Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
China’s Tianqi Lithium (SHE: 002466) said on Tuesday that nickel-gold miner IGO Ltd (ASX: IGO) had acquired a 49% interest in Tianqi Lithium Energy Australia, which controls Greenbushes — the world’s biggest hard-rock lithium mine, located about 250 km from Perth.
IGO has committed to invest $1.4 billion, a filing with the Australian Stock Exchange shows, which provides Tianqi with much-needed cash to make loan repayments originally due at the end of November, but extended to Dec. 28.
Tianqi is keeping its 51% ownership of its Australian unit. It said it would use the proceeds from the deal with IOGO to repay the $1.2 billion principal on a loan taken out 2018 to partially fund the acquisition of a 25% stake in Chilean miner SQM for $4.1 billion.
The deal gives IGO an almost 25% stake in Greenbushes plus 49% in Tianqi’s suspended Kwinana lithium processing plant. The $770 million facility was mothballed shortly after commissioning earlier this year in light of weak prices and demand for the commodity.
That acquisition of an interest in SQM was part of an aggressive global expansion aimed at securing leadership in the lithium market. It succeeded in putting China in a dominant position just as sales of electric vehicles (EVs) took off, but it came at hefty cost for Tianqi.
The beleaguered Chengdu, Sichuan-based miner closed that deal when lithium carbonate prices were peaking at $17,000 per tonne. They have since plunged more than 70% due to a global oversupply of the commodity used in the making of batteries that power electric vehicles (EVs) and high tech devices.
Tianqi’s decision of selling a stake in its Australian unit to a local miner comes amid escalating tensions between Beijing and Canberra.
Analysts believe the transaction is rather “humbling” for China considering the 14-point memo its Canberra embassy released in November, which accused Australia’s government of “poisoning bilateral relations.”
“[The deal] should allow Tianqi Lithium to retain control of Greenbushes while helping China Citic Bank get its money back (…) China might consider thanking Australia for the favour,” Financial Times’ columnist, Tom Mitchell, wrote.
Most experts were not surprised with the outcome. “Greenbushes is a large, low-cost asset and has contributed to China’s lithium supply security,” Alice Yu, S&P Global Market Intelligence, said in a research note.
The deal, which needs the approval of the Australian Foreign Investment Review Board, will be presented to Tianqi shareholders on Jan. 5.
US-based lithium giant Albemarle (NYSE: ALB) holds a 49% stake in Talison Lithium, a partnership with Tianqi that operates Greenbushes mine. Because of this, the company is believed to have some form of pre-emptive rights over the project and has expressed interest in adding to its stake in the past.
Albemarle said on Tuesday the transaction appeared to be structured “in a way that would not trigger the company’s right of first refusal.”
“If so, we believe the structure of the Talison JV would remain unchanged,” spokeswoman Hailey Quinn told Reuters, adding that Albemarle would evaluate further once full details are known.
