Ground Breakers: Rio wants to be a ‘step ahead’ as it sees 10x lithium demand growth
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Rio Tinto (ASX:RIO) head honcho Jakob Stausholm says lithium demand could grow as much as 10 times by the end of this decade, but poured cold water on hopes the miner would launch an M&A offensive in the hot space.
Speaking to Bloomberg TV on the sidelines of the Climate Week conference in New York City, the CEO of the world’s second biggest miner said a number of new mines would need to be developed to satisfy demand for the emerging commodity, prized, as you all know, for its use in electric vehicle batteries.
It comes as Rio pegs ground around WA to explore for the commodity, tries to continue reversing a Serbian Government decision that put paid to its multi-billion dollar Jadar mine, inks JVs with Canadian juniors in the James Bay region and builds a pilot DLE plant at its Rincon project in Argentina, something expected to cost around US$335 million.
“We’re doing exploration many places on the planet, we have another project in Serbia, that we would like to focus on and we are, as you say, building in Argentina right now,” Stausholm said.
“We are actually doing exploration on a number of continents right now.
“It’s not that lithium is ever going to be as big as copper and as aluminium, but the point is the current production is very small and basically in 2030, we expect 10 times more demand than in 2020.
“So quite a few new mines need to be up and running.”
Its approach to lithium goes well beyond the timid response of big rival BHP (ASX:BHP), which continues to say the immature cost curve and singularity of the lithium market mean it doesn’t want to join.
That and probably it also missed the boat dithering on whether to buy a ticket.
Valuations are now stonkingly high. Big producers like Pilbara Minerals (ASX:PLS) and Mineral Resources (ASX:MIN) are now in the $12-13 billion market cap range, the former worth something like $600 million when lithium prices were at a floor in 2020.
Major US producer Albemarle will stump up $6.6 billion in cold hard cash for pre-production Liontown Resources (ASX:LTR) to snare its 500,000tpa Kathleen Valley mine in WA … if the interjection of WA billionaire Gina Rinehart with a 7.72% stake doesn’t complicate matters and due diligence wraps up to its liking.
But Stausholm continues to say Rio wants to build its own, having previously paid US$825 million for Rincon Mining to secure its Argentine salt lake asset.
“We rather use our competencies to develop the projects ourselves because lithium companies right now are very, very expensive and that might be relevant for someone who doesn’t have any competencies in the area,” he said.
“But we believe we can find much cheaper ways to get there.”
It had a small bit of success overnight, with TSX-V listed partner Midland Exploration declaring that it had identified a series of spodumene bearing pegmatite dykes at the Galinee project, around 8km east of Winsome Resources’ (ASX:WR1) emerging Adina discovery.
A maiden drill campaign is due to begin later this year. Rio can earn up to 70% of the project through an option agreement by spending $64.5 million on exploration in a deal that could take 10 years to fully mature.
Meanwhile, Stausholm admitted Chinese demand for iron ore would likely moderate a decade down the road as more recycled scrap steel comes into its supply chain to displace primary iron ore, but predicts “stable demand long term” for Rio’s product as Indian demand grows “significantly”.
It was another down day for the materials sector, this time without the protection of a strong performance from the gold sector to save the blushes.
A rough time for battery metals, base metals and iron ore producers saw the big miners fall as a collective by 1.55%.
Weak demand and high supply in China has kept lithium prices in check. Fastmarkets now has chemical prices below US$30,000/t and spodumene concentrate under US$3000/t, the first time the latter mark has been hit in over a year.
Iron ore remains above US$121/t in Singapore, but commodity markets are weighing weaker global economic expectations as the OECD dropped its growth projection for next year from 2.9% to 2.7%.