, however, that new projects continue to be proposed or progressed, leading to lithium prices approaching their marginal costs of production. ‘We continue to factor in near-term pricing weakness over the second half of the 2024 calendar year and calendar year 2025’, the broker said.

Macquarie agrees, predicting elevated upstream supply could continue to ‘weigh on lithium prices in the near term’.

Meanwhile, access to the metal and its reserves is increasingly at the mercy of global geopolitics. The situation is creating a major source of tension between the West and China – which is by far the world’s largest consumer, refiner and importer of lithium. 

According to McKinsey estimates, China controls 67% of the global lithium supply. This figure is expected to grow. But unlike the West, China has invested heavily in developing technologies and production know-how for the entire lithium supply chain. It has also acquired stakes in mining companies across the globe, particularly in South America's ‘lithium triangle’. This region spans Argentina, Bolivia and Chile, where most of the world’s known lithium reserves are situated.

But while China and South America may be the world’s top producers of refined lithium and host of the world largest reserves respectively, Australia, with a production level of 86,000 tonnes, is by far the world’s largest producer of mined lithium. This output is almost double Chile’s 44,000 tonnes output, the world’s second largest.

How can Australia keep up with China in lithium?
Despite its huge output, Australia still lags well behind China in its ability to process spodumene into the more valuable lithium hydroxide (LiOH) needed for lithium-based batteries. Steps are now being taken by Australian miners to close this gap, in collaboration with Australian academia. One such start up, a spin-off from the Melbourne-headquartered Monash University, is ElectraLith.

The company says: ‘Australia is spending a lot on research and installing manufacturing capability to refine the minerals further to make battery-grade minerals and to produce batteries for EVs.’

It claims that results from recent research ‘proves that its direct lithium extraction and refining (DLE-R) technology can produce battery grade LiOH from a range of lithium sources, using no water, no chemicals and minimal energy.’ This process uses electro-membrane and electrodialysis technology to extract and produce battery-grade LiOH in a single, scalable and modular step. This is claimed to be a breakaway from other DLE technologies. ElectraLith is backed by UK-headquartered miner Rio Tinto and technology investment company IP Group, together with Sydney-based Australian equities firm Monash Investment Holdings.

ElectraLith Chief Executive Officer Charlie McGill is positive about the prospects for this technology, stressing it could have wider applications globally. Of particular interest is that the process extracts lithium from natural brines, he explains. ‘These include salar brines, like in South America, and geothermal and oil field brines like you have in the US, Canada and the UK. So even though our technology originated in Australia, it is focused on extracting lithium from resources other than those commonly mined in Australia. The technology produced 99.9% pure LiOH from US-based Mandrake Resources’ geothermal oil field brines without water, which is an increasingly scarce resource in the broader Colorado River Basin.’ [Salar brines are formed when most of the liquid water content has been removed from an evaporation pond through solar evaporation. They are very concentrated and typically contain potassium and sodium as well as lithium.]

Rio Tinto will trial and test the brines with its first DLE-R prototype at its lithium Rincon project in Argentina in 2026.

Is China investing in Australian lithium?
Another promising route forward for Australian miners to acquire refining expertise is partnership with Chinese lithium companies. Chinese-owned Tianqi Lithium Corporation has invested heavily in refining plants with Australian joint venture partners. In 2022, it launched Australia’s first battery-grade LiOH plant at Kwinana. Commenting on progress at the refinery, Sharon Ianello, Manager of Corporate Affairs, says: ‘The Kwinana plant achieved battery grade in May 2022. Kwinana has one production train with a design capacity of 24,000 tonnes and is intending to consider a financial investment decision on a second train in 2025. If train 2 goes ahead, the plant will have a total production capacity of 48,000 tonnes.’

