Bubbly Chinese Equity, EU Tariffs Hit Chinese EVs, & Graphite Supply Chain Shifts
MARKETS UPDATE
October showed some promise in the critical minerals space. Permitting breakthroughs, favorable court decisions, M&A moves, and some fund inflows brought the sector into the fringes of the market's limelight. It was, however, the Chinese equity bubble that stole the show early in the month. The final verdict is, however, somewhat indeterminate. The MVIS Rare Earths / Strategic Metals Index ended the month basically flat, as did the main North American and Chinese companies. The S&P GSCI Electric Vehicle Metals index of underlying commodities actually lost 6% - raising the question of whether the earlier moves in the Chinese equity markets were mere fluff or a leading indicator of stronger material prices. For now, we are not seeing this. The biggest loser was the Australian equity market, where significant losses were registered by the likes of Pilbara Minerals, Mineral Resources, or IGO Ltd. Crass performance of the Australian dollar during the month didn’t help either. Australians would have made it better by investing in crypto, but the way forward for this alternative asset will be charted only on November 5. (1)
GEOPOLITICAL INSIGHTS
With the end of the month approaching, the deadline to save Chinese EV exports to the EU came and went, with potentially significant consequences for the future architecture of critical minerals value chains, the pace of energy transition, and efforts towards technological substitution. For the next five years, EVs made in China will face levies of up to 45%. The Commission must now publish an “Implementing Regulation," which includes the definitive findings of the investigation. The new tariffs came into force on October 31.
Until the very end of the negotiations, Valdis Dombrovskis, Latvian diplomat and the EU’s trade chief, was busy engaging with Chinese Minister of Commerce Wang Wentao on an alternative outcome. In an effort to avoid European tariffs, the Chinese side tabled the so-called "price undertakings," a complex mechanism to control the prices and volumes of exports that could replace the duties at the EU border.
Dombrovski's position has been that any such solution would need to align with the rules of the World Trade Organization, directly addressing the impact of Beijing's state subsidies. A complex system would risk being much less transparent than a tariff regime that the French government spearheaded. Besides, this is not the EU’s first rodeo. Eleven years ago, Brussels agreed to an analogous mechanism to prevent a flood of subsidized solar panels. The deal did not stop the eventual evisceration of the continent's solar industry. With its institutional memory intact, this time, the European Commission insisted that a straightforward mechanism be introduced to monitor the Chinese side’s compliance. Judging from the outcome, Beijing was less than forthcoming.
From the US perspective, Brussels' selective approach to tariffs may appear somewhat puzzling. However, that “divide and rule” strategy seems to have irked Beijing. The Chinese government warned exporters against seeking individual deals with the EU and wanted all manufacturers to be included under a common umbrella negotiated by the Ministry of Commerce.
The EU has pushed back on such efforts, arguing that under WTO rules, the bloc retains the flexibility to offer price undertakings to different companies, and its negotiations with the China Chamber of Commerce for the Import and Export of Machinery and Electronic Products do not exclude parallel talks with individual exporters. The WTO-based system has its roots in the liberal view of the world, where respective governments coordinate state-level agreements in the interest of private actors. This is a difficult concept for the Chinese government to grasp. The nervousness may stem from the fact that Beijing has been particularly concerned about the fate of SAIC, a state-owned carmaker faced with the highest tariffs.
China has now threatened retaliation. Chinese-controlled media alluded to a possible freeze on EV investments in Europe, and some officials said they feared curbs on shipments of critical minerals controlled by Beijing. The EU has responded, saying it will defend its interests against any unsubstantiated investigation. Brussels is already challenging China’s dairy probe at the WTO.
Is this chapter closed now? Not really. Under intense pressure from Beijing and Berlin, the EU has decided to send officials to Beijing for yet another round of negotiations. So we have the tariffs, but also a 9th round of negotiations.
Whatever the outcome, Beijing's situation is unlikely to improve. The EU’s future top diplomat, Kaja Kallas, who was Prime Minister of Estonia until recently, will be sworn in in December. Kallas will replace the lusterless Josep Borrell, who struggled to raise the profile of his office.
With an Estonian at the helm of Europe’s diplomacy, Beijing’s support for Russia’s military effort is unlikely to benefit China’s exporters. Kallas has already signaled a potentially harder line on China, calling the PRC “a systemic rival” for the EU. She is likely to focus on the bloc’s geopolitical and economic security. In a statement issued to the European Parliament, Kallas stressed: “The most pressing challenges here are China’s support for Russia as well as structural imbalances between the EU and China that result from non-market policies and practices, which create unfair competition and an unlevel playing field.” She accused "actors such as Russia, Iran, North Korea, and partly China" of aiming at weaponizing interdependencies and exploiting the openness of our societies against us. And Kallas is not alone. Slovak diplomat Maroš Šefčovič, who will replace Dombrovskis at the EU's Trade and Economic Security Commissioner, has recently spoken of "significant level playing field concerns linked to the negative externalities of China's state-driven economic model and industrial policy, as well as the overcapacities that are distorting global markets and supply chains.”
