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Lithium makes its mark

It is the surest sign yet that the WA lithium boom is here to stay, Peter Klinger shares his insight into what estimates from the WA Government mean for the economy.

By 2020-21, according to estimates released yesterday by the WA Government, lithium should be the State’s sixth largest source of royalty revenue.

 

Based on the forward estimates released by WA Treasurer Ben Wyatt as part of his Government’s maiden Budget, lithium royalties will deliver $34 million into State coffers within four years.

 

Given that lithium royalty income in the year to June 30 was $15 million – most of it from the Greenbushes operation near Bridgetown – the more than doubling in State income from the boom commodity by 2020-21 is impressive.

 

Lithium royalties flowing into WA’s desperately dry coffers over the coming years are estimated to be worth $29 million this financial year, $29 million in 2018-19, $30 million in 2019-20 and $34 million by 2020-21.

 

Granted, the lithium royalty forecasts are dwarfed by iron ore and gold. According to the Budget estimates:

 

Iron ore royalties will be worth $4.58 billion this financial year and $4.09 billion in 2020-21;

Gold royalties will be worth $303 million this financial year and $279 million in 2020-21;

Alumina royalties will be worth $90 million this financial year and $91 million in 2020-21;

Copper royalties will be worth $58 million this financial year and $45 million in 2020-21; and

Nickel royalties will be worth $61 million this financial year and $73 million in 2020-21.

 

But lithium’s trend is the Government’s friend, and the rising royalty income does not capture the capital expenditure and – as mines and refineries in WA kick into operation – payroll tax benefits that will flow to the State.

 

The Government did not release its lithium price assumptions nor lithium carbonate equivalent (LCE) production volume expectations – and as any investor in lithium stocks understands only too well, pricing of the battery ingredient still lacks transparency.

But the fact lithium has been singled out as one of only seven commodities (the seventh is a small component for non-Commonwealth petroleum royalties, estimated to be worth $4 million this year) to warrant a line entry in the forward estimates should highlight its emergence as the latest pillar of WA’s resources sector.

 

There should be more joy to come, if the promoters of lithium developments in WA deliver.

The key focus here will be on the volume of spodumene-based 6% Li2O concentrate produced, and on how many players make the jump into value adding, whether it be to produce lithium hydroxide or lithium carbonate.

 

Pilbara Minerals hopes to commission its $234 million Pilgangoora spodumene mine next year; Tianqi Lithium, a part-owner of the Greenbushes hard-rock lithium mine owner Talison Lithium, is busy expanding its Kwinana lithium hydroxide plant; and Neometals, which owns 13.8% of the Mt Marion spodumene mine near Kalgoorlie-Boulder, is exploring downstream processing options.

 

Kidman Resources, meanwhile, has enticed the world’s leading lithium player, Chile’s SQM, into a 50-50 joint venture to use the Mt Holland spodumene resource south of Southern Cross as a base for an integrated mine-to-refinery operation. Kidman and SQM hope to finalise their joint venture documentation by the end of this month.

 

SQM hosted its annual investor day in New York last night and used the occasion to talk up its Mt Holland JV ambitions.
SQM also put into focus the lithium frenzy sweeping the world, driven by the explosion in expected demand for lithium-ion batteries for energy storage and electric vehicles.

 

According to SQM’s analysis, there are 38 projects with a total capacity of 607,000 tonnes per annum of LCE capacity on the drawing boards across the globe. They are divided into upcoming (start-up or construction, 9 in total, 133,000tpa LCE capacity), advanced (pilot plant or DFS, 9, 149,000tpa) and possible (announced or PFS, 20, 325,000tpa).

 

Of the 38 projects identified by SQM, 11 are in Australia (almost all in WA) and seven in Argentina.

 

For WA’s cash-strapped Government, these sorts of numbers can only be music to politicians’ ears.