Australia risks losing pole position in critical minerals race

Race on to break China’s grip on battery materials, Australia lagging behind US, Canada, EU incentives.

MELBOURNE, March 30 (Reuters) – Australia risks losing its lead in processing critical minerals because it has not yet laid out a national strategy, even as other governments roll out incentives to grab market share and bolster security .

Supplier of almost half of the world’s lithium, Australia is also the world’s third largest exporter of cobalt and a significant producer of rare earths, copper, graphite, manganese and other minerals key to the global energy transition.

However, these minerals are largely processed in China, including into materials essential in batteries and magnets for products from electric vehicles to missiles. Western countries want to ease its grip after supplies were disrupted during the COVID-19 pandemic.

Consultants say Australia should at least move into manufacturing the chemicals and battery active materials needed for cell manufacturing.

“There’s a lot of discussion and talk about various domiciles wanting to move forward, but ultimately it’s all about action,” Pilbara Minerals ( PLS.AX ) Chief Executive Dale Henderson told Reuters.

The Grattan Institute, a think tank, estimates that the critical minerals industry could add more than $400 billion to the economy by 2050, a bigger contribution than the coal industry, Australia’s No. 2 export, today.

Industry executives are calling for a national strategy to speed up that development through, among other measures, speeding up permits, preferential access to industrial land and providing subsidies.

They want swift action in the face of new competition from the US, Canada and the European Union, which have laid out critical minerals strategies including billions of dollars in incentives.

Top global miner BHP Group ( BHP.AX ) chief executive Mike Henry told media last month that Australia was at risk of other countries moving to “eat our lunch”.

HELP NEEDED

With Canberra’s help, Australia needs to play to its strengths, which include having abundant renewable energy resources and being a reliable supplier to its global partners, consultants say.

The government has provided more than A$250 million ($167 million) in support to Pilbara Minerals, the country’s largest independent lithium miner, which approved a lithium expansion in Western Australia on Tuesday.

CEO Henderson said he was encouraged by federal and state efforts, but added, “Of course, government can always do more.”

In the first ministerial roundtable on critical minerals strategy in three years last week, state and federal ministers agreed that development of the sector is a national priority, discussed how to support growth, and committed to holding regular roundtables, Resources Minister Madeleine King said.

On Wednesday, King said a critical minerals strategy would be released “soon.” However, the government has not said when it will deliver its national battery strategy.

“There is a window of opportunity to become a key player in battery manufacturing here in Australia,” Industry Minister Ed Husic said last week. “We can’t let it close.”

FINANCING HINKIES

Australia has struggled to overcome its reputation as a supplier of raw materials that fails in manufacturing, in part because its distance from major markets means it struggles to build scale to overcome high labor costs.

While major players including BHP, Tianqi Lithium Corp ( 002466.SZ ) and Albemarle Corp ( ALB.N ) are building operations that will turn ore into battery chemicals, the main hurdle for smaller players is financing.

Consistently making the right product grades is also a challenge. Bankers are wary of lending to a capital-hungry sector developing new technology, especially to companies with small balance sheets, typical of the sector, executives said.

Cobalt Blue Holdings Ltd ( COB.AX ), with a market value of A$140 million, won a small grant and fast-track permit status but still faces a funding shortfall and wants government assistance to acquire a refinery site for its A$560 million project, said investor relations manager Joel Crane.

“One of the biggest problems we face is project financing,” Crane said.

Capitalized at A$1.1 billion, Arafura Rare Earths ( ARU.AX ) is counting on loans from the Australian and German governments to finance more than half of its A$1.8 billion Nolans mine and processing plants.

“The elements for an effective critical minerals strategy are in place. The challenge is to stitch them together and deliver. This is a once-in-a-lifetime opportunity,” the Grattan Institute said in a report last month.

($1 = 1.4984 Australian dollars)

Reporting by Melanie Burton; Editing by Sonali Paul

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