Earlier this year, China’s Ganfeng Lithium Group, the world’s third-biggest lithium producer, and Pilbara announced that they are looking at jointly developing a LiOH and carbonate refinery for the battery metal. Ganfeng and Pilbara will undertake a feasibility study on the plant that will have a capacity of 32,000 t/y. The assessment will examine possible locations for the facility, including Australia. Crucially, all these investments are supported by the Chinese government. In June, Chinese Premier Li Qiang inspected the Tianqi lithium refinery in Perth as part of his four-day visit to Australia.

Chinese investment in Australia’s mineral sector is a politically-sensitive topic, though. In March, five Chinese shareholders were forced by Australian Finance Minister Jim Chalmers to sell their shares in Northern Minerals, a producer of dysprosium. The Minister cited national security concerns, as dysprosium is a critical element for high-performance magnets in EVs.

In other developments, Greta Minerals PTE, a Singapore-based company, acquired lithium and rare earth element (REE) exploration assets in Western Australia in July 2024. The acquisition expands its operational footprint in Australia to over 700 km² of exploration tenements located on the Ida Fault. Rajshekhar Kudupali, Managing Director of Greta Minerals, said at the time: ‘The acquired tenements divide the Youanmi and Kalgoorlie terranes in Western Australia's Eastern Goldfields. The tenements feature lithium-rich pegmatites and late-stage granitic intrusions similar to those at Mount Marion, indicating a strong potential for significant lithium and gold deposits.’

Like China’s joint stock enterprises, Australian companies are also looking to acquire assets in South America. In August, Pilbara announced an agreement to acquire the planned Salinas mine, a hard rock lithium project in Brazil, from Latin Resources. The bid implies a value of A$0.20/share, equivalent to A$560mn (US$370mn). Plans are in place to develop Salinas at a cost of just over A$250mn, to produce 499,000t/y of spodumene concentrate.

Pilbara Chief Executive Dale Henderson said the bid was in line with the company’s diversification strategy. It also reflected its long-term confidence in demand for the battery-making ingredient, of which he says ‘was in stark contrast with some of our peers out there who are retreating’. The bid though is seen as a gamble. Indeed, the following morning it led to a 5% drop in Pilbara’s share price on the Australian Securities Exchange.

Elsewhere, Core Lithium was reported in July 2024 to have made an unsolicited, non-binding takeover bid for Charger Metals. Core believes there are strong synergies between its Finniss lithium operations and Charger’s Bynoe lithium project, both in the Northern Territories. However, Charger’s board declined the offer, believing the terms do not fully reflect the company’s potential.

What is the longer-term outlook for lithium?
All the evidence points to a rapid rise in the lithium market after the present downturn, on the back of demand from EVs and other end uses. Tesla forecasts, quoted by McKinsey, suggest the company will need approximately 1mn t/y of lithium carbonate equivalent (LCE) by 2030. This is 16 times its 2022 needs and 30% more than the world currently produces.

But while global demand growth in lithium-based power offers a significant opportunity for the Australian resources sector, McKinsey warns that it is ‘time limited’. Companies will need to establish their roles in the battery value chain now, as their decisions will determine how the global industry will look in the 2030s.

Australia’s opportunities stem from rising lithium demand and the country’s capacity to produce LiOH. Australia also has a strong cost advantage and McKinsey believes LiOH can be produced there ‘at about 52% of the cost for the rest of the world’. It estimates that the LiOH market may generate up to $10 bn/y in additional revenue by 2030.

• Further reading: ‘Global battery investments dip for first time since 2020’. Following four consecutive years of significant growth, 2024 is set to see a sizeable decline in global battery investments for the first time since 2020, according to new Rystad Energy research.
• Batteries, including those needed for electric vehicles, are vital for the energy transition; demand for them is only growing. However, this means more mining for minerals – with significant environmental consequences. Jordan Brinn, a clean vehicles and infrastructure advocate at the US Natural Resources Defense Council (NRDC), explains how we can improve mineral mining and reduce overall demand through reuse and recycling.