Mining and metals a focus on lithium

Our experts delve into the current and future performance of key commodities in the mining and metals industry. In this issue, we focus on lithium, looking at what’s on the horizon for the lithium mining industry this year and how management teams can prepare.

What key trends are we seeing in the lithium market? 

Fluctuating prices impacted by supply and demand

Lithium demand is unsurprisingly driven by the increasing popularity of electric vehicles (EVs), ahead of electronic storage devices, such as phones and tablets, and grid storage. Indeed, the growth in the EV market has significantly driven the demand for lithium, which is forecasted to reach one million metric tonnes by 2025.

Currently, global lithium prices remain low, having experienced only stunted rebounds since plunging late in 2022. This is linked to the fact that demand for EVs has slowed. 

In the UK, the share of new cars sold that were electric rose rapidly from 3% in 2019 to 19% in 2021, according to IEA global EV data. However, two years later, this figure had only reached 24%, tempering previous expectations over burgeoning lithium demand. 

During the same period, supply has significantly outpaced demand, with global lithium reserves increasing from 17 to 28m metric tonnes in 2023. Around 70% of global reserves are based in Chile, Australia and Argentina, with Chile holding the largest share at an estimated 9.3m metric tonnes, followed by Australia with 6.2m metric tonnes. 

The global market value for lithium is forecast to grow by 130% to nearly $19bn by 2030. Prices should also be expected to rise as the availability of commercial supplies, namely those that can be mined at a profit, have decreased. Australia, Chile, China and Argentina hold the majority of economically viable reserves.

EVs: moving government targets

EVs are critical to the UK government’s net zero targets. The UK government has banned the sale of new petrol and diesel cars from 2035, a revision from the original target of 2030. This reflects a global decrease in appetite for the significant investment required in public infrastructure. The UK’s revised timeline is aligned to France, Germany, Sweden and Canada. The adjustments strike a balance between ambitious environmental goals and practical considerations such as economic growth, technological readiness, and public acceptance.

Tax incentives needed to support energy transition

However, if the next UK government and other global nations are serious about net zero, investment in green technology needs to be escalated at pace and at scale. Sufficient incentives for doing so remain few and far between.

Sheena McGuinness, RSM UK’s head of renewables and cleantech, comments:

'The UK tax incentive and wider tax landscape remains behind where it needs to be to effectively support the energy transition.'

Carbon emissions from lithium production

While lithium demand is linked to the drive for cleaner energy sources, the carbon footprint of lithium mining needs to be considered. Estimates on the reduction in carbon emissions from the use of EVs compared to petrol or diesel vehicles vary widely but are generally accepted to be between 50% and 80%. However, mining a tonne of lithium creates 15 tonnes of carbon emissions which, when considered alongside other environmental impacts such as water usage, decreases the green benefits of EVs.

As part of the energy transition, there is a clear need for a ready supply of mined lithium, alongside other rare earth and mined resources used in renewable batteries, such as cobalt and manganese. However, to fully support the reduction of carbon emissions, investment in the infrastructure needed to maximise the lifespan of lithium is critical.

Currently, the UK exports the lithium from car batteries at the end of life rather than finding an alternative use, such as storage for renewables. A battery retired from a car is done so because it has depleted to approximately 70 to 80% of its original capacity. This is a limiting factor for a mobile storage unit but significantly less of an issue for a battery that is held in a permanent location.

Conclusion

While the outlook for growth is positive for business leaders within the lithium industry, there is a huge amount of change to navigate.

David Hough, co-head of energy and natural resources, comments:

'Lithium prices remain prohibitively low and an obstacle to net zero targets, disincentivising mine development. These should rebound as demand increases as the availability of new petrol and diesel diminishes over the next few years. The next UK government needs to support investment in the mining of battery metals through competitive capital markets and favourable incentive regimes for related technology to secure its future supply.'

Case study

We are a leading audit, tax and consulting adviser to mid-market business leaders. We work with a wide variety of clients in the mining and metals sector across the UK and globally.

Read more about our work with CleanTech Lithium PLC delivering a comprehensive global outsourcing solution, and working closely with the group to ensure compliance across their overseas operations.

How we can help

We can support your business with the following key areas of expertise:

• global network/capabilities, including audit and tax;
• global mobility support and tax incentives;
• advice on systems compliance with UK and wider regulations;
• corporate governance, including ESG;
• capital markets transactions; and
• model audit and due diligence assignments for lenders and developers.

For further information, please contact David Hough or Graham Ricketts.