The lithium boom has been running for seven years, why are we still waiting on a strategy?
The merger plans of ASX-listed Allkem and US-headquartered Livent send a very clear message to Australia’s policy makers. When it comes to electrification and the battery boom, scale matters and vertical integration matters.
Despite the fact Australia’s resources and chemicals sector have been shouting about it for years, on the evidence of this year’s federal budget there is still a significant danger the message will be missed.
You could realistically pick 2016 as the year Australia’s lithium push took off in earnest. That was the year China’s Tianqi lithium approved plans to build a lithium hydroxide plant in WA, although the plan had been kicking around in various forms for at least four years before that.
It was also the year Chris Ellison’s Mineral Resources picked up the Wodgina lithium project from Global Advanced Metals, as it was finishing construction of its Mt Marion lithium project near Kalgoorlie.
At the same time, Pilbara Minerals was getting serious about its own lithium plans in the region, and a vast plethora of WA explorers were busy running old core samples through the labs in the hope of finding some lithium. Kidman Resources, then a gold company, was the most notable winner given its 2019 acquisition by Wesfarmers.
Since then mines have been built and lithium has grown to be a substantial contributor to Australia’s export revenue, creating jobs along the way.
A decade ago WA’s lithium mines employed a little over 400 people, according to statistics kept by the state’s mines department.
That peaked at about 4500 in 2018 before the price crash that took the gloss off the sector and shuttered some of the state’s new mines, and has risen back more recently.
Even in 2016, resources companies and the chemicals sector were calling for support to help take best advantage of the looming demand for electric batteries – and not just, again, become the world’s quarry.
Since then the sector has done more to push into the value chain for the commodity than most of the resources industry has managed in decades. Albemarle, along with Wesfarmers and partner SQM, have joined Tianqi in building lithium refineries and Iluka Resources has built its rare earth refinery.
But the $1.3bn in federal loans offered up to Iluka is the only sign of commercially meaningful government support for the sector so far.
The Northern Australia Infrastructure Facility has dabbled a bit, with promises of support for Hastings Technology Metals Yangibana rare earth project and Strandline Resources Coburn mineral sands project.
But delivered dollars have been pretty thin on the ground so far.
Recent calls for support from the resources sector have focused on the enormous scale of US President Joe Biden’s Inflation Reduction Act, and the wealth of subsidies and support on offer.
That is not something the Australian government could ever match and, to be fair, there is a genuine risk in following the US lead and throwing a grab-bag of subsidy ideas at the wall and hoping some of it sticks.
But, outside of the existing $2bn Critical Minerals Facility – the majority already committed to Iluka – and the ongoing promise that $1bn of the $15bn National Reconstruction Fund will go to critical minerals initiatives, Tuesday’s budget apparently contained no new measures targeted at helping Australia capture more value from our mineral wealth.
There are good arguments against the “picking winners” strategy of direct grants. But industry calls for measures to help attract investment, such as accelerated tax write-offs for battery chemical projects or production credits – and streamlined approvals processes – have merit.
Even a hard line would have backers, if not broad industry support. In 2014 Indonesia first gave notice it planned to ban the export of raw nickel ore. The country now has a major refining industry.
Instead, the only budget commitment was $80.5m over four years to continue the talk-fest with Australia’s trading partners over how great the sector could eventually be.
Contrast this with the budget’s $2bn promise to help build a hydrogen industry – although that is also, to be fair, another promise in the never-never given only $160m in spending was included in the four-year estimates.
But the point remains. Hydrogen is also in the never-never. Not one of the hydrogen hopefuls spruiking the promise of the energy export has even released a project feasibility study, let alone produced a commercial molecule of gas.
The starter’s gun has already fired in the race to capture value in lithium, rare earths and critical minerals, and Australia – as it has time and time again – risks being left behind.
Australia needed a critical minerals strategy in 2016, when the size of the opportunity became apparent.
What we need now is a plan to make up for lost time.
When the federal government releases its critical minerals strategy later this year, it will need to be a doozy.