With the US election looming, Beijing may try again the strategy that worked during Merkelism’s golden era – when the EU was tempted to seek a middle ground between China’s beguiling “free trade” rhetoric and the Trump Administration's more aggressive trade policies. This time, the European Commission’s strategy appears more proactive. Politico reported that a secretive “Trump task force” in Brussels is preparing to deal with the scenario of a Republican victory in the US election. In a bid to reduce anticipated tensions in the transatlantic relationship, Brussels is poised to offer Washington greater policy cooperation concerning China. This may, however, require some bolder political moves by Germany’s centrist parties.
On multiple occasions, the outgoing US Administration has proven that it understands the need to cooperate with allies on the various aspects of China's mercantilism, including the critical minerals pipeline. In a speech to the Brookings Institution, Jake Sullivan, the US National Security Advisor, stressed that diversification of supply chains is essential "so that no country, particularly China, can hold us hostage." Ensuring reliable access to critical minerals is necessary to prevent the US from becoming “increasingly dependent on a country that has demonstrated its willingness to weaponize such dependencies.”
Sullivan’s chief concern appears less to be the transatlantic relationship, and he seems more troubled by the imperative to access critical minerals in the Global South, where the West faces steep competition from the PRC. Sullivan called for congressional renewal next year of policy tools, including the International Development Finance Corp. and the African Growth and Opportunity Act, arguing that such investment vehicles are essential for countering China’s growing influence among developing countries. Congressional authorization for both of those programs expires in September 2025.
Some House Republicans appear not to understand this. Rep. Marjorie Taylor Greene of Georgia has actively campaigned to cut off funding for what she believes are “wasteful” international aid programs. Goodbye graphite?
SUPPLY CHAIN OBSERVATIONS
The recent enthusiasm among lithium stocks seems to have been driven by corporate-level events – Rio Tinto's bid for Arcadium Lithium, Ioneer's permit in Nevada, and Lithium America's financing breakthrough. Independently, Chinese lithium stocks have ripped since September, even though the underlying prices of spodumene and chemicals remain subdued at best. In apparent reaction, several other sectors in the critical minerals universe have begun to stir, too. One of them, ASX-listed Talga, obtained the green light for its graphite project from a Swedish court. Its stock opened 60% up on the news.
The West is hungry for graphite, yet a year after China slapped export controls on the export of this crucial ingredient into lithium-ion battery anodes, the supply chain’s transformation is slower than molasses.
The core problem is SPG—spherical graphite, which was until recently 100% controlled by China's domestic players. This is changing very slowly, with Syrah Resources building a vertically integrated Vidalia facility in Louisiana. In addition, ASX-listed Volt Resources plans to leverage its upstream graphite assets in Africa and Ukraine to process (and spheroid) material in the United States.
The world anode leader, Shenzhen-based BTR New Material Group, is also venturing overseas. BTR has partnered with a Singapore firm to build a spheroidization plant in Indonesia. BTR, which counts Panasonic, Samsung SDI, LG Energy Solutions, SK On, CATL, and BYD among its clients, has pledged a USD $478 million investment in the Southeast Asian nation, with an annual production capacity of 80,000 tons of anode materials. The second phase, scheduled for late 2024, will call for an additional investment of USD $299 million and is expected to expand the total capacity to 160,000 tons.
BTR’s products encompass not only natural and synthetic graphite and silicon-based materials but also high-nickel ternary cathode materials. The company had already invested in a 50,000-ton lithium battery cathode project in Morocco. But now it returns to the North African country with a plan to build a plant with USD $366 million, Mohammed VI Tangier Tech City, near the port city of Tangier, designed to supply 60,000 tons of lithium battery anode materials. Compared to the struggling Western juniors, these are staggering amounts, illustrating the sheer mismatch between the Chinese leaders and the Western start-ups.
Spheroidization remains the key stumbling block, and some juniors, with assets in Tanzania and South Australia, have spoken of working with BTR as the technology provider investing inside the United States. That would mean flake concentrate could travel to the US without round-tripping through Asia for spheroidization in China and subsequent coating in Japan or South Korea. However, given the recent warnings from the communist regime to constrain technology leakage in the critical minerals space, this is unlikely to happen soon. The defensive "bottleneck” strategy deployed by Beijing seems to be working. For example, Posco Future M, Korea's leading anode producer, receives all of its SPG from China. The Korean company recently halved its natural graphite expansion plans.
