Powering Australia’s future: Inside the battery boom

 

Garreth Hanley:
This is INTHEBLACK, a leadership, strategy and business podcast brought to you by CPA Australia.

Patrick Viljoen:
Welcome to INTHEBLACK. I'm Patrick Viljoen, sustainability leader at CPA Australia.

In today's episode, we're talking about the battery business, which is an incredibly complex area given its reliance on the mining sector and all the associated challenges involved with extracted primary resources. Environmental, social and governance, or ESG, issues are at the forefront of those challenges, but the battery business is also about risk and change management and the incredible interplay between companies merging and acquiring each other at a phenomenal rate.

To help us understand the global battery industry is Jairo Bernal FCPA, who recently joined as CFO at Wildcat Resources, a lithium developer in Western Australia, and a former head of finance and company secretary at Chilean Lithium Mining company, SQM, and someone well-versed in managing complex financial operations, cross-border business and the operation of multi-billion dollar mining investments across several continents. Welcome to INTHEBLACK, Jairo.

Jairo Bernal:
Thanks for inviting me.

Patrick Viljoen:
Jairo, maybe just to set the scene, as the world shifts from fossil fuels to renewables and the battery industry becomes more vital, the resources behind batteries become crucial. Now, could you perhaps speak to lithium, what it is, where it comes from and the role that it plays in battery production?

Jairo Bernal:
Patrick, lithium is a light, silvery white metal and the least dense solid element. From an industrial perspective, it's priced not for its structural properties, but for its electrochemical qualities. It can store and release energy very efficiently. This makes it the backbone of rechargeable lithium ion batteries, which power everything from smartphones, laptops to electric vehicles and renewable energy storage systems.

Now where lithium comes from. Lithium is not found as a pure metal in nature. It's typically sourced in two main ways. The first one, brines. So think brines as vast salt flats like those found in Chile, Argentina and Bolivia. They contain lithium-rich brines. And lithium is extracted by pumping brine into large evaporation ponds, concentrating it over time, and it's mostly solar heated, quite natural process, and it's then refining into lithium carbonate or hydroxide. And the second form is hard rock deposits, particularly spodumene.

This is what we find here in Australia and also in Canada and some other regions in the world such as Brazil. These deposits are mined, processed and converted into battery-grade chemicals. The hard rock deposits, this is the standard way of mining here in Australia, and Australia is currently the world's largest producer. Chile is actually number two. Argentina, number three. The processing is however heavily concentrated in China, which play a dominant role in refining lithium into what it's known as the battery-grade material.

The role of lithium in the battery production is what we could call an irreplaceable ingredient in modern chemistry. Mainly, lithium is high energy density because it can store more energy per unit of weight than almost any other alternative, making it essential for electric vehicles. Rechargeable efficiency. So it allows thousands of charging cycles, same as your smartphone. You plug and unplug and recharge multiple times.

So this is the chargeability efficiency that lithium brings. And also scalability for renewables. So this can be used for solar and wind energy. Depends on the storage to balance supply and demand. So in short, lithium is the enabler of the energy transition. Without it, the economics and practicality of electric vehicles, large-scale renewables integration and portable electronics would look very different today.

Patrick Viljoen:
And you raise a couple of really interesting points in there. So obviously the extractive or the sourcing of lithium comes from several jurisdictions, as you've mentioned, and then the conversion of that into the physical batteries then happening in places like China. Thinking about that extractive process and sort of all of these kind of countries that are involved in the supply chain, to your mind, how does that actually intersect with broader ESG kind of considerations or sustainability considerations more broadly?

Jairo Bernal:
For battery chemicals and battery chemistry, there are various jurisdictions, various commodities involved in the supply chain, raw material extraction, for instance. Well, in Australia we know, hard rock spodumene. In Chile, Argentina and Bolivia, we also have brines and what it's called the lithium triangle. We also need cobalt, which is found in the Democratic Republic of Congo.

Nickel, we need nickel as well, which is found in Indonesia, Philippines, China. Graphite, Brazil and Mozambique. So you can appreciate there are lots of jurisdictions involved, lots of issues, lots of problems, environmental problems, et cetera. So considering that the refining and processing mostly happens in China where they control nearly 60 to 70% capacity of refining and cell manufacturing happened also in China and Southeast Asian countries and the end user is in Europe, China and the United States, you can appreciate there are lots and lots of issues environment-wise.

So the intersection here is for mining, for instance, traditionally extracting any material is perceived as a damage to the ecosystem. And extracting lithium, nickel, cobalt, many of these products can be water and energy intensive. It may damage the ecosystem and biodiversity. Also, it brings carbon footprint issues, like high temperature refining of nickel, lithium, aluminium generates significant CO2.

It brings a recycling challenge as well. There are complexities in managing the recycling, and this is a technology that is very novel and how we can recycle lithium to stop the interdependency in mining. So socially as well. Cobalt for instance, it's been heavily criticised in the Democratic Republic of Congo, which is often linked to child labour or also unsafe working conditions. Nickel, some countries call it dirty nickel on the practices of obtaining nickel. All in all, it brings some community impacts.

Even in South America for lithium brine extraction, it's perceived to consume large volumes of water, even though, and I would have to defer, brine is not water. It just looks like water. You see a lake and you think it's water. Well, it's not water. But it's managing those perceptions from communities and those raising tensions with local communities in our regions what makes it important.

Patrick Viljoen:
You mentioned quite a couple of, I think, issues in there and most of those risk-related in terms of... And in previous podcasts we've actually delved into the whole cobalt industry as well in terms of the DRC's exposure to supply chains in that sense. But more from an opportunity side maybe and thinking about transition of supply chains, in your mind, how is the battery industry actually responding to all of these kind of aspects? And are there any opportunities that they're eking out to address social, nature and climate kind of considerations?

