Lithium hopefuls seize 'finite' window to send unprocessed ore to China

China is set to receive a wave of unprocessed, low-grade lithium ore in what appears to be a limited window of opportunity ahead of project expansions going online.

Lithium prices have fallen from 2022's record levels, but they are still incentivizing smaller-scale, low-grade direct shipping ore, or DSO, that is cheap to mine. Developers planning larger-scale spodumene operations and downstream plants are also getting the chance to test their product through customers' supply chains.

In a market where many hard rock and brine projects are delayed and face cost pressures, China is well placed to process low-grade ore with high waste levels, according to Jarden Securities' equity research director, Jon Bishop.

"There is an increasing ability to source unrefined products and ship it back to China," Bishop told S&P Global Commodity Insights.

"To get an operation up from rocks in the ground to crushing, screening and putting on a boat is what we do well in Western Australia. So there are any number of projects which, within reason and a bit of drilling delineation over the next six months, could be front and center of doing that."

Lithium refiners have built too much capacity in China to meet the expected demand from battery manufacturers, and they lack spodumene concentrate from mines to fill those facilities, Widgie Nickel Ltd. Managing Director Steve Norregaard said in an interview.

"We're seeing many of these lithium refiners traveling the world talking to whoever has anything remotely close to lithium in the ground, saying 'we want your lithium because we want to fill our processing plants, and we can't do that relying on concentrate producers, because they are not producing enough,'" Norregaard said.

China can "extract the value out of all sorts of products, right the way down to 0.5% lithium," Red Dirt Metals Ltd. Executive Chairman David Flanagan told Commodity Insights. "There are companies selling their waste tailings to China and the Chinese are extracting commodities out of it."

"The feedback we're getting from some of the companies trying to start mines and build processing facilities in North America is that people don't want it in their backyard; but in China, they're already sitting there empty and they need the product," Flanagan said.

While Red Dirt Metals is unlikely to start producing concentrate within three years, it is currently progressing DSO mining studies for its Western Australian Mount Ida project. Shipments from Mount Ida are expected to start by December, at which point prices should still support such projects, Flanagan said.

Limited opportunity

Liontown Resources Ltd. sees "maximum impact" in shipping between 850,000 tonnes to 1.2 Mt of DSO from its Kathleen Valley project in Western Australia ahead of first production from the main plant in mid-2024, CEO Tony Ottaviano told a Jan. 20 analyst call.

"We've pushed ahead because we know this window is only finite," Norregaard said. With lithium expansions being planned globally, "this DSO opportunity is only going to be short-lived — 12 to 18 months at most. Then the amount of concentrates in the world will more than fulfil the lithium requirements. So we're very much about trying to monetize that as soon as we possibly can."

Flanagan said some value is lost in shipping DSO because there is no chance to beneficiate it and sell it at a higher value, but the small capital expenditure for plant equipment and pre-strip before shipping it to customers means there are advantages.

"If a bunch of parties are racing to that market, they could chew up the supply of capacity in China and others to consume it, so [the DSO opportunity is] not never-ending."

Wave of DSO opportunities

Along with Liontown and Red Dirt Metals, a number of lithium miners are also advancing plans to ship DSO from projects ahead of full production.

A maiden DSO shipment loaded with 15,000 dry tonnes of 1.4% lithium oxide spodumene from Core Lithium Ltd.'s Finniss hard rock mine in the Northern Territory made its way to a lithium-ion battery supply chain participant in Fangcheng, China, in January for US$951 per tonne.

Widgie Nickel said Feb. 14 that it is fast-tracking the Faraday discovery at its Mt. Edwards project in Western Australia, targeting production this year.

Leo Lithium Ltd. said Feb. 16 that it is on track for early revenue from targeted export of DSO from Goulamina in Mali in the second half of 2023, ahead of full project commissioning in the second quarter of 2024.

Global Lithium Resources Ltd. Managing Director Ron Mitchell told Commodity Insights that Suzhou TA&A ultra clean technology Co. Ltd., which has a 9.7% stake in the company, has the capability related to DSO processing in China and could foreseeably process DSO material from Global Lithium's Manna project in Western Australia.

"Mineral Resources Ltd., which similarly has a 9.7% shareholding, also has significant upstream lithium mineral processing expertise and capability and could also aid us if we were to proceed down that route," Mitchell said.

As of Feb. 21, US$1 was equivalent to 6.88 Chinese yuan.

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