China Secures Australian Lithium For Almost 70 Percent Below Market Value

Lithium batteries displayed in the workshop of a lithium battery manufacturing company in Huaibei, eastern China's Anhui Province, on Nov. 14, 2020. STR/AFP via Getty Images

An Australian mining company with links to China has been subject to a state government inquiry for selling lithium around 70 percent below the current market prices despite being under administration.

Alita Resources, which operates the Bald Hill lithium mine in Western Australia via its subsidiary Lithco, is expected to export 150,000 tonnes of lithium concentrate to China in 2023, The Australian reported.

However, the total selling price only amounts to around US$300 million ($453 million), which is far below the current market price of US$1.1 billion.

The Controversial Contract

According to contract documents seen by The Australian, before resuming production in 2022, Alita entered into a five-year sales agreement with a Hong Kong-registered company, which required it to ship lithium concentrate directly to China.

Under the contract, Alita will sell spodumene concentrate, which contains six percent of lithium, to its Chinese customers for $US800-$US1,500 a tonne. The final prices may be lower if the product does not meet certain specifications.

In March 2022, Benchmark Mineral Intelligence reported that the average price of spodumene concentrate was around US$1,800, with top-end products reaching as high as US$4,725 a tonne.

Since then, spodumene concentrate prices have fluctuated and currently stay above US$5,000 a tonne on average.

In other words, Alita Resources’ Chinese customers will get a huge windfall if the company goes ahead with the contract and does not renegotiate prices.

This comes as the company is currently indebted and subject to an administration.

Regarding the pricing practice, Lithco defended its decision to sell lithium concentrate at low prices, saying the company negotiated the long-term contract on the basis of securing the financial longevity of the project.

“To secure long-term offtake agreements, and in line with market standards, contracts are generally negotiated at a lower rate compared to ’spot‘ or ’auction prices’ that do not make up the majority of the lithium trade,” a Lithco spokesperson said.

As the issue came to light, Western Australia’s Department of Mines, Industry Regulation and Safety asked Alita to explain why it sold lithium below market prices and who the company’s actual controller was.

Alita was also reported to be facing an inquiry on whether the company dodged mining royalties and moved its profits to China.

Alita Resources’ Links to China

Alita Resources entered into voluntary administration in late August 2019 due to business difficulties.

The company’s collapse was said to be an inevitable consequence of Alita’s major Chinese trading partner stopping receiving lithium shipments despite the existing supply contract.

In early December 2019, Alita entered into a binding $70 million loan agreement with China Hydrogen Energy (CHE), a company incorporated in the Cayman Islands whose sole director is Mike Que.

Mike Que is the son of Chinese billionaire Que Wenbin, who is a major shareholder of herbal medicine supplier Hengkang Medical Group and controls mining firm Sichuan Western Resources Holding.

After acquiring Alita’s debts, CHE applied to the Foreign Investment Review Board (FIRB) to take over the company but later withdrew the application due to the Australian government’s scrutiny of the deal.

CHE then sold the debts to Austroid, a U.S.-registered lithium products group, of which Mike Que is also the managing director.

Austroid is now waiting for approval from the FIRB to complete the takeover process of Alita.

There have been concerns in the mining industry about the relationship between Austroid and CHE, as well as their links to China.

Meanwhile, Alita’s subsidiary Lithco denied having any dealings with CHE or Que Wenbin despite Mike Que being a director of the company.

Strong Global Demand for Lithium

Alita’s underselling of lithium comes as the demand for the rare earth mineral remains strong because of a surge in the sales of electric vehicles (EVs) globally.

According to the latest Resources and Energy Quarterly report by the Office of the Chief Economist, global sales of all types of EVs soared by 40 percent in the nine months to September 2022 compared to the previous year.

The report forecasted that the global demand for lithium would rise by over 40 percent in the next couple of years, from 745,000 tonnes in 2022 to 1,091,000 tonnes by 2024.

“A supply gap is forecast to persist over the outlook period, with total supply from both mine and brine operations currently insufficient to meet demand,” the report said.

“With new lithium projects being developed rapidly, the supply gap is expected to reduce over the outlook, but will take time to close.”

Currently, Australia is the world’s largest exporter of lithium, which accounts for 46 percent of global lithium production in 2021.

Around 80 percent of lithium produced globally is used to make rechargeable batteries, while 13 percent is for making ceramics and glass.