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Zero hour for lithium in Europe?

Portugal may turn out to be the testbed for Europe’s efforts to capture maximum value from the lithium-battery supply chain. But adverse lithium prices and stiff competition from global heavyweight players in China and Australia could confound the hopes of project developers in Europe and Africa to cash in on any Europe-centric EV revolution.
Zero hour for lithium in Europe? Zero hour for lithium in Europe? Zero hour for lithium in Europe? Zero hour for lithium in Europe? Zero hour for lithium in Europe?

Savannah Resources' Barroso project in Portugal

Elliott Holley

On the Atlantic coast, the harbour at Leixões in northern Portugal could within three to four years become the venue for shipments of lithium concentrate from across the ocean, which could make or break AIM-listed Savannah Resources' plans to mine and refine battery-grade lithium hydroxide in Europe. And with it, perhaps Europe's best chance of capturing a significant share of an important new industry.

Portugal's government and the European Commission both have high hopes for Savannah's Mina de Barrosa lithium mine, located in a mountainous area about 85 miles further inland. Savannah Resources plans to produce 175,000 tonnes of lithium concentrate per year at a mine near the tiny village of Covas do Barroso, based on an estimated 20-plus million tonnes of mineral resources, which it says makes this the largest spodumene lithium deposit in Europe. The company also proposes to construct Europe's first lithium refinery in Portugal, if it can secure an offtake agreement.

The significance of the project lies partly in the fact that Europe is dependent on China for its supplies of battery-grade lithium hydroxide, needed to make the batteries that go into electric vehicles and other modern carbon-neutral technologies. But with the ongoing US-China trade war causing geopolitical uncertainty, that is looking increasingly politically undesirable.

The scale of investment at stake has also raised the profile of the issue. Volkswagen has invested US$91 billion in EVs and plans to build 22 million of them over the next decade. Other car manufacturers are also investing in the sector. Meanwhile in Sweden, Northvolt, a company founded in 2016 by two former Tesla employees, is planning to build the world's largest ‘gigafactory' by 2020 to produce lithium batteries, and has already raised $1 billion of equity capital, with support from Volkswagen and Goldman Sachs.

The European Commission has named lithium operations as "important projects of common European interest", and set out its support for a Europe-wide electromobility initiative, Green eMotion, worth €41.8 million, in partnership with 42 partners from industry, and set aside €24.2 million to finance part of the initiative's activities. In May, France and Germany established a European cross-border battery cell consortium to foster the development of batteries for EVs in Europe. The two countries committed an initial investment of more than €5 billion in the initiative.

"The world is coalescing around trade blocks - the US, Europe and China. Europe wants to be self-sufficient at each stage in the lithium value chain"

"This is a strategic imperative for Europe," Savannah Resources chief executive David Archer told Mining Journal.

"The world is coalescing around trade blocks - the US, Europe and China. Europe wants to be self-sufficient at each stage in the lithium value chain, from lithium mining and refining to the production of cathodes and electrolytes, and the manufacture of battery cells and electric vehicles. EVs will be the locomotive for the development of the integrated lithium value chain in Europe."

But to supply the growth of EVs within Europe, the region will require lithium mines and the ability to refine lithium concentrate into battery-grade lithium hydroxide. There are six significant lithium projects in Europe, five of which are planned to have an integrated mining and refining operation. However, the tiny market values of companies developing these projects compared to the cost of building mines and refineries has generated plenty of scepticism, most recently on the part of UK investment bank and AIM-market broker FinnCap, which highlighted the "credibility gap".

"Of the six lithium projects in Europe, five have said they will be integrated projects. However, three of them are based on low-grade resources, and I contend that those won't get built," Martin Potts, research director at FinnCap told Mining Journal earlier this month.

"The other two are based on small spodumene deposits, in Finland and Austria. An integrated mine plus hydroxide plant, you're talking US$400-500 million per plant. My contention is that the market simply isn't going to be building those plants based on sub-standard resources."

 ithium projects in urope Lithium developers in Europe

One example of this type of 'disconnect' evident in the market, that Potts is referring to, is Infinity Lithium's proposed integrated lithium production and lithium hydroxide refining project at San Jose in Extremadura, Spain, which has an estimated start-up capital cost of $288 million, versus the company's current market capitalisation of $11.2 million. 

ASX-listed Infinity maintains the proposed project can produce about 15,000tpa of lithium hydroxide at $5,343/t, near the bottom of the sector's opex cost curve, over more than two decades, based on about half the current defined 1.6Mt lithium carbonate-equivalent JORC resource. A "low capital intensity" of circa-$19,200/t is quoted in the company's 2018 scoping study. Results of a prefeasibility study were due out this month.

The exception that proves the rule may turn out to be Savannah Resources, which Potts has said does have the potential to supply Europe with lithium. Savannah estimates the initial capital cost of building out Mina de Barrosa will be £88.2 million (US$110 million). The cost of building a refinery it estimates at $300 million. But Savannah is taking a cautious approach - the company will send its lithium spodumene to China for refining for the first few years, and will only be building a refinery if it can secure a partnership.

