Battery metal mines take a battering in Oz as slow-down in electric vehicles sales coincides with surge in supply

The ‘Golden Mile’ in Western Australia was once considered the richest square mile on earth after prospectors flocked here during the gold rush of the late 19th century.

It is now at the epicentre of a global rout in the price of battery metals, as a slow-down in electric vehicles sales has coincided with a surge in supply.

The Goldfields region has become a magnet for a new wave of prospectors, from home-grown billionaires to global mining giants and small-time speculators – all competing for the bounty of lithium which also lies beneath the red dirt.

So much so that a vast tract of desert located near the historic gold mining town of Kalgoorlie has been dubbed the ‘lithium corridor of power’.

Lithium is a key component in lithium-ion batteries that have been powering the global transition from internal combustion to electric vehicles.

Oversupply: The ‘Golden Mile’ in Western Australia, once considered the richest square mile on earth, is at the epicentre of a global rout in the price of battery metals

Coveted and expensive, it has been dubbed ‘white gold’. Western Australia is the biggest source of hard-rock lithium in the world, providing around half of global supply.

It is a major supplier of nickel – with 23 per cent of the earth’s known reserves of the substance – another key component in electric batteries.

And, although the vast majority of cobalt is found in the Democratic Republic of the Congo, Western Australia has plenty of it too. But the boom times for battery metals have quickly turned to bust.

After soaring since 2017, lithium prices have slumped more than 80 per cent since late 2022, while nickel and cobalt have also dropped around 40 per cent.

Prices of nickel and lithium have dropped so low that some mines have cut production, or been mothballed until they bounce back again, while hundreds of staff have been laid off.

At the end of last month, the world’s largest hard rock lithium mine – Greenbushes, which lies to the south of Perth (well outside the ‘corridor of power’) – announced it would be cutting production over the coming months to match lower demand for battery-grade lithium.

It is jointly owned by a partnership between Australian firm IGO and Chinese miner Tianqi Lithium, and US giant Albemarle.

IGO announced last week that it was shutting down its struggling Cosmos nickel mine, while iron ore billionaire Dr Andrew Forrest is mothballing nickel mines just months after buying them.

Rio Tinto, the Anglo Australian FTSE 100 listed miner, is not immune. It has applied for licenses to explore more than 500 square miles in the lithium corridor.

But it has also refused to pay inflated prices during a flurry of mergers and acquisitions, in case lithium prices tanked.

This strategy has protected Rio and put it in prime position to snap up troubled mining assets on the cheap.

Mothballing operations: Iron ore billionaire Andrew Forrest

The sharp decline in nickel prices has been driven by a Chinese-fuelled increase in supply from Indonesia, the world’s biggest miner of the metal.

Exporting nickel is banned by the Indonesian government which wants the country to become a nickel-processing hub, attracting foreign investment.

China has been only too happy to oblige, pouring money into Indonesia to develop new nickel mines, expand existing ones and build nickel smelters.

This has turbo-charged nickel production in Indonesia, which has grown its market share from just 2 per cent in 2015 to 49 per cent of global supply last year.

China’s investment in Indonesia is all part of its master plan to maintain its stranglehold over the battery metal supply chain.

Australia exports 97 per cent of its lithium to China – the world’s biggest manufacturer of electric cars and the batteries that go into them – to be refined.

But the over arching reason for the fall in various battery metal prices is flagging demand for electric vehicles.

Countries around the world have grappled with high inflation and slowing economies, which has put expensive electric cars further out of reach for households.

An energy crisis triggered by Russia’s invasion of Ukraine has also encouraged many governments to water down their commitments to go green, cutting tax incentives for both consumers and miners.

In a recent note to investors, principle analyst for lithium Allan Pedersen at business management consultant Wood Mackenzie said: ‘Lower government incentives and inadequate charging infrastructure are expected to curtail [electic vehicle] sales in 2024.’

He has predicted that lithium and other battery metals will remain oversupplied for several years, but stressed that the ‘industry’s fundamentals remain excellent, driven by the global push to decarbonise’.

Long term investors sniffing a bargain may be wise not to rush in, with lithium and nickel prices widely predicted to fall further before they bounce back.

In the meantime, there may be better news for drivers, with Tesla boss Elon Musk among those insisting lower battery metal prices will finally make electric cars more affordable.