Purification is another area of concern. Chinese producers are highly energy-intensive and profusely use hydrofluoric-based reagents. Western developers are seeking alternative routes, such as refining the feedstock via thermal purification. Such technological breakthroughs have yet to achieve commercial scale.
These birth pains open the door for some out-of-the-box approaches. US battery start-up Lyten committed over USD $1 billion to build the world’s first large-scale factory to produce lithium-sulfur batteries. Lithium-sulfur formulas have been around since the 1980s, but this emerging technology eschews the use of graphite and cornerstone cathode materials (nickel, cobalt, manganese). Graphite would be replaced with lithium metal, while nickel, manganese, and cobalt would replaced with sulfur. The problem remains that while lithium-sulfur can offer energy densities many times higher than conventional lithium-ion chemistries, the batteries based on this formula degrade fast, owing to a runaway chemical reaction (“polysulfide shuttle”).
Therefore, fears of graphite being substituted in EVs are premature. The only area of potential technological creep over the graphite domain is silica, but even this will take longer than some enthusiasts claim.
MINING & EXPLORATION NEWS
Following a string of encouraging news regarding Nevada's future as a lithium production hub, Lithium Americas announced the closing of the USD $2.26 billion loan with the US Department of Energy’s DOE Loan Programs Office. The 24-year facility will help finance a significant portion of the construction cost for Phase 1 at Thacker Pass. The loan comprises USD $1.97 billion of principal and USD $290 million of estimated capitalized interest during construction. The interest rate will be adjusted at the zero spread to US Treasuries at each advance. The first tranche will be drawn around mid-2025. However, as telegraphed previously, this facility does not resolve the remaining USD $63 million funding gap for project financing and working capital.
TSX-listed Talon Metals has announced the discovery of 99.92 meters of copper and nickel mineralization in its maiden drill hole at Boulderdash target in the Upper Peninsula of Michigan, northwest of Lundin's Eagle nickel mine. At only 9.14m depth, the mineralization appears shallow and flattered by exceptional grades: 2.11% copper equivalent and 0.83% nickel equivalent. The target was first identified by tracing mineralized boulders found through surface prospecting. The source was traced by determining glacial ice direction and a corresponding magnetic anomaly, which was located using geophysics. Encouragingly, the revealed envelope of magmatic sulfides resembles Eagle Mine's early days. The apparent ease with which it was achieved is quite remarkable. Through an earn-in agreement with UPX Minerals, Talon has an option to acquire up to 80% of mineral rights in a large, 400,000 acre-package of Michigan’s Upper Peninsula. Separately, Talon continues advancing exploration efforts at the Roland Target, further west, drilled earlier this year.
Plataforma Brasil de Investimentos Climáticos e para a Transformação Ecológica (BIP), an initiative launched by the Brazilian Government, Brazilian Development Bank (BNDES) jointly with the USD $16 billion Green Climate Fund, has selected Meteoric Resources’ Caldeira rare earths project as the only mining venture chosen for the program. Other projects span a variety of green technologies, including hydrogen, biofuels, reforestation, and low-impact "green" products (e.g., fertilizers and steel). Up to USD $10.8 billion has been initially earmarked for the program, which also features support from other multilateral development banks, including the World Bank, Asian Infrastructure Investment Bank, and the Inter-American Development Bank. This follows Meteoric's recent update on Caldeira's scoping study, with an initial capacity of 3.7ktpa of magnet rare earth oxides and near-term scalability. The BIP mechanism could facilitate project financing and help reduce overall development costs, including a pilot plant. The future mine is also on the radar screen in Washington. US EXIM Bank has indicated potential interest in funding up to USD $250 million for the project.
French company Eramet has suspended work on a battery recycling project and has bought out its minority (49.9%) Chinese lithium partner in Argentina. Eramet will regain full ownership of Centenario-Ratones, Argentina's direct lithium extraction (DLE) project, paying Chinese stainless steel giant Tsingshan USD $699 million. This liability will sit on the French company's balance sheet. The decision will help reduce capex to EUR €250 million, thus preserving cash in 2024 (the original guidance was EUR €450-500 million). The operation is expected to produce 24,000tpa, starting mid-2025. Meanwhile, Eramet reported a turnover of EUR €809 million for the quarter, down 17% YOY. The company blamed weak market conditions for manganese ore demand in China, where sales cratered 37% year-on-year. Manganese market conditions are expected to remain feeble this quarter.
