(14 June 1995)
See also review gallium production.
Gwalia owns the world's largest deposits of lithium and tantalum minerals. With increasing demand and dominance in world markets (60 and 30 per cent respectively), that did not guarantee successful investment to add value. Peter Lalor, Managing Director of Gwalia Consolidated, was speaking at the seventh CIP seminar on the theme of Impediments and Opportunities.
Though the further processing of lithium minerals (spodumene) to lithium chemicals and tantalum (tantalite) increase their value by multiples, there are major impediments to value adding. An audience from industry, academia and government were given thought provoking insights into the reality of the further processing of minerals.
Costs, controlled markets, non-tariff barriers, and even personnel, were indicated by Peter Lalor as impediments that were overcome by strategic relationships.
About 85 per cent of the world market for lithium is as lithium chemicals, such as in lithium batteries, aluminium smelting, greases, rubber products and even for a new fluorocarbon-free air conditioning system. New and fast growing markets represented prospects for new entrants but a relationship was necessary to enter tightly controlled major markets.
An important incentive to further process the spodumene was transport cost savings. To supply lithium as the mineral, transport costs represent 40 per cent of selling price but only 3 per cent as the carbonate. Lithium carbonate therefore offers substantial freight savings being mid-way between the mineral and lithium chemicals, offers market flexibility. It is manufactured by leaching spodumene with sodium carbonate approximately doubling its value (lithium content basis).
Gwalia has invested in a lithium carbonate plant to be commissioned in September 1995 with a production capacity of 5 000 tonnes per year. The existing operations at Greenbushes helped reduce its cost by one-third to $17 million. Increasing production to full capacity would convert most of its lithium mineral production. This would represent at least 15 per cent of the world market.
Risk reduction was important to Gwalia's ventures. It had commissioned a pilot plant (at Curtin University), employed a German company to overview its feasibility study, used experienced marketing agents and a sophisticated financial and market relationship to address the risks of capital and access to market for lithium products. Indeed that relationship provides pointers to others seeking entry to controlled markets.
The relationship with a Japanese trader (Itochu Corp.) provided a take or pay contract, (non-recourse basis) with funds repaid out of an agreed percentage of sales. That provided not only a secure market, but also fixed capital costs. Being a trader, Itochu provided access to markets, a baseload in the early stages of development, assisted with project finance and overcame protection at borders. (It is a strategy that distributes the risks, resources and markets between two parties.)
Peter said that with risks now reduced and predictable, Gwalia could now consider the next step of producing other lithium chemicals. However, unlike the conversion of the mineral to the carbonate, the freight saving benefit compared to scale economies currently favoured the production of lithium chemicals near the larger markets of Europe, USA or Japan.
The prospects for further processing tantalite were always under review. There was strong growing demand for tantalum with about one-half used in electronics (capacitors), metal cutting, aero engines and optical glass. Like lithium the market was controlled by a duopoly with suppliers and users closely related, but unlike lithium there were fewer evolving markets. It could also be said the freight cost saving for further processing tantalite is not enough to overcome the benefits of scale or the utilisation of reserve capacity in overseas plants. Another example was provided for silica sand.
Gwalia owns a very high quality 100 million tonne silica sand deposit near Bunbury. The incentive to add value was even greater than for lithium with the distribution cost (to its major market in Japan) reducing its $70 per tonne value in Japan to Gwalia by three-quarters to just $20 (ie. reducing its potential value to Gwalia by around $5bn!). Even the infrastructure system in Japan restricted entry. Like for their lithium, customers provided project finance, helping reduce venture risk. Naturally, the even large freight saving potential encouraged Gwalia to review the options for the further processing of silica.
Sodium silicate and its close relative glass cullet are valued at around $300 per tonne - some four-times more valuable than silica (with a lower incidence of freight). Working against further processing are high factor costs. Sodium carbonate (soda ash) supplied by Penrice in South Australia would represent about 80 per cent of material costs (soda ash will still have an import tariff of 5 per cent end 1996) and currently uncompetitive energy pricing. (Peter welcomed the lowering of import tariffs and the deregulation of energy pricing in WA).
Another option was the production of glass, which is ten-times more valuable than the silicate or forty times more valuable than the silica sand. Though freight was even less significant, the markets for glass were tightly held and input factor costs an impediment to competitive manufacture.
Peter Lalor addressed general impediments to value adding in the State many of which are under government control or influence. Favourably looked upon was the deregulation of energy markets with substantial cost reductions helping competitiveness and new investment.
Industrial infrastructure required improvement. Residential development, especially near ports, was seen to impede industrial development and the Government was encouraged to give priority to new industrial sites and port facilities.
The amount of public finance available for feasibility studies, supporting infrastructure and market expansion costs should be increased to match those offered by overseas governments.
The high cost of capital in Australia made onshore financing difficult adding to uncertainty and generally higher venture costs.
Enthusiastic applause concluded this professional informative presentation on the realities of adding value.
In the opening address, Remco Van Santen presented a slide showing the value added by Australia's chemical industry since 1905. Since the mid 1970s, the significance of the chemical industry to Australia has halved to just 1.6 per cent following the reduction of import tariffs. The downward trend in the chemical industry is reflected not just in lost employment (typically by one-third at major chemical plants in the last five years alone), but also in the loss of its already small research and development base. It is clearly necessary for governments of Australia to ensure platforms for competitive investment. As shown for Gwalia, the tariff on soda ash established in 1940 for one operation detracts from the competitiveness of new ventures such as for Gwalia a half century later.
Gwalia is just one example of efficient organisations competing against
the tide, without a local market, import tariffs and other forms of assistance..
The growth of Gwalia could be interpreted to signal Australia's improving
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