As Indian investors and CEOs exult about the China+1 opportunity and the billions that we might one day rake in from this opportunity, China is busy gobbling up the one metal which matters nowadays, lithium. As this FT Big Read explains, “Last month, Africa’s first Chinese-owned lithium concentrate plant started up trial production at Arcadia, in Zimbabwe. That mine was bought by Huayou Cobalt in 2021 for $422mn, part of a recent billion-dollar wave of Chinese lithium deals in a country where many western investors fear to tread….
More than just lithium is at stake. From Brussels to London to Washington, concern over access to critical minerals is at an all-time high after Russia’s invasion of Ukraine and amid escalating tensions between the west and China. The People’s Republic has built a dominant position in many of the minerals that are crucial for the energy transition, including cobalt, lithium and rare earth metals. The west is preparing to spend hundreds of billions of dollars to try to catch up.”
As politicians in the world’s great democracies publish whitepapers on competition policy and free markets, the Chinese are busily buying up Africa’s supplies of the precious metals needed for modern electronics: “…across the continent, it is clear who has already stolen a march. “It’s not so much fear of the Chinese getting there first. They are there first. It’s already happened,” says Russell Fryer, executive director of Critical Metals, a London-listed investor in African mines.
After Zimbabwe, Namibia is the next country in Chinese investors’ sights. Last month Huayou Cobalt also gained a foothold in Erongo with a small but symbolic investment in Askari, an Australian firm exploring in Uis. Xinfeng, a Chinese exploration company active in Erongo, has mined tens of thousands of tonnes of raw lithium ore and shipped it to China.”
The FT highlights all of this Chinese aggression comes at a time when demand for lithium is expected to surge 5x between now and 2030. Much of the western world wants to stop selling ICE cars by 2040 but without lithium it is not possible to produce the batteries which fuel EVs. This is where African lithium is critical and it is in Africa that the Chinese have stolen a march on the rest of the democratic world: “Commodity trading giant Trafigura predicts Africa could supply a fifth of the world’s lithium in 2030 while Susan Zou, an analyst at Rystad Energy, says the continent “could be a rising star for lithium minerals”.
“If you look at the development of mines in Africa, they are quick.” In particular, she says, Huayou Cobalt’s development of Arcadia in Zimbabwe was “outside of people’s expectations”.”
Beyond foresight, the Chinese mining companies also seem to have another advantage that western miners lack – an abundant supply of low cost risk capital and a vertically integrated supply chain for lithium: “One person familiar with that project says equipment was ordered before the deal was even signed and construction was nonstop, adding that Chinese financiers are far more likely to take big risks than western development and commercial banks.
Junior African miners face an uphill battle in capital markets. Andrada’s market capitalisation is less than £100mn and it is having to concentrate on demonstrating that it can achieve high tin throughput and keep costs down before it moves on to lithium.
While US and European officials have been promoting African partnerships and compiling lists of critical minerals, Chinese investors have been not only buying up African mines to produce these minerals but building refineries at home to process their output.
China is way out in front when it comes to converting the metal to raw materials for batteries; the International Energy Agency puts its share of global refining capacity at 58 per cent. Until similar facilities are operational in Europe, the US, or Africa itself, China will be the main customer for Africa’s lithium.”
The FT article has a stunning graphic which shows just far ahead of everyone else the Chinese mining companies are in Africa. As Cold War II escalates, the battle lines are becoming increasingly clear – complex stuff like semiconductors that requires lots of intellect & cutting-edge science is where America & its allies will continue to lead whereas stuff which requires brawn & muscle (both financial & physical) is where China will continue to power ahead. Each side will seek to use its strengths to pummel that other. What that means for an in-between country like India over the next decade requires some serious thought.
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