Jairo Bernal:
On lithium particularly, there is Global Battery Alliance where there is a standard where a battery passport aimed to certify environmental and social impacts across the lifecycle. This is mostly through responsible sourcing. This is the opportunity. Automakers, cell producers are working with non-government companies and independent auditors to reduce the exposure to conflict minerals and ensure better labour practices. And also carbon footprint reduction. Companies are locating gigafactories in regions with cleaner energy grids such as Europe or North America to reduce embedded emissions.

So Patrick, when you think about all of these opportunities and the battery passport, you see how ESG is embedded now in the DNA of investors and consumers. What we see in the future is companies in lithium, for instance, consumers would be willing to pay a premium for responsible source lithium. Ultimately, when you have an EV, you want to contribute to the decarbonisation of the world. So you somehow want that the products in your car have been responsibly sourced and that comes with a premium.

Patrick Viljoen:
Yeah. And I like that terminology piece that you used in there about a battery passport. That's something I think I might be using going forward as well. Maybe just coming back to the mining sector itself and how that relates to battery production, now, you yourself have been involved in a few mergers and acquisition deals, which is typical for the industry as smaller mines succeed and get bought out by bigger ones. I mean, these are just sort of functions of the economy. But directionally, how are mining companies looking at the transition between fossil fuel assets and more sustainable ventures? And how is that balance being maintained across the industry?

Jairo Bernal:
Historically, mining companies have built their portfolios around coal, oil and gas and related assets because those were the backbone of global energy demand. Now, as the world transitions to renewables, mining companies are under pressure to reposition toward future facing commodities, like lithium, nickel, cobalt, copper, rare earths, all essential for batteries.

So this repositioning, we've seen companies like BHP, Rio Tinto, South32 trying to decrease their portfolio to these old technologies. Now, there is something to look at and it's cash flow because these energies, coal, oil and gas, they provide the short-term cash flow for these acquisitions. So it will take time to change and reposition to the new commodities.

There's been a portfolio rebalancing. We're seeing majors gradually exiting thermal coal or oil sands while increasing exposure to battery minerals. Also, we've seen major companies doing strategic partnerships with automakers and battery producers, also directly investing in mines or forming joint ventures.

So there is a clear shift from traditional arm's length relationship between miners and manufacturers. In terms of the long-term growth and ESG alignment, critical minerals offer growth potential and help align with investors and policy expectations around decarbonisation. So big companies, the government are pushing for that change.

Patrick Viljoen:
I just want to come back to that whole principle because thinking about Australia, and you mentioned previously in terms of our own proportion of production of lithium globally, do you think that Australia's actually poised to become an end-to-end producer? So instead of us simply being a lithium provider, in order for us to move to that kind of end-to-end production of batteries.

Now some policy makers have pushed for this and positioned in a good way for Australia to make up ground it may potentially lose in the primary resources market eventually. How do you see that playing out? And what advice would you give to the Australian government in terms of that transition piece?

Jairo Bernal:
I guess the future is exponential. The battery sector is expected to grow exponentially. And I believe it's going to quadruple by 2030. That in itself, it's an opportunity for Australia, but we need to be cognisant that Australia still needs to learn a lot from China. China, they have decades of knowledge in the refining market. Australia has a very short story and not many of those are successful. So there are still many ways to learn.

There are challenges, scale and capital. Building refining and cell manufacturing capacity requires tens of billions in investment. Competition as well. China has decades of experience, existing infrastructure, economies of scale, more people. They could build a refinery within seven months, and Australia, probably it will take three years. So this is the competition that I talk about.

Workforce and skills. Scaling up downstream processing and manufacturing will require new technical expertise. In Australia, we're experts in building mines and building processing plants, concentrators. And we're very good. We are very efficient. But in order to capture bigger margins, we need to do it very wisely because the capital intensive, the technology and the people, it's still to be developed. So rather than becoming a full mine to EV battery producer, I believe Australia must be realistic.

And part of being realistic is start learning, scaling up the chemical conversion capacity domestically and making it seriously. Potentially we could start with producing precursor materials or cathode active materials for export and start learning, start learning from there. But certainly the government is helping. We have the funding. But we need to do more.

Patrick Viljoen:
It's interesting you mentioned that because earlier today we had a session at CPA Australia where we listened to the minister for the financial services and also the assistant treasurer speaking about the recent productivity summit that was held. And two things that came up for me personally from that was this whole concept of productivity and how to raise productivity in Australia, but the minister also balanced that against this whole concept of resilience.

And I think that's quite crucial for us. So it'll be very interesting over duration and time to also keep an eye on the battery industry and how that can contribute to driving that level of productivity in Australia and ensuring also and securing our workforce for the future.

Hey, Jairo, it's been a really good discussion about what is a fascinating and important topic in so many ways. And a couple of takeaways from me. I'm going to start using the terminology battery passport and using that in my daily language. So thank you very much for that. But thank you for joining us today.

Jairo Bernal:
Thank you. Thank you very much, Patrick. I think the big opportunity for Australia, for finance professional is to capture more margin from its resource base, continue improving its geopolitical leverage. We've got the strengths on ESG expectations. We've got a transparent supply chain. And this overall will play a pivotal role in the critical mineral strategy. And I believe this is where we all need to focus. Just continue doing what we know better.

Patrick Viljoen:
And thank you for listening to INTHEBLACK. Make sure to check out the show notes for links to related articles and other resources mentioned in today's episode.

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Garreth Hanley:
To find out more about our other podcasts, check out the show notes for this episode. And we hope you can join us again next time for another episode of INTHEBLACK.