Despite the slower than expected uptake of electric vehicles (EVs) globally, the trend towards electrification of transport appears unstoppable, positioning lithium as one of a handful of key future-facing commodities of the twenty-first century.
There is perhaps no greater indication of this than Rio Tinto’s proposed US$6.7 billion acquisition of lithium miner Arcadium announced in October. This move is widely viewed as a sign of confidence from one of the world’s leading miners in the long term outlook for the commodity.
Lithium is the most important high-value export to emerge in Western Australia in decades. In the 2023-2024 financial year, lithium miners generated $8.4 billion in sales, delivered $710 million in state royalties and supported more than 11,000 jobs. The state currently supplies nearly half of the world’s lithium.
Yet, while the lithium mining sector is pivotal to transport electrification, it is still in its relative infancy, and the supply and demand of upstream commodities such as spodumene concentrate are yet to find a sustainable balance. We have witnessed wild swings in pricing, creating distress in the industry and clouding the outlook for future investment in Western Australia. As a result, several proposed greenfield projects and brownfield expansions are on hold – at least for the time being.
At a time when the global appetite for lithium is expanding, Western Australia's vast reserves are a significant long-term asset. However, the series of mine closures, spending restraint and slowing expansions raise questions about the strategic position of the upstream industry in the battery supply chain and, most importantly for the state, its ability to weather short-term fluctuations in pricing. It seems there may be some role for government to backstop the industry, in an attempt to provide sufficient confidence in the outlook to crowd in private investment.
In this regard, the Western Australian Government’s recently announced Lithium Industry Support Plan (LISP) is notable. The government has rolled out a series of support measures to strengthen the state's position in the global lithium market. The key elements include:
Government Trading Enterprises (GTEs) (such as Synergy and Water Corporation) will temporarily waive fees to support downstream processing, up to $90 million.
Port charges and mining tenement fees will be waived for up to 24 months, to a maximum of $9.37 million.
Access to a $50 million interest-free loan facility to help sustain operations. Borrowers will be required to repay the loans through regular quarterly payments over the two years following the end of the interest-free period, which will cease after average lithium spodumene prices exceed US$1,100 per tonne for two successive quarters, or by 30 June 2026.
Another central element of the Western Australian Government's battery metals strategy is the allocation of funds for shared infrastructure development. This aims to alleviate industry bottlenecks by improving transport and enhancing the efficiency of processing facilities. However, this assumes that economic conditions are otherwise conducive for investment in an upstream capacity. In a growing industry such as lithium mining, this will not always be the case. Financial incentives, including the kinds of tax breaks and indirect subsidies of the kind provided in the LISP, can therefore be seen as a means of insuring the return on the state’s investment in enabling infrastructure.
Despite recent deal activity and government support, sentiment towards the lithium sector is muted and is likely to stay that way until pricing recovers towards something approaching incentive levels for new investment.
In the meantime, the support offered to the industry by the LISP is expected to be widely welcomed.