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Old 11-09-2009, 01:14 AM
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Default China unlike "all talk" Australia is greening its transport

Lithium miner sees shining future

The Australian

IN the central part of the busy Chinese metropolis of Beijing there are no petrol-guzzling motor bikes. As in many Chinese cities they have been replaced by cheap, clean electric bikes that glide noiselessly on the road.

Unlike many all-talk, no-action Western countries such as Australia, China's government is already pushing hard to overhaul its carbon-intensive sectors. As the world's biggest and fastest growing emitter of greenhouse gases, it has to.

By 2013 the country plans to have 10 per cent of its vehicles electric-powered. Each one of these cars, bikes and buses will use lithium batteries.

Electric vehicles and hybrid vehicles are flavour of the month; at the recent Frankfurt Motor Show, 28 different models were featured.

That's all great news for Galaxy Resources, whose Chinese-backed lithium mine in Western Australia was opened by Premier Colin Barnett last week.


"We are now getting close to mass production of cars - you need a light battery with a lot of power," Galaxy Resources chief executive Iggy Tan says.

"China is now probably the largest manufacturer of batteries. Our view is that the electric car revolution will come from China. Once they start mass-producing them, the cost will come down around the world.

"The reason these batteries are so popular are the power-to-weight ratios. Lithium is very light but very reactive.If you are trying to drive, you are trying to get a battery that doesn't weigh a lot."

So confident is China of this trend that investors in the battery and electric car maker BYD have sent its founder, Wang Chuafu, surging to the top of the country's rich list, with a fortune close to $6 billion.

Galaxy's ambitious plan is to mine lithium in Australia, concentrate it on site and process the rock into the lithium carbonate used by the cathode and electrolyte makers that supply battery makers. All pointers are that it is very much the right idea and the right time.

Lithium is used in ceramics and glass manufacture, as an anti-depressant and in airconditioning. The battery industry is the biggest.

Lithium plays a role in solar installations and wind farms, which need a battery system to store energy before putting it into the grid.

Demand is expected to rise from 100,000 tonnes per year today to 300,000 tonnes in 2020.

China uses about 25,000 tonnes of lithium carbonate annually but only produces about 6000 tonnes internally. It has to import lithium from Australia or lithium carbonate from other parts of the world.

"It can make renewable energy more competitive," Tan says. China is determined to provide 20 per cent of its energy from renewable sources by 2020.

"We expect there will be a shortage of supply in the next few years," Tan says. "We are the next project coming on worldwide. We will have first-mover advantage in China and in Asia."

Galaxy will start building a processing plant in Western Australia in the next few weeks,.

"We will have the mine and concentrator up and running this time next year," Tan says.

Meanwhile, construction will commence soon on a factory on the Yangtse that will turn the concentrate into lithium carbonate, used to make batteries. It's a peach of a site: close to the docks in the tax-effective Zhangjiagang Free Trade Zone in Jiangsu province, about two hours drive from Shanghai, it is nestled among leading chemical makers including Dupont, Dow Corning and Two Lions.

"One of the reasons Zhangjiagang was so attractive is that they can get all their needs here - chemicals, logistics and power and utilities," Zhangjiagang Free Trade Zone vice-director Wang Huizhiong said.

The zone's wharves last year handled 150 million tonnes of product, a number expected to reach 200 billion within three years. Shagang steel - China's largest private steel mill, with investments in Australia - moved 20 million tonnes of product last year.

Across the road from Tan's waterlogged site sits a massive construction of steel pipes and tanks spewing forth steam and grime. In its holding yard sits a blinding 20m-high craggy mountain of bright yellow sulphur.

"We need 40,000 tonnes of sulphuric acid," Tan says. "All the raw materials are in that park. If we had to do this in Australia we would have to get soda ash in by ship, then ship the product back to China.

"It's a lower capital cost, lower operating cost, we use the technology in China that is well established over many decades and we will supply the internal decisions. So it's a strategic decision."

Tan says the finished plant will be up and running in the fourth quarter of next year. "We will be a world player in lithium," he says.

"We will be the largest producer of lithium carbonate in China, producing 17,000 tonnes a year, and the lowest-cost producer in the Asian region."

Tan has also nailed down a Chinese partner, privately owned Beijing-based investment group Create, which spent $29 million on becoming a 19.9 per cent shareholder of the parent company.

Create chief executive Ren Xiaojin said that 40 per cent of the financing had been organised via a syndicate of foreign banks operating in China led by Austrian Bank RZB, and the remaining 60 per cent through a syndicate of Chinese banks.

That syndicate had not yet been finalised but it would "probably" be headed by the China Development Bank, which is the most important financial institution helping Chinese companies to invest offshore.

But Galaxy is in the process of transferring the loan from Create directly to the banks.

Tan is expecting lithium carbonate prices to start rising soon.

"Lithium is an opaque price - there is no London Metal Exchange price. Once you set up a customer they tend to stick with you. It's too hard to switch products. It's very tailored to the high-end products markets. There is a high barrier to entry.."

In the past five years the price of lithium has increased from $US2000 a tonne to $US6500 a tonne, driven by the growth of the batteries industry.

Galaxy will be one of the first Australian companies to catch a slice of a clean energy market in China that will be worth more than $1 trillion, according to the Australian Chamber of Commerce in Beijing.

Now Galaxy's project is all but nailed down , Tan is eyeing opportunities even further up the food chain.

"We may be interested in a cathode manufacturer. We have enough land in Zhangjiagang. So far we have found its easy to operate in China," he says.

"So if things go well, there is no reason we can't do more."

Zhangjiagang docks bring in millions of tonnes of iron ore and thousands of bales of Australian wool for the area's famous textile manufacturers, but until now that's where it has stopped - at the port.

"Hopefully the model works and we can encourage other Australian companies to do similar things.

"After all, we own the resources," Tan says.

 

Disclaimer: The author of this post, may or may not be a shareholder of any of the companies mentioned in this column. No company mentioned has sponsored or paid for this content. Comments on this forum should never be taken as investment advice.

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