Foreign media said that two informed sources said that China Tianqi Lithium was close to acquiring a 24% stake in Chile's Sociedad Quimica Y Minera (SQM) for about $4.3 billion. SQM is one of the world's largest lithium producers.
According to a Reuters report on May 15, the source said that Tianqi Lithium sought to acquire SQM shares from Canadian fertilizer company Nutrien Ltd (NTR.TO).
Nutrien must sell its stake in SQM by March next year, which is a commitment to regulators when Agrium and Saskatchewan Potash Corp. merge to form Nutrien. Nutrien holds approximately 30% of SQM, and SQM is also a major fertilizer producer.
After Reuters reported the news, SQM's B-share SQM_pb.SN once jumped 6.8% to a four-month high. Nutrien's share price continued its gains, hitting a two-month high and closing 2.8% to $66.5.
Based on the closing price on the 14th, the market value of SQM is US$14.8 billion. Based on this calculation, Tianqi will acquire a stake in the world's lowest cost lithium producer and will pay a premium of approximately 22%.
Chinese companies are targeting overseas lithium mines
“Chinese companies are accelerating the acquisition of lithium resources worldwide.” “Nikkei Business News” reported on November 18, 2017 that China has the world’s largest auto market, and the Chinese government has proposed to phase out fuel vehicles and use electric vehicles. The policy is to ensure that the raw materials for the battery as a core component are sufficient. Driven by this momentum, lithium prices have risen to the highest level in history.
The Nikkei reported that the large Chinese car company BAIC Group is in the process of negotiating with the Chilean government organization CORFO, which has great influence in the resource development industry, to come up with an industrial revitalization plan that includes lithium mining, battery manufacturing, and electric vehicle assembly. BYD, China's largest electric car manufacturer, has also begun to deploy in Chile. According to local media reports, a related person in charge of BYD said that the company will try to cooperate with local enterprises in the lithium business, while planning direct investment. China's lithium chemical industry giant, Chengdu Tianqi Industry (Group) Co., Ltd. has acquired a 2% stake in Chile Chemical Industry Corporation (SQM). According to a Reuters report in November 2017, Jinshajiang Capital is also competing with other companies to bid for shares in Chilean lithium producer SQM (Sociedad Quimica Y Minera).
The Nikkei report also cited: China Great Wall Motor had previously initiated a joint venture with German BMW to produce pure electric vehicles. The company also decided to invest 3.5% in the Australian lithium mine development company Pilbara Minerals. The goal is to obtain the right to purchase lithium mines that began mining in 2018. In addition, Tianqi Industrial also acquired Talison Lithium.
The UK's Financial Times website reported on March 13 that China's largest battery manufacturer acquired a controlling stake in a lithium mine project in Quebec, Canada. At the time of the deal, Ningde Times New Energy Technology Co., Ltd. (CATL) is rapidly expanding its electric vehicle battery production with the goal of becoming the world's largest battery manufacturer by 2020.
"Financial Times" reported on February 24 this year that China's electric vehicle supply is expected to be one of the main drivers of global lithium demand. Goldman Sachs expects that by 2030, China's supply of electric vehicles will account for 60% of the world, up from 45% in 2016.
South America and Australia are hot spots of lithium resources
Judging from the distribution of China's overseas lithium mining business, it is mostly in South America, especially in Chile.
"Nihon Keizai Shimbun" reported on December 18, 2017 that they all chose Chile: China is a consumer of more than 40% of the world's lithium resources. According to a survey by the US Geological Survey, Chile's lithium reserves account for 20% of the world's total. %. Half of the Chinese companies trying to get more lithium resources are doing business in Chile, while those looking to the whole of South America account for two-thirds. According to Reuters reported on April 6, the South American lithium triangle is the lowest cost of lithium production. The region's lithium reserves account for about two-thirds of the world's total.
However, the acquisition of Chinese companies in South America is also very difficult.
Reuters reported in the May 15 report that Tianqi Lithium may encounter obstacles in purchasing SQM equity. The former Chilean government in March asked the anti-monopoly regulator FNE to intervene to prevent the sale of equity to Chinese companies, saying it would distort the global lithium market and give China an unfair advantage in acquiring strategic resources. FNE will decide whether to start the investigation before August, and the time may be extended. Reuters said that SQM and Tianqi Lithium did not respond to requests for comment. Nutrien declined to comment. All sources were reluctant to be named because the details of the transaction were not public and they also reminded whether it was uncertain whether an agreement could be reached.
