Simon Clarke, chief executive of American Lithium (NASDAQ:AMLI)(TSX-V:LI), explains why now is the time to establish secure, independent supplies of energy metals that are sustainably processed by geopolitically safe countries.
- Volatile pricing and limited domestic supply are driving EV makers to secure their access to high-grade lithium and other energy metals including copper, nickel and cobalt.
- China controls most of the battery supply chain, including the refining of all key minerals including lithium, cobalt and nickel.
- The potential for Western industry to be held hostage grows by the day as political tensions rise.
In the critical elements’ version of musical chairs, automakers are rushing to align with energy metal miners before the ‘music’ stops. Volatile pricing and limited domestic supply are driving EV makers to secure their access to high-grade lithium and other energy metals including copper, nickel and cobalt.
A race for deals
The tempo of the musical chairs intensified with Lithium America’s (NYSE:LAC) announcement of a $650 million investment from General Motors (NYSE:GM) to fund the company’s fully permitted claystone lithium deposit at Thacker Pass in Nevada.
How far will EV automakers go to secure vertical integration? In October 2022, it was widely reported that Tesla (NASDAQ:TSLA) considered taking a stake in mining Goliath, Glencore (LSE:GLEN). Even though Glencore heavily invested in lithium recycling, it does not own lithium mines. Instead, it produces copper, nickel and cobalt – ‘commodities of the future’ – needed to manufacture batteries, electric vehicles and renewable infrastructure that will help the world transition to a greener economy.
While Tesla has not, to date, taken a stake in Glencore, it has signed off-take agreements with lithium and nickel miners which give the company critical elements at a pre-determined, fixed price. The commodity value chain also places a premium on domestic lithium refining. In fact, Tesla is investing in a Texas facility which aims to will produce battery-grade lithium hydroxide, which is used in high-performance lithium-ion batteries for EVs.
Automakers want to focus on what they do best – build best-in-class vehicles – delivered on time and within budget. Automakers cannot project EV costs with wildly fluctuating energy commodity prices. Just as importantly, they have to secure future supplies of critical battery metals now, not later down the road. All major, global automobile manufacturers have “bet the farm” on the transition to EVs due to the phasing out of internal combustion vehicles over the next 10-15 years. Accordingly, the evolution of their fleet of vehicle models to EVs is the proof in the pudding!
Albemarle (NYSE:ALB) announced a $1.3 billion infusion in a ‘Mega-Flex’ lithium processing facility in South Carolina to “process diverse lithium feedstock, including lithium from recycled batteries. Albemarle expects the facility to annually produce approximately 50,000 metric tons of battery-grade lithium hydroxide from multiple sources, with the potential to expand up to 100,000 metric tons.”
China is the global leader
Processing plants that produce battery-grade energy metals are rare in North America. China controls most of the battery supply chain, including the refining of all key minerals including lithium, cobalt and nickel.
“We have to outcompete China and the world, and make these technologies here in the United States — not have to import them,” said US President Joe Biden while promoting the Inflation Reduction Act. All told, the US government has pledged about $370 billion for climate change mitigation, including clean energy, domestic lithium mining and refining and environmental justice projects.
According to Jim Farley, chief executive of Ford (NYSE:F): “As the automaker world transitions toward zero carbon emissions, the biggest obstacle is access to domestic battery supply chains. Both lithium and nickel are the key constraining commodities. We want to localize these commodities in North America …. not just the mining but the processing of the final materials.”
Farley revealed that raw metals mined in the US often get sent back to China to be processed, something the US is actively trying to counter through grants and additional investments.
While the American EV industry currently imports virtually all of its lithium, the passage of the historic Inflation Reduction Act is expected to help address this shortcoming by boosting domestic lithium mining in the US.
Jack Lifton, co-founder and chairman of the Critical Minerals Institute, believes that the automotive industry has failed to accept the problem of an inadequate domestic lithium supply chain. He was quoted as saying: “If it is not even possible to buy enough lithium to make enough batteries in the United States for half of our population; what about the rest of the non-Chinese world?”
Securing supplies through partnerships
We should not expect the US alone to bench-lift energy metal mining and processing to meet EV makers’ goals. The processing of lithium, nickel and copper into battery-grade chemicals that can be transformed into lithium-ion batteries used to power electric vehicles and to store wind and solar energy, should be controlled by regions of the world that are part of the Minerals Security Partnership (MSP).
Established in June 2022, MSP’s primary objective is to secure supplies of critical minerals outside of China, including lithium. Partners include Canada, Australia, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the UK, the US, and the European Commission.
The Canadian government has ordered Chinese companies to divest their holdings in Canadian mining companies developing lithium deposits, along with a tougher policy on investment in the minerals sector by state-owned Chinese entities, which dominate the processing of key energy transition metals including lithium, cobalt and rare earths.
In September 2022, European Commission president Ursula von der Leyen announced the European Critical Raw Materials Act for lithium and rare earth metals. “We will identify strategic projects all along the supply chain, from extraction to refining, from processing to recycling,” she remarked at the annual State of the Union address.
With the global pressure now simmering to a boil, our collective future is dependent on having many more mines and processing plants established in MSP regions. China has not missed a step in continuing to invest in energy metal mines, processing and battery production around the world. China plays commodity price bubbles to its advantage to source new raw materials, while also preserving and enhancing its own domestic supply.
Chinese initiatives over the past 20-30 years have positioned this ascendant super-power extremely well for the future, while the rest of the world remains heavily dependent on China to continue to supply the vast majority of refined products we need.
The potential for Western industry to be held hostage grows by the day as political tensions rise. The need for secure, appropriately priced domestic or MSP production is now so critical that we see automakers and other end-users taking matters into their own hands, rather than relying on governments and traditional suppliers. The venture into the mining world by automakers may not be borne out of choice, but out of necessity and will likely dictate which companies survive and thrive by securing supply and providing certainty on the prices they will have to pay.
As Canada, the US, and other countries look to disentangle their clean energy supply chains from China from the perspective of energy security, it’s also important to remember that the health of our planet is also at stake. To this point, the time is now to establish secure, independent supplies of energy metals that are sustainably processed by geopolitically safe countries.
The opinions of guest authors are their own and do not necessarily represent those of SG Voice.