South Korea to drive Australia's next critical minerals boom

Australian critical minerals companies believe South Korea's ambitious decarbonization and advanced manufacturing plans will drive the next investment wave into their sector, akin to what China did for lithium in the last decade.

During the Western Australia-Korea Business Forum, part of the 60th anniversary of diplomatic relations between Australia and South Korea, Pilbara Minerals Ltd. CEO Ken Brinsden said Aug. 17 that South Korea is a "very, very important next mover" behind China in the demand growth for battery raw materials.

Brinsden told S&P Global Market Intelligence that he expects South Korean investment in Australian critical minerals projects to accelerate in the coming months and years, as the Asian country offers an alternative to China, which currently dominates supply chains for critical minerals.

While West Australian lithium miners were "crunched" when China reduced electric vehicle subsidies in 2019, the broader electrification and renewable energy phenomenon has now gone global, and the resulting wave of demand "represents a more serious challenge" for the supply of critical minerals needed for those technologies, Brisden said.

Compelling proposition

South Korea's pledge to decarbonize by 2050 and become a "global battery manufacturing powerhouse by 2030" can help unlock an additional A$7.4 billion annually and 34,700 jobs for Australia's economy through diversified battery industries, according to a discussion paper on critical minerals released by the Australia-Korea Business Council, or AKBC, Aug. 16.

The East Asian country already has the biggest market share of output capacity in small-sized and mini-rechargeable batteries, AKBC said. In 2020, the country overtook the U.S. and China in fuel cell EVs, contributing half of the world's production as it doubled its total fuel cell EV output.

South Korean manufacturers of cathodes for EV batteries rely heavily on precursor products from China, the leading producer of 17 of the 35 "critical" metals identified by South Korea's Ministry of Trade, Industry and Energy.

Investment opportunities in projects co-located with raw materials in Australia are, therefore, "a compelling proposition" for South Korean companies that are looking to secure and diversify their supply chain, according to the paper.

The paper noted that Australia has some of the largest known reserves of lithium and other critical minerals, and produces nine of the 10 mineral elements required to make most lithium-ion battery anodes and cathodes. Western Australia, the world's largest hard rock lithium producer, is also now building lithium hydroxide processing capability.

Such is the demand and rising prices for lithium which goes into EV batteries, Brinsden told the forum, that lithium will become Western Australia's largest royalty contributor within two years. Lithium was Western Australia's fourth-largest royalty contributor in fiscal 2021 behind iron ore, gold and alumina, according to government data.

Deals on the table

The AKBC is "aware of hundreds of millions of dollars' worth of deals on the table" between South Korean manufacturers and Australian critical minerals companies, according to executive director Liz Griffin, who authored the discussion paper.

"There has recently been a huge spike in investment activity between and Australia and the Republic of Korea in critical minerals and we expect this trend to continue," Griffin said in an interview.

Though South Korea is Australia's fourth-largest trading partner, it only ranks 17th in foreign investment in Australia. Critical minerals have the potential to change that trend, Griffin said.

Powerful combination

Brinsden also said that South Korean companies offer a "powerful combination of operating expertise, technology and a balance sheet" to support the growth of Western Australia's battery raw materials industry.

Pilbara Minerals, together with POSCO, is currently developing a new chemical conversion facility in South Korea that is vertically integrated with its Pilgangoora production in Western Australia.

Rare earths developer Australian Strategic Materials Ltd. Managing Director David Woodall said Australian miners need South Korean companies, who know what they need to develop new supply chains for their manufacturing sector geared around electric vehicles, semiconductors and aerospace, among other things.

"[South] Korea's capability and motivation to excel in clean energy technology and advanced electronics, combined with Australia's rich critical minerals endowment, means that now is the time for us to take our relationship to the next level," Woodall said in an email interview.

In July, Australian Strategic secured US$250 million in funding from a consortium of South Korean investors in exchange for a 20% stake in its unit that holds the Dubbo rare earths-zirconia project in New South Wales, Australia.

Woodall said Australian companies can benefit from the "high level of focus" in South Korea on "the traceability of products and the environmental credentials of counterparties wanting to do business" in that country.

In the past 12 months, the focus of major South Korean companies has shifted from securing product to ensuring the green credentials of their investments, ASX-listed Blackstone Minerals Ltd. Managing Director Scott Williamson said in an interview.

Williamson cited renewable power at the miner's Ta Khoa nickel-copper deposit in Vietnam as a key reason why the project attracted interest.

In April 2020, Blackstone secured a binding agreement with South Korean group Ecopro Co. Ltd. to form a joint venture for the development of a downstream processing facility at Ta Khoa.

The ASX's strong liquidity over the past year also gave South Korean companies confidence that they can "share the risk" with Australian miners listed in the bourse, Williamson said.