Reuters reported on April 6 that Chile is particularly difficult to do, and the country has preferentially provided lithium resources and expansion quotas to SQM, Albemarle and the recently joined Chilean state-owned copper company (Codelco). Chile also strictly prevents miners from entering the industry and encourages them to do business with existing companies. Reuters said, "Chinese people have been difficult to gain an important foothold in the lithium industry in Chile."
But in addition to South America, Chinese companies are also looking for supplies in other regions. In the past year, they have signed agreements with miners in Australia, Canada and Africa.
According to a report in the Nihon Keizai Shimbun, in South America, lithium is found in the salt lakes mainly through the sun. This mining method takes a long time. Australia's lithium comes from the ore refining process. Australia is more efficient than South America, so although Australia's reserves account for only 10% of global reserves, production is the highest in the world, accounting for 40%, and Chinese companies' access to lithium resources is also taking place here.
Strong car companies continue to take the initiative to cooperate with China
According to the Nihon Keizai Shimbun, it is not only Chinese companies that find business opportunities. The global battle for lithium resources is showing signs of growing. The Anglo-Australian giants Rio Tinto and Japanese companies are also striving to acquire lithium resources. Japan’s Xinghe Company, which is engaged in the pharmaceutical industry, has also acquired more than 2% of SQM’s equity and plans to participate in Rio Tinto Mining Group. Toyota Tsusho has obtained lithium mining rights in Argentina, and Hanhe Industrial has invested in Canadian companies with lithium mine projects in Mexico.
According to the British "Financial Times" website reported on February 24 this year, when Nissan and Mitsubishi pushed electric vehicles to the mass market in 2010, Japanese manufacturers were enthusiastically bet on the surge in battery demand. Global automakers such as Volkswagen and Tesla are trying to lock in the supply of raw materials needed to increase the production of lithium-ion batteries, which will drive the electric car revolution.
However, Simon Moores, founder of London's benchmark mining intelligence company, said that all car manufacturers are facing the problem that they do not have "appropriate long-term contracts" for lithium supply. Wood-McKenz analyst Milan Talker also said: "I think many automakers are now almost panicked because they want to make sure they don't miss the opportunity to produce the necessary materials for the battery."
According to the report, these concerns are particularly evident in Japan, which was once a recognized leader in rechargeable battery technology.
According to reports, although Panasonic is still the world's largest supplier of automotive batteries, two of the world's top five lithium battery suppliers are in China. They are Ningde Times New Energy Technology Co., Ltd. and BYD Co., Ltd.
According to the Yano Economic Research Institute, Chinese manufacturers also control 50% to 77% of the four key components used in lithium-ion batteries, namely cathode materials, anode materials, electrolyte solutions and separators.
According to the report, Japanese automakers are not as financially strong as Chinese competitors, and they have relied on collaboration with domestic trading companies, battery manufacturers and material suppliers to solve resource shortages. But as global competition intensifies, they can no longer solve this problem with domestic material manufacturers alone.
Sato, a visiting professor at Nagoya University and a senior executive at battery supplier Samsung SDI, said: "They (the Japanese material manufacturers) will have customers all over the world." He said: "Although Japanese companies may say they can participate in technology. Competition, but for future battery competition, the key factor will be investment capacity."
The report believes that this prompted some Japanese companies to try to abandon the previous model of relying on domestic batteries. For example, Nissan sold its battery business with Japan Electric Corporation to Jinshajiang Capital, a private equity firm in China, last year when it sought to increase its cost competitiveness. Guan Run, president of Dongfeng Nissan, said recently that the automaker may purchase lithium-ion batteries from a Chinese manufacturer to meet local government requirements.
Reuters Seoul reported on April 11 that South Korea's LG Chem said it has agreed to establish two joint ventures with China's Zhejiang Huayou Cobalt to ensure the supply of cobalt for the production of lithium batteries. In fact, more and more foreign-funded enterprises have set up factories and cooperative electric vehicle battery businesses in China.
The Nikkei reported that Chinese companies have also increased their investment in lithium producers. John Van Derfin, of RWR Consulting in Washington, said the Chinese auto industry wants to avoid supply chain bottlenecks that could slow down electric vehicle production. “Mastering control of raw materials can provide the supply chain security that China needs to achieve ambitious electric vehicle targets, and it may make other participants unable to move forward,” he said.
The Nihon Keizai Shimbun website reported that although the development of a new generation of batteries that replace lithium batteries continues to advance, it is considered to be practical after 2020. In the recent years of transition to pure electric vehicles, the battle for lithium resources will continue.
