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Concentrated lithium production for July represented a 25 percent increase from the previous month for Galaxy Resources. The company also expects to add value following an upstream deal with a large battery manufacturer.
By Dave Brown – Exclusive to Lithium Investing News
Australian lithium miner Galaxy Resources Limited (ASX:GXY) announced strong production performance for July from its Mount Cattlin spodumene mine and processing facility in Western Australia.
The July concentrated lithium production represented a 25 percent increase from the previous month. The operational utility was attributable to a 16 percent marginal growth with the project currently operating in the range of 70 to 80 percent of expected annual design output capacity. Galaxy indicated this capacity would be further optimized over coming quarters and advised that it anticipates that it will ship a third consignment of spodumene concentrate to China in September, with the cargo volume to be around 20,000 tonnes.
Demonstrating value creation through upstream integration
On Monday, Galaxy announced a deal with a large battery manufacturer to produce and market electric bike batteries. The agreement will employ the technological expertise and research acumen of K2 Energy in order to develop a lithium battery plant in China.
The risk of short term price fluctuations in the commodity market might be more insulated by adding value to the company’s lithium resource in delivering a downstream product. Galaxy’s managing director Iggy Tan suggests, “If we were just to ship our concentrate out, it is worth just $1 per lithium unit, by converting it to lithium carbonate it is actually worth $3, by converting it to a battery it is actually worth $500 per lithium unit.” A company presentation from earlier in the month noted how the value generated from lithium cathode production will increase the hypothetical $1 lithium unit to a theoretical $44 cathode production value.
At present consumers in China operate an estimated 140 million e-bikes and scooters. Tan is optimistic about delivering a marketable product to the huge potential market for the battery powered e-bikes. “We are going to produce something like 350,000 of these e-bike batteries,” he said. Last year, China manufactured somewhere between 25 to 27 million e-bikes, of which some 600,000 were exported according to EVU Update.
China is subsidizing the development of this industry domestically and globally by offering a 17 percent return on taxes for exporting lithium batteries. In order to encourage foreign investors and business ventures to introduce advanced technologies within China the government also offers additional tax incentives to enterprises that are classified as foreign-invested enterprises with advanced technologies.
Urbanization providing tailwind for e-bike marketplace and lithium batteries
It has been estimated that China will experience an unprecedented period of urbanization in terms of total residents over the next two decades. The urban population could increase from last year’s swelling figures of 50 percent to as much as 80 percent by 2030. These urbanization rates would be comparable to South Korea and Taiwan, sharing some similar geographic characteristics, with the former and latter at 82 and 80 percent urbanization respectively.
Challenges provided for further technology and infrastructure advancement
By the mid-decade it is estimated that production volume for e-bikes could reach 35 million with the volume of exports at approximately 2 million. The benefits for the increasingly urbanized Chinese consumers are that the e-bikes provide relatively low-cost personal mobility, storage flexibility and reduced carbon emission. Over 90 Chinese cities have banned petrol-powered motorcycles, providing a huge benefit to e-bike manufacturers.
The critical success factors seen as a catalyst for adoption and increasing market penetration in China include the enhancement of e-bike and battery technology and a policy driven strong local regulatory support in the form of gasoline-powered motorcycle bans.With many Chinese urban areas banning motorcycles, e-bikes have become an attractive solution for commuters, service people and couriers.
Countries like India, Brazil, Indonesia, Vietnam and Thailand are reconciling with similar demographic issues related to higher population densities, rapid growth of disposable income with resource scarcity and pollution problems. All of these regional markets combine to make lithium battery technology and e-bike culture a compelling potential solution that will inevitably be a consideration for policy decision makers.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.
