WA Government stepping in to support lithium producers waiting for the boom

The Western Australian (WA) State Government is stepping in to support lithium producers and their employees over the next year in the face of low prices. The support comes in the form of a royalty rebate on spodumene concentrate for up to twelve months and fits in line with the McGowan Government’s Future Battery Industry Strategy, which seeks to boost battery mineral production in advance of the expected rise in global demand with the uptake of electric vehicles and battery energy storage. 

The 50% royalty rebate will support three key lithium producers, Galaxy Resources’ Mt Cattlin operations, Pilbara Minerals’ Pilgangoora operations and Altura Mining’s Pilgangoora operations. All three lithium producers have been doing it tough of late due to the low prices of spodumene concentrate, the mineral resource from which lithium is sourced. 

The reason prices are low is thought primarily to be due to the fact producers have been oversupplying spodumene concentrate globally in advance of the expected uptake. Unfortunately, the uptake hasn’t quite come yet, but considering pro-EV policies growing in number, including WA itself, the wait is not expected to continue much longer. 

According to Roskill, lithium carbonate prices have fallen by a monthly average of 36% between January and December of 2020, the first time since 2014 that prices have dipped. However, Roskill’s forecast continues to show strong growth for lithium demand over the coming decade, indeed demand is expected to exceed 1.0Mt LCE in 2027, an expected growth of at least 18% each year to 2030.

Of course, one of the prime reasons for the expected growth is the expected boom in EV manufacture. A growing collection of studies, including this one in Nature, “indicate that the steep part of the s-curve for the global EV sales projection starts around mid-2020.” Taking the impact of the Covid-19 pandemic into account, and we are still only in the foothills of this steep incline, but it is coming.

“Over the past two years the fall in the price of spodumene concentrate has put these companies’ operations at risk and their finances under pressure,” said WA Mines and Petroleum Minister Bill Johnston, “this is why the McGowan Government is offering assistance.”

The rebates do, of course, come with heavy stipulations. The rebate is only available if the companies maintain spodumene concentrate operations and employee counts don’t dip significantly. Moreover, if the average price of spodumene concentrate is equal to or greater than US$550 per tonne for a given quarter, the support will not be provided. 

After the year of support, the lithium producers are required to fully repay the State Government over a period of two years. 

“Supporting these producers could prevent the loss of more than 600 jobs and save more than $20 million in annual royalty revenue over the coming years,” continued Johnston. “Experts predict prices for spodumene concentrate will rise due to the growing demand for lithium used to manufacture electric vehicles and energy storage systems.”

Thanks to the @WAGovernment, @MarkMcGowanMP and @BillJohnstonMLA for providing WA #spodumene producers royalty relief for the next 12 months, a clear demonstration of the strong government support for the critical minerals industry in #WA https://t.co/ADBnRJjjbu #Pilgangoora pic.twitter.com/Y0Kq0Uvvz7

— PilbaraMinerals (@PilbaraMinerals) December 1, 2020

Pilbara Minerals’ is one of the beneficiaries of the WA Government’s support and a newly announced member of the Future Batteries Industry Strategy’s Ministerial taskforce, its Managing Director, Ken Brinsden, said that the royalty relief was a clear demonstration that the WA Government is a strong supporter for lithium raw minerals supply during challenging times in the market. 

“This temporary royalty relief recognises the importance of the lithium sector to WA,” continued Brinsden, “and will assist us as we navigate this period of lower pricing so we can continue to operate and keep our people employed and be ready to ramp back up when the market inevitably recovers.”