Battery metal mines hit hard in Oz as slowdown in electric vehicle sales coincides with surge in supply

Western Australia’s ‘Golden Mile’ was once considered the richest square mile in the world after prospectors flocked here during the gold rush of the late 19th century.

It is now at the epicenter of a global slump in battery metal prices, as a slowdown in electric vehicle sales coincided with a surge in supply.

The Goldfields region has become a magnet for a new wave of gold seekers, from homegrown billionaires to global mining giants and small speculators – all vying for the abundance of lithium that also lies beneath the red earth.

So much so that a vast stretch of desert near the historic gold mining town of Kalgoorlie has been dubbed the ‘lithium corridor of power’.

Lithium is a key component in lithium-ion batteries that are powering the global transition from combustion engines to electric vehicles.

It is coveted and expensive and is also called ‘white gold’. Western Australia is the largest source of hard rock lithium in the world, supplying approximately half of the global supply.

It is a major supplier of nickel – with 23 percent of the earth’s known reserves of the substance – another key component of electric batteries.

And while the vast majority of cobalt is found in the Democratic Republic of Congo, Western Australia has plenty of it too. But the boom for battery metals has quickly turned to bust.

After a huge surge since 2017, lithium prices have fallen more than 80 percent since the end of 2022, while nickel and cobalt have also fallen about 40 percent.

Nickel and lithium prices have fallen so low that some mines have scaled back or halted production until they bounce back, while hundreds of workers have been laid off.

Late last month, the world’s largest hard rock lithium mine – Greenbushes, which is located south of Perth (well outside the ‘corridor of power’) – announced that it would cut production in the coming months to meet lower lithium demand from battery quality.

It is jointly owned by a partnership between Australian company IGO and Chinese miner Tianqi Lithium, and US giant Albemarle.

IGO announced last week it would close its ailing Cosmos nickel mine, while iron ore billionaire Dr Andrew Forrest is shutting down the nickel mines just months after buying them.

Rio Tinto, the Anglo-Australian FTSE 100-listed miner, is not immune. It has applied for permits to explore more than 500 square kilometers in the lithium corridor.

But it has also refused to pay high prices amid a wave of mergers and acquisitions in case lithium prices fall.

This strategy has protected Rio and put the country in a prime position to buy troubled mining assets cheaply.

Mothballed: Iron ore billionaire Andrew Forrest

The sharp drop in nickel prices has been driven by a China-driven increase in supply from Indonesia, the world’s largest miner of the metal.

Nickel exports have been banned by the Indonesian government, which wants the country to become a nickel processing center that will attract foreign investment.

China has been happy to oblige, pouring money into Indonesia to develop new nickel mines, expand existing ones and build nickel smelters.

This has led to turbo nickel production in Indonesia, which has grown its market share from just 2 percent in 2015 to 49 percent of global supply last year.

The Chinese investment in Indonesia is all part of the master plan to maintain its stranglehold over the battery metal supply chain.

Australia exports 97 percent of its lithium to China – the world’s largest manufacturer of electric cars and the batteries used in them – for refinement.

But the overarching reason for the decline in prices of various types of battery metals is reducing demand for electric vehicles.

Countries around the world are struggling with high inflation and slowing economies, putting expensive electric cars further out of reach of households.

An energy crisis caused by Russia’s invasion of Ukraine has also prompted many governments to water down their commitments to go green and reduce tax incentives for both consumers and miners.

In a recent note to investors, lead lithium analyst Allan Pedersen of business management consultant Wood Mackenzie said: “Lower government incentives and inadequate charging infrastructure are expected to limit (electric vehicle) sales through 2024.”

He has predicted that there will be an oversupply of lithium and other battery metals for several years to come, but stressed that the “industry fundamentals remain excellent, driven by the global drive to decarbonize the economy.”

Long-term investors looking for a bargain would be wise not to act hastily, as lithium and nickel prices are widely predicted to fall further before bouncing back.

In the meantime, there may be better news for motorists, with Tesla boss Elon Musk among those insisting that lower metal prices for batteries will finally make electric cars more affordable.