Battery metal mines are taking a hit in Oz as a slowdown in electric vehicle sales coincides with increased supply
Western Australia’s “Golden Mile” was once considered the richest square mile on Earth after prospectors flocked here during the gold rush of the late 19th century.
It is now at the center of a global collapse in battery metal prices, as a slowdown in electric vehicle sales has coincided with an increase in supply.
The Goldfields region has become a magnet for a new wave of prospectors, from local billionaires to global mining giants and small-time speculators – all vying for the lithium bounty that also lies beneath the red dirt.
So much so that a vast expanse of desert located near the historic gold mining town of Kalgoorlie has been dubbed the “Lithium Energy Corridor.”
Lithium is a key component in lithium-ion batteries powering the global shift from internal combustion to electric vehicles.
Oversupply: Western Australia’s ‘Golden Mile’, once considered the richest square mile on Earth, is at the center of a global collapse in battery metal prices
It is expensive and desirable, and has been called “white gold.” Western Australia is the world’s largest source of hard rock lithium, providing about half of the global supply.
It is a major supplier of nickel – with 23 percent of the Earth’s known reserves of the material – another key component in electric batteries.
Although the vast majority of cobalt is found in the Democratic Republic of the Congo, Western Australia has a lot of it too. But the boom times for battery metals quickly turned to doldrums.
After rising since 2017, lithium prices have fallen more than 80 percent since late 2022, while nickel and cobalt have also fallen by about 40 percent.
Nickel and lithium prices have fallen so much that some mines have reduced their production, or frozen them until they recover again, while hundreds of employees have been laid off.
At the end of last month, the world’s largest hard rock lithium mine – Greenbushes, located south of Perth (outside the “energy corridor”) – announced that it would reduce production over the coming months to keep up with falling lithium demand. Battery grade lithium.
It is jointly owned through a partnership between Australian company IGO, Chinese mining company Tianqi Lithium and US giant Albemarle.
IGO announced last week that it would close its struggling Cosmos nickel mine, while iron ore billionaire Dr Andrew Forrest is winding down its nickel mines just months after buying it.
Rio Tinto, the Anglo-Australian FTSE 100 miner, is not immune. It has applied for licenses to explore more than 500 square miles in the lithium corridor.
But it has also refused to pay inflated prices during a wave of mergers and acquisitions, should lithium prices fall.
This strategy has succeeded in protecting Rio and putting it in a unique position to acquire distressed mining assets at low cost.
Freezing Operations: Iron Ore Billionaire Andrew Forrest
The sharp decline in nickel prices was driven by China-fueled oversupply from Indonesia, the world’s largest nickel miner.
The Indonesian government bans the export of nickel, as it wants the country to become a nickel processing hub, attracting foreign investment.
China was very happy with this commitment, pumping money into Indonesia to develop new nickel mines, expand existing mines and build nickel smelters.
This has led to nickel production in Indonesia, which has increased its market share from just 2 percent in 2015 to 49 percent of global supply last year.
China’s investment in Indonesia is part of its master plan to maintain its stranglehold on the metal battery supply chain.
Australia exports 97 percent of its lithium production to China – the world’s largest manufacturer of electric cars and the batteries that go into them – for refining.
But the main reason for the decline in prices of various battery metals is weak demand for electric cars.
Countries around the world are struggling with high inflation and slowing economies, which has put expensive electric cars out of reach of families.
The energy crisis resulting from the Russian invasion of Ukraine has also encouraged many governments to relax their commitments to going green, and to reduce tax incentives for both consumers and miners.
In a recent note to investors, lead lithium analyst Alan Pedersen at business management consultant Wood Mackenzie said: “Reduced government incentives and insufficient charging infrastructure are expected to dampen (EV) sales in 2024.”
He predicted there would remain an oversupply of lithium and other battery metals for several years, but stressed that “industry fundamentals remain excellent, driven by the global push for decarbonisation.”
Long-term investors sniffing for deals would be wise not to rush, as lithium and nickel prices are widely expected to fall further before bouncing back.
Meanwhile, there may be better news for drivers, as Tesla boss Elon Musk insists that falling battery metal prices will finally make electric cars more affordable.
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(tags for translation) Daily Mail