Speaker Spotlight: John Sykes

20 June 2019

In the lead up to Lithium 2019 we interviewed keynote speaker, John Sykes for his views on the industry.

John is a minerals industry strategist, economist, and geologist, working for MinEx Consulting. He also teaches on the MBA programme and is finishing a PhD at the University of Western Australia. You may also know him as one of the co-authors of the weekly ‘Strictly Boardroom’ column on MiningNews.net. He is, of course, a Member of the AusIMM.

Q. How important is the flexibility when responding to today’s market conditions for lithium processing (hard rock) in Australia compared to rest of the world (e.g. China and South America).

A. To me there is a difference when discussing flexibility between ‘agility’ (or the ability to be flexible) and ‘options’ (or the possession of different options to switch to). You can be agile, but with no options available to pursue (think a broke junior explorer) and you can have plenty of options available but be unable to pull off the opportunity quick enough (think a bureaucratic major miner).

Most of the new entrants from the Western Australia sector have moved rapidly and with agility, as lithium demand has been disrupted by the growth of the battery industry and further concentration in lithium. The ‘gap’ in the market left was actually for relatively lower grade material for low-value non-battery uses of lithium. There are certain similarities with the way that FMG entered the iron ore industry here. In this sense the quick beat the big.

Looking ahead the situation seems much more uncertain. It is not clear how big the switch to hard rock (hydroxide) input to lithium batteries, from brine (carbonate) input will be, nor is it clear how big the associated geographic switch will be (from/to China), nor is it clear just how fast the lithium battery sector will grow. Many of these questions also rely on ‘chicken or egg’ responses, where the evolution of supply will in part dictate the evolution of demand, but the evolution of demand will also impact the evolution of supply.

In such a situation it is usually better to take a hedged approach, trying to keep a few different options open. This seems to be what the major lithium producers are doing – building portfolios of both hard rock and brine operations, in China and outside, producing a range of raw materials, for a range of markets and geographies.

Obviously the holding cost of such a wide variety of options is quite high (and more so once you consider the cost of building new (or upgrading/expanding) production and downstream facilities) so the advantage moves back towards larger operators, who may be able to ride the uncertainty and ‘wait’ for the right strategy to emerge. In addition, the larger operators also have the advantage of knowledge and relationships in what is still a relatively oligopolistic and oligopsonistic market. It may be that the ‘big’ beat the ‘quick’ in lithium in the future.

Again, there is an analogy with FMG here, in that it moved rapidly to enter a fast-changing iron ore market (taking an opportunity the existing majors couldn’t or wouldn’t react to), however, to ‘stay’ and consolidate its position in the market it had to bulk up and become a low-cost producer with established trading relationships. Maybe it will be similar in lithium where the long-term successful ‘new’ entrants will be those that moved fast to ‘get in’ but bulked up and established themselves with a decent range of future options.

Q. There is a strong focus on lithium to support the development of batteries/capacitors for electric vehicles and energy storage. Would the lithium industry in Australia be affected by other batteries/commodities in the near future?

A. At the moment, there doesn’t appear be many strong substitution options for lithium batteries. Most of the emerging technologies are lithium-related as well. The main widespread substitution threat appears to be sodium batteries, but that technology seems to be a long way off.

That been said, the main driver of substitution is high prices, not new technologies. If lithium prices remain too high for too long substitution pressure increases and the option of switching back to older ‘inferior’ but cheaper technologies increases, as does the opportunity for new technologies – end-users are more likely to try new technologies when the economic incentive is greatest.

The spodumene concentrate produced by most of the emerging Australian producers doesn’t usually end up in batteries, however, most producers seem to have plans to build downstream facilities that are orientated towards the battery industry – these would be more vulnerable to substitution in the battery industry, but as discussed, for the moment that doesn’t seem to be on the cards – though I re-iterate consistent high lithium prices increase the risk of this occurring.

The same of course applies for the non-battery uses of lithium too, and some of the lower value uses of lithium may be the most vulnerable to substitution, during a period of persistently high lithium prices.

Q. Do you foresee a successful battery industry being developed in Australia, and to what extent?

A. These things are generally impossible to forecast. It is also fair to say with high labour and energy costs and a remote location, Australia is not usually an ideal location for downstream minerals industries, or manufacturing, as the travails of the Australian aluminium, steel and car industries have shown.

That been said, there are reasons for optimism with lithium. Lithium concentrate is very low grade (less than 2% lithium usually) which dramatically increases the economic incentive to beneficiate the ore in comparison to something like iron ore, which is around 60% iron. The transport costs for lithium can get quite high on a unit basis, if it is not beneficiated.

Australia’s proximity to Asia, particularly China, as well as its existing strong trade ties with this region is also of benefit – as unlike manufacturing, where most products still end up in North America or Europe, the mid-part of the lithium value chain and the majority of the battery industry is in Asia, so there is a freight and general proximity advantage.

It should also be noted that the strong educational and research ties Australia has with Asia is also of value here as there is a lot of downstream lithium and lithium battery expertise in Asia, as well as many graduating science and engineering students who may enter the field.

The downstream production of lithium is a comparatively difficult job, when compared to the downstream sections of other industries (e.g. steel and aluminium), where things such as product quality, grade, content, etc., are very important – the sector is part commodity-part product. In such industries, the albeit more expensive, expertise Australia does have metallurgy, processing, engineering etc., can be applied domestically, instead of abroad.

There is potentially also something of a ‘cluster’ advantage if Western Australia can build a ‘Lithium Valley’ in that expertise and knowledge will cluster there – this can be quite a high barrier to entry for competitors following – indeed the cluster affect is a better explainer of China’s competitive advantage in manufacturing nowadays, as it is not really a ‘low-cost’ manufacturer anymore. Closer to home, Perth (and Vancouver across the world) remain the centres of the ‘junior’ minerals exploration industry, as they built strong clusters of knowledge and appropriate institutions based on gold rushes over 100-years ago – this advantage remains today despite the much more international focus of exploration.

Q. What message would you like to provide to the delegates – what do you hope will be the main message they will take away from your keynote presentation?

The presentation will provide a global overview of the supply-side of the lithium industry, linking geology, with mining and processing, and end-uses. It will be a good starting point for those less familiar with the industry, whilst the breadth of coverage will likely provide those with more in-depth knowledge some new perspectives, as well as a good synthesis of the status of global lithium supply.

There are several different types of lithium mineral deposit, in geological terms, in addition to a variety of mining and processing routes, finishing with a range of end uses requiring different lithium raw material inputs. All are constantly evolving so navigating this can be a challenge. Taking a ‘mine-to-market’ perspective is important.

MinEx has built a database of over 150 lithium deposits and developed a geological classification scheme for them. Using this data, we have assessed the relative competitive profile of the lithium industry globally.

The presentation will review the various competitive advantages and disadvantages of the various geologies, extraction approaches, and geographies worldwide, with respect to aligning with a rapidly changing lithium end-use sector.

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