Lithium King Bets Big on Demand Shift With Australia Mine Deal

(Bloomberg) -- Albemarle Corp. agreed to pay $1.15 billion for a stake in a giant lithium mine in Australia, guaranteeing the biggest producer of the mineral greater access to a more refined form of the raw material that’s increasingly being used in electric-car batteries.

The Charlotte, North Carolina-based company will take a 50 percent stake in a potential joint venture with Mineral Resources Ltd. that will own and operate the Wodgina hard-rock lithium deposit with a mine life of over three decades. Under the deal, Albemarle will manage the marketing and sales of lithium hydroxide, which fetches a higher price than lithium carbonate. Mineral Resources rose as much as 33 percent, the most since July 2006, in Sydney trading Thursday.

Albemarle plans to expand output in Australia to gain from rising demand for lithium hydroxide, also known as spodumene. The mineral works better with cathodes containing higher levels of nickel, helping electric cars go further on a single charge. The deal signals the company’s swift reaction toward shifting demand that has previously been concentrated mostly on lithium carbonate.

"It makes sense for the company to diversify its spodumene assets to ensure growth in their hydroxide supply chain," Andrew Miller, a senior analyst at Benchmark Mineral Intelligence said by email. "Those producing hydroxide from spodumene will only be competitive on cost if they integrate raw material and chemical production, and this is a position Albemarle is clearly trying to strengthen through the Mineral Resources JV."

Total demand for lithium is expected to almost triple through 2025 as manufacturers such as Tesla Inc. ramp up electric vehicle production.

Halting a Project

Albemarle announced earlier this month it was halting a project to increase output capacity in its operations in Chile beyond 2021. That project would have produced lithium carbonate. Instead, the company will focus on expanding its Kemerton plant in Western Australia, which processes hard rock from the Greenbushes mine to produce lithium hydroxide.

Lithium hydroxide is produced mainly from hard-rock mines, while the more abundant but less refined lithium carbonate is extracted from salty brine sitting underneath salt flats, mostly in South America.

"We’re seeing a significant acceleration in demand of lithium hydroxide and so we need to address that," Chief Executive Officer Luke Kissam told analysts at the third quarter earnings conference call earlier this month. " We’ve always said that we are going to invest capital to meet the needs of our customers. It’s clear we need to focus on lithium hydroxide, have the focus there."

The deal with Mineral Resources came after the Chilean Nuclear Energy Commission, known as CCHEN, rejected Albemarle’s application for a license required for the company to expand its operations in the country beyond 2021. Another Chilean agency, Corfo, said it will take a separate dispute with the company to the International Chamber of Commerce for arbitration.

Albemarle’s decision to join the Wodgina mine project “may also be a way of hedging their exposure to Chilean regulators," Miller said.

--With assistance from Elena Mazneva.

To contact the reporter on this story: Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Keith Gosman

©2018 Bloomberg L.P.