"Refining is the missing link at the moment," said Archer. "We are doing some of the preliminary work around that, evaluating different technologies, chemical technologies for hydroxide production, and also talking with potential investors and offtake partners who might be interested in participating in a partnership for the construction and operation of a refinery," he said.

"We think our production will provide that initial feedstock or baseload tonnage at the mine mouth to kick-start the refinery industry in Europe within the next three to four years."

Archer added Portugal's high level of renewable energy supplies combined with low costs of labour and energy should help the project, both from a cost and sales basis. About 60% of the country's energy generation comes from renewables such as wind turbines, hydroelectricity and solar panels - a fact Archer suggested would attract investment from car companies seeking to lower their carbon footprint. But more prosaically, Portugal's location on the Atlantic coast may be useful if the refinery seeks to maximise production to earn back its construction costs.

"Portugal is very well placed, being on the Atlantic seaboard, it could process concentrates from countries on the Atlantic rim, either in South America, Brazil for example, or even West Africa," Archer said.

If lithium from Africa does find its way to Portugal, the most likely sources would be Mali Lithium (formerly Birimian) in Mali, Desert Lion in Namibia, and AVZ Minerals at Manono in the Democratic Republic of Congo.

But whether the economics can be made to work remains to be seen, given the current low price of lithium and competition from other parts of the globe that have already established themselves as centres of production - including Western Australia, where a A$1 billion refinery is being developed by Albermarle, and South America, where SQM and Tesla are planning to construct a refinery in Chile.

"Whether lithium projects under development in the EU will be able to compete on a cost basis with the larger scale operations in Western Australia, or lithium brine operations in South America, doesn't necessarily make sense, because you can ship lithium hydroxide relatively freely around the globe," metal, mineral, carbon and chemical industry consultancy Roskill's head of battery and EVs David Merriman told Mining Journal.

"Lower prices are really impacting feasibility studies for a lot of projects approaching that stage and that's making them a lot less attractive for conventional methods of financing," he said. "There's a lot of capacity being commissioned right now, and there's not necessarily room for it in the market. Some producers are [even] reducing their output in an attempt to shore up prices."

In the longer term, Roskill expects the growth of EVs to increase demand from the mid-2020s, possibly to a level where Europe would struggle to supply enough lithium hydroxide without massive additional investment. But even if that investment materialises, it's questionable whether Europe has sufficient deposits to meet the demand - especially if some of them never get built.

"Europe isn't probably in the best position overall - it's the one region where there are quite limited lithium deposits," said Merriman. "There are some, in Spain, Portugal and Finland which are quite well advanced. But really on a raw material scale, if you're looking to source all that material from Europe alone, it is not feasible. A dramatic shift in the geographical supply of lithium doesn't seem likely based on the projects that are out there.

"Even if investors pour money heavily into Europe, given the scale of investment into Asia and China, the majority of battery capacity will still be centred within the Asian market."

However, even if lithium supplies could be guaranteed, prices reached a sufficiently supportive level, and imported lithium also flowed to Europe for refining, the actual business of producing high-grade lithium hydroxide could still be challenging. Lithium projects in Germany, the Czech Republic, and Spain use zinnwaldite, while Rio Tinto's project in Serbia is a lithium-borate deposit which contains jadarite, a lithium sodium borosilicate mineral found only in Jadar, after which it is named.

Savannah's Archer suggested there wasn't much of a history of mining and refining zinnwaldite.

"The lithium investment space is very harsh and projects are marked down very harshly if there is anything innovative or unusual or problematic," said Archer. "There's not that much of a track record around zinnwaldite refining, whereas there's an enormous body of work and industry experience in terms of spodumene. The vast majority of lithium minerals that are refined in China are spodumene feed stocks."

Lithium brine has been extracted from Nevada in North America by Albermarle from Silver Peak since the 1960s, and on a vast scale in Chile, so spodumene is not the only type of lithium that has been successfully produced. But even if zinnwaldite, lithium borate and jadarite can be refined successfully, some market observers remain sceptical about whether the lithium produced would meet the necessary specifications to be used in lithium batteries fit for EVs and other growth industries.

"The resource is one thing, but it's the capability to produce a product which is saleable that matters," said Merriman. "We're seeing a lot of even very large lithium projects with significant mineral resources and reserves that are really struggling to produce a product which can be sold into the high growth industries like the battery market. They're struggling to produce battery grade materials, either carbonate or hydroxide. That is a major barrier to a lot of projects in the lithium industry."

Furthermore, even if the lithium could be mined and refined in Europe, that still does not necessarily mean Europe could capture the entire lithium battery value chain.

"Lithium is only one of the components that goes into one component of your battery. You need to add the nickel, the cobalt, the manganese, you need to source the graphite and the fluoride and lithium ex florophosphate into the electrolyte and then the copped to circuit it all up, it's not as easy as just mining lithium in one region and therefore you can make lithium ion batteries," said Merriman.

Overall it seems China, Australia and South America are keys to Europe's future supply of lithium hydroxide and its production of lithium batteries for EVs.

Only time will tell what contribution home-grown production can make, and whether Porto de Leixões will become the gateway to Atlantic shipments of lithium concentrate for refining in Portugal.