Western rare earths leader Lynas has reported its quarterly production of 1.67kt of neodymium and praseodymium from an output of 3.6kt of total oxides. In the weak market, the company continues to weigh towards extraction and sales of higher-value magnet rare earths, indicating an encouraging level of oxide selectivity, at least in the short term (inventory?). Revenue came in at AUD $128 million, a 6% sequential decline attributed to weak pricing (AUD $42.5/kg, compared to AUD $46.9/kg twelve months ago). Continued capital expenditure at the Mt Weld mine expansion in Western Australia still affects the company's cash flow. Despite low utilization rates at the Kalgoorlie plant, operating costs appear under control. Debt stands at AUD $165 million.
Portugal-focused lithium developer Savannah Resources is about to commence a 13,000-meter Phase 2 drilling to advance work toward a definitive feasibility study at the Barroso Project. The study will be released in 2H25, paving the way for the FID and project funding in 2026. Permitting is also expected to be completed in H2 2025, with construction potentially starting in 2026 and maiden production in 2027. Savannah is well funded, with GBP £19.6 million in the bank as of September 24 and no debt on the balance sheet. The management anticipates several major value catalysts in 2025 from Europe's largest spodumene deposit.
Queensland-based lithium company Sayona Mining reported results on its 75%-owned NAL JV in Quebec. Sayona produced 52kt of 5.3% spodumene concentrate. This 5% sequential improvement was driven by higher plant utilization. However, cash costs are still elevated, at USD $984/t, which are way too high in the current lithium market. The cash flow pressure was offset somewhat by a prepayment facility. Together with partner Piedmont Lithium, Sayona worked to pool shipments and reduce transportation costs. The company reported a cash position of AUD $104 million. The company has released guidance for 2025, with an expected production of around 200kt at cash costs of USD $780/t to USD $800/t.
London-listed Empire Metals has commenced gravity separation tests on the weathered anatase ore cap at its Pitfield titanium project in Western Australia. The results are expected to support the optimization of a titanium flowsheet. The company recently raised GBP £2.5 million in gross proceeds via equity placement for resource drilling, mineralogical, and metallurgical studies. Empire expects to produce high-quality Tio2 concentrate from the asset.
ASX-listed Neometals has reported opening the lithium-ion battery (LiB) recycling facility in Kuppenheim, Germany. The plant uses a patented LiB recycling process developed by 50/50 JV Primbius between Neometals and SMS Group. The process recovers lithium, nickel, cobalt, and manganese from black mass to enable the production of new battery modules. Final assembly and commissioning of the hydrometallurgical processes will continue gradually after the opening event. This will be Europe's first battery recycling plant based on an integrated mechanical-hydrometallurgical process opened by Mercedes-Benz in Kuppenheim, southern Germany. The recovered materials will be used to produce more than 50,000 battery modules for new all-electric Mercedes-Benz models.
ASX-listed Talga's shareholders were finally relieved by Sweden's Supreme Court's decision to dismiss appeals to the company's environmental permit, which was granted at the end of August. Europe’s future graphite producer has also recently benefited from the European Union’s EUR €150 million grant to support the development of Talga’s anode refinery in Lulea. This adds to the AUD $240 million loan the European Investment Bank extended last year. The company is now awaiting binding offtake offers that could help close the funding gap for a USD $650 million vertically integrated facility.
SOURCES: (1) Market Data from Bloomberg as of 9:00 AM ET, October 31, 2024, in the local currency. (2) Additional data courtesy of Arcadium Lithium Inc. (ALTM US), BTR New Material Group Co., Ltd. (835185 CH), BYD Company Limited (002594 CH), Contemporary Amperex Technology Co., Limited (CATL) (300750 CH), Empire Metals Limited (EEE LN), Eramet S.A. (ERA FP), IGO Ltd (IGO AU), Ioneer Ltd (INR AU), LG Energy Solution Ltd. (373220 KS), Lithium Americas Corp. (LAC US), Lynas Rare Earths Ltd. (LYC AU), Lyten Inc. (private), Mercedes-Benz Group AG (MBG GY), Meteoric Resources NL (MEI AU), Mineral Resources Limited (MIN AU), Neometals Ltd (NMT AU), Panasonic Holdings Corporation (6752 JT), Piedmont Lithium Inc. (PLL AU), Pilbara Minerals Limited (PLS AU), Posco Future M Co., Ltd. (003670 KS), Rio Tinto Group (RIO LN), Samsung SDI Co., Ltd. (006400 KS), Savannah Resources Plc (SAV LN), Sayona Mining Limited (SYA AU), SK On Co., Ltd. (private), SMS Group GmbH (private), Syrah Resources Limited (SYR AU), Talga Group Ltd (TLG AU), Talon Metals Corp. (TLO CN), Tsingshan Holding Group Co., Ltd. (private), and Volt Resources Limited (VRC AU).
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