Europe isn’t ready to import the raw materials needed for electric cars. This sentiment, from a lithium company chief executive, goes against the narrative that the world is on the cusp of turning on a non-Chinese electric vehicle (EV) supply chain.
Even as carmakers and other players go directly to miners in Europe, the Americas and Australia to secure supply years in advance (although they’ve largely steered clear of actually funding these projects) China remains the key player in battery metals processing and battery manufacturing. Australia and Chile make up 85 per cent of lithium production, while China processes 60 per cent of this.
And while the US is managing to quickly build out some domestic processing capacity, Europe remains well behind.
The US advantage is likely to grow as well thanks to the government’s Inflation Reduction Act, although the European Union flagged this week that it could go to the World Trade Organisation to block rules that govern where source materials for batteries come from: “Half of the critical minerals used in EV batteries by 2024 would need to be extracted or processed in a country with which the US has a free trade agreement in effect, while in 2023, 50 per cent of battery components would need to be manufactured or assembled in North America,” said Rystad Energy consultant Susan Zou.
This could also hammer home Australia’s advantage in this space, given it has a crucial free trade agreement (FTA) in place with the US, and also massive lithium reserves.
The players
The lithium miners are critical to Europe developing its own supply chain, but they will be sending product to China for processing for years to come. Given the difficulty companies have had so far in building lithium mines locally, it’s more likely that projects in West Africa will be earmarked for ‘European’ batteries.
Bernard Aylward, who runs Kodal Minerals (KDL), said exporting spodumene concentrate (one step removed from the ore mined from the ground) to China from West Africa wasn’t ideal, but the company had little choice. “We’ve had discussions with people about [processing in] Europe. We’d love to be thinking it’s possible, but right now it doesn’t seem that it’s ready,” he said.
His company hopes to be in production by the end of next year after working out a cheaper and faster build route for its Bougouni project in Mali. The plan is to spend $65mn (£59mn) on a four-year mine life operation and then expand it once the cash flow arrives. Aylward said the impetus was the very high lithium prices seen currently, around 10 times what the company had initially factored into its mine design plans, at almost $7,000 (£6,267) a tonne.
“The sooner we can be delivering into the market as a reliable producer, the better off we’ll be,” he said. Fellow UK-listed lithium hopeful Atlantic Lithium (ALL) has a tie-up with US developer Piedmont Lithium (US:PLL) to build its Ghana project, so is likely to lean on the bigger company to sort out sales arrangements. Piedmont already has a relationship with Tesla (US:TSLA).
Of course, the mining cliché of high prices being cured by high prices very much applies here. But lithium demand forecasts are still outstripping reasonable supply forecasts.
Investment bank Bernstein forecasts that EV battery demand for lithium will rise from 141,000 tonnes in 2021 to 1.4mn tonnes in 2030, using lithium carbonate equivalent as the yardstick. This is a level up the supply chain from the spodumene that Kodal will sell. Bernstein forecasts that supply will catch up, with spodumene prices falling from an average of $3,000 a tonne in 2023 to $1,000 a tonne in 2026.
Europrocessing
So if Kodal won’t be able to send spodumene to Europe by 2023 or the year after, where are the processing options?
One plant is not far off, although still not open for Kodal’s supply. Advanced Metallurgical Group (ND:AMS), a Dutch company, has started constructing a spodumene-to-lithium hydroxide plant in Germany, and hopes to have it working next year.
The stage one plant will produce 20,000 tonnes of lithium hydroxide a year. It takes about seven tonnes of spodumene to get one tonne of hydroxide. So stage one of AMG’s plant will accept 140,000 tonnes of spodumene when running at full capacity. It has its own lithium mine in Brazil – increasing to 130,000 tonnes a year from 2023 – so most of the input is covered already. The margins look pretty good right now, although conditions may change: Bernstein forecasts a 2022 average of $68,300 a tonne for hydroxide and a $15,500 a tonne long-term average.
AMG is in the process of spinning off its lithium division, with an IPO expected next year.
Jefferies analyst Alan Spence said the company’s weak share price performance recently – down almost 40 per cent in the past six months – was a case of investors backing away from most European industrial companies.
“AMG has been unfairly lumped together with other European industrial names that are being heavily impacted by the energy crisis… as a reference point the conversion cost from spodumene to battery-grade hydroxide is $4,000 a tonne, of which the incremental energy impact has only been about $300,” he said.
The London Stock Exchange doesn’t have any established processing-exposed companies in the lithium space. There is microcap Alkemy Capital Investments (ALK), which owns Tees Valley Lithium, but this is at a very early stage and in need of hundreds of millions of pounds to get a plant off the ground.
While other regions race ahead, Europe hasn’t yet spotted the green light.
