High Voltage: The double-edged sword of Australia’s wealth of critical minerals

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Our High Voltage column wraps the news driving ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, manganese, magnesium, and vanadium.

When you’re wielding a double-edged sword, you have to be careful that you don’t cut yourself when you’re trying to swing it at your adversary.

China’s inherent hegemony over critical minerals is sending the West into its own backyard to shore up supply chains with non-hostile trade partners, burgeoning domestic solutions to production and processing – of which the Middle Kingdom currently dominates.

On the flipside – and especially when it comes to lithium – relying on China as the dominant buyer of the battery metal comes with its own warning.

Exports to China in H1 2023 reached a record $102.5 billion, boosted by our exponentially growing lithium sector – despite a fall in commodity prices.

It’s now taken over LNG as Australia’s second-largest export to China behind iron ore. In just two years, lithium sales to the Red Dragon have increased almost 25x, from $470m in H1 2021 to an eye-whopping $11.7 billion in the first six months of this year.

It cuts both ways

We have a right to be impressed with our booming lithium sector and the income it generates for Australia, however, an ultra-reliance on China for almost all our lithium exports is the complete opposite of our new critical minerals strategy, which warns against this kind of monopolisation.

“Risks of disruption to critical mineral supply chains are heightened when mineral production or processing is concentrated in particular locations, facilities or companies,” the report states.

Concentrating export markets towards China leaves Australia exposed to its economic downturns and geopolitical tensions.

This will be fresh in the mind of many during its recent spat of economic coercion hitting our coal, copper ores and concentrates, wine, frozen beef, barley, cotton, rough wood and rock lobster industries.

That all kicked off during 2020 and 2021, yet even as Australia sought buyers from other markets such as Japan, South Korea and SE Asia to counteract the bans and punitive tariff measures, our dependency on China as an economic partner is back on the rise.

Yeah, it’s a “nah” from Australia

The Australian Strategic Policy Institute (ASPI) says China’s capture of Australia’s lithium exports highlights the tension between economic forces and strategic government policies.

Encouragingly, ASPI notes that Australia’s Foreign Investment Review Board has been knocking back efforts from Chinese companies to invest in Australia’s critical minerals industry.

“It has vetoed moves by a company directed by a Chinese national, Astroid Australia, to purchase 90% of lithium miner Alita Resources (ASX:A40) and prevented Yuxiao Fund from increasing its 9.9% stake in rare-earths miner Northern Minerals (ASX:NTU),” ASPI shows as examples.

Pivots away from China are even coming from the private sector. Late last month, Chris Ellison’s Mineral Resources (ASX:MIN) restructured its lithium downstream processing ambitions and signalled its intent to supply US and European markets.

Just how long does Australia keep poking its tongue out at China before a new wave of economic coercion comes about? This Stockhead wonders.

China’s mistake?

While a Chinese ban on exporting key minerals can hurt Western economies in the short term, there are unintended consequences that are foreseen to lead to a “decoupling” of supply dependency.

For instance, Chinese export bans of germanium and gallium kicked in at the start of this month – of which it contributes 68% and 90% of global supply respectively. From August 1 Chinese exporters of the material are required to apply for permits before they can send material abroad.

Prices for gallium rose 43.4% and germanium 9.1% at the time, yet higher prices have spurned long-shuttered mining operations and new exploration into action – resulting in a pivot away from reliance on China for the elements.

In preparation for the squeeze, zinc producer Nyrstar already has a US$150m ongoing study for the recovery of gallium and germanium out of its Tennessee smelter which it estimates can supply 80% of annual demand in the US.

Other parts of the world are also starting to shore up supplies. ASX-listed Battery Age Minerals (ASX:BM8) moved to secure more ground at its Bleiberg zinc-lead-germanium project in Austria to supply the European market.

While in Botswana and Namibia, Mount Burgess Mining (ASX:MTB) and Golden Deeps (ASX:GED) are looking at germanium and gallium recoveries at their respective projects in Africa.

It could well be that the panic around this latest round of Chinese economic coercion in the critical minerals sphere becomes a net benefit to the West in the coming years.

It’s still a double-edged sword for Australia whichever way you look at it – at least, perhaps, Chinese threats to weaponise critical minerals supply have more bark than bite.

Here’s a snapshot of ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, magnesium, manganese, and vanadium are performing lately>>>

Battery metals stocks missing from our list? Shoot a mail to [email protected].

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