Australia’s Galaxy Resources reopens lithium mine for Chinese market as prices rise

Galaxy Resources, once the world’s fourth-largest maker of lithium carbonate, has reopened a mine, a move to restore financial health on rising demand and increased prices for the mineral that is used to make batteries.

The company is listed in Australia. It tried to float shares in Hong Kong in 2011 but withdrew the plan citing poor market conditions.

Galaxy restarted mining and ore processing at its Mount Cattlin mine in the state of Western Australia — about 500 kilometres southeast of Perth — on April 1 and said it would be the only new, hard-rock lithium mine to come into production anywhere in the world this year.

“Amid tightening supply, lithium concentrate prices have risen from around US$280 a tonne in 2012 to around US$600 as agreed in our recent sales contracts,” managing director Anthony Tse told the South China Morning Post this week on the sidelines of the annual Mines and Money conference in Hong Kong.

Production at Mount Cattlin, with an annual output capacity of 137,000 tonnes of concentrate, was suspended for more than three years after the Australian dollar appreciated and the enterprise became economically unviable.

The company had operated for fewer than two years after beginning production in late 2010 and relied on selling its production to Galaxy’s Jiangsu processing factory. That facility made downstream lithium chemicals.

The Jiangsu plant only operated at around 25 per cent capacity and raked up huge losses, “burning A$17 million a year” due to poor management, Tse said.

Those prolonged losses meant Galaxy “almost ran out of money” and the firm was forced to sell the plant a year ago to Shenzhen-listed Sichuan Tianqi Lithium Industries — the world’s largest producer of lithium chemicals from ores — for almost US$173.2 million, he said.

Tianqi paid US$71.7 million in cash to Galaxy and assumed responsibility for the repayment of US$101.5 million in loans from Chinese banks.

The sale, coupled with debt restructuring and a rights share issue, allowed Galaxy to cut its net debt to A$20 million from more than A$200 million.

Galaxy also found a new mining partner when Australia’s General Mining signed an agreement last year to jointly invest in and operate the Mount Cattlin project.

The two firms said last month they had signed agreements to sell 60,000 tonnes of concentrate to two unidentified China-based buyers for US$36 million. Of that, US$18 million was to be paid by the end of last month.

They also agreed to deliver another 120,000 tonnes to the same customers next year at a price to be agreed in the fourth quarter of this year, based on prevailing market conditions.

“China’s annual lithium carbonate consumption of 70,000 tonnes is almost twice the combined amount of Japan and South Korea, and some 70 per cent of the tonnage goes to making batteries,” Tse said. The fast-growing electric vehicle market would boost demand for lithium, he said.

Beijing has set a sales target of 500,000 units for all-electric and plug-in hybrid vehicles by 2015. That should rise to five million units by 2020.

Last year’s reported sales of 379,000 units was well short of the plan, but Galaxy said projected sales for this year were expected to be far “in excess of 600,000 vehicles – a number that will likely see China surpass the US market in terms of electric and hybrid vehicles sold”.

Tse said Mount Cattlin’s production costs of US$260 a tonne gave it a profit margin of 57 per cent at current sale’s prices.

According to US Geological Survey, major lithium producers expected worldwide lithium ore consumption to have risen 5 per cent to 32,500 tonnes last year from 2014.

Owing to rising global demand, spot market lithium carbonate prices rose 10 to 15 per cent from those in 2014.

Chile accounted for 36 per cent of the lithium ore produced globally by mines, compared to 41 per cent of Australia.

In the late 1990, subsurface brines were the dominant raw material for lithium carbonate production worldwide due to their lower production costs compared to the mining and processing of hard-rock ores.

Due to rising lithium demand from China in the past few years, lithium extracted from hard rock ores has gained market share compared to that extracted from brines, accounting for roughly half the global supply last year.