Lithium Valley (2018)

Where it all started! Lithium Valley: Establishing the Case for Energy Metals and Battery Manufacturing in Western Australia. 5 year anniversary digital edition. Published by Regional Development Australia Perth in partnership with Curtin University and Kwinana Industries Council.

LITHIUM VALLEY

Establishing the Case for Energy Metals and Battery Manufacturing in Western Australia

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Lithium Valley Main Report 2018

About the authors Future Smart Strategies offer strategic advice on business-to-business relations, business innovation, advocacy, and sustainability. They bring evidence-based advice on a wide range of market, policy and regulatory issues for commercial entities and not-for-profit organisations interested in minimising risk and maximising reputation. Their analysis team for this Regional Development Australia report included Prof. Ray Wills; Howard Buckley; David Roper; Kelvin Say and Simon Hicks. InfraNomics is an Australian infrastructure developer, adviser and financier. The company specialises in project origination through to operations including business case development, investment analysis, financing, economic evaluations, stakeholder engagement and sustainable value creation. Their analysis team for this Regional Development Australia – Perth report included Cameron Edwards; Angela Elliott and Sean Vincent. Curtin University Sustainability Policy Institute Professor Peter Newman has been a major instigator of this report and has been an editor of the final product. Regional Development Australia (WA) has co- ordinated and helped to fund this report through Colleen Yates who has also been a major part of shaping the ideas. Regional Development Australia (RDA) Perth would like to thank its funding partners: RDA South West, RDA Pilbara, RDA Midwest Gascoyne, RDA Wheatbelt, RDA Kimberley, Curtin University and the Kwinana Industry Council. This report was prepared through RDA Perth and does not represent the views of the Australian Government, its officers, employees or agents. ISDN – 978-0-646-98891-7

REGIONAL DEVELOPMENT AUSTRALIA - PERTH Office 2 The RISE, 28 Eighth Avenue MAYLANDS WA 6051 PO Box 325 MAYLANDS WA 6931 ph +61 8 9371 5525 email eo@rdaperth.org website www.rdaperth.org

P E R T H

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Contents 1 FOREWORD ............................................................................................................................... 8 2 EXECUTIVE SUMMARY ............................................................................................. 11 2.1 What is the New Energy market? ................................................................................................... 11 2.2 Why is WA the best place for Lithium Valley? ............................................................................. 13 2.3 What are the benefits for WA? ........................................................................................................ 15 2.4 Top priorities . ...................................................................................................................................... 17 2.5 The fierce urgency of Now . ............................................................................................................. 18 3 RECOMMENDATIONS �� 20 3.1 Federal Government ......................................................................................................................... 20 3.2 Specialised Industrial Park (SIP) ...................................................................................................... 20 3.2.1. Encourage the transition from a combustion-driven to an electric economy ..... 20 3.2.2. Support the Establishment of a New Energy Industry CRC ..................................... 20 3.2.3. Commercialization of innovation ..................................................................................... 21 3.2.4. Standards ............................................................................................................................... 22 3.2.5. Prioritise selection of GST and royalties to take advantage of New Energy industry ................................................................................................................................... 22 3.2.6. Foreign Investment Review Board – Strategic Resources .......................................... 22 3.2.7. European Union Critical Raw Materials (CRM) ............................................................. 23 3.2.8. National recycling policy . .................................................................................................. 23 3.3 State Government .............................................................................................................................. 23 3.3.1. Lithium Valley as a WA brand ........................................................................................... 23 3.3.2. State and Federal Bilateral Approval Process .............................................................. 24 3.3.3. Parliamentary Inquiry into Lithium Valley . .................................................................... 24 3.3.4. Domestic reservation across New Energy metals ....................................................... 25 3.3.5. Off take agreements and domestic usage .................................................................... 25 3.3.6. Smart royalties ...................................................................................................................... 26 3.3.7. Incentives ............................................................................................................................... 26 3.3.8. Facilitate governance of the Western Trade Coast and SIP. . ................................... 26 3.3.9. Regional Lithium Valley: E-cycling facilities in Geraldton and Minerals processing in Kemerton, the Pilbara, Kimberley and Goldfields . ........................... 27 3.3.10. Build the infrastructure needed for the SIP and New Energy initiative ................. 28 3.3.11. Western Power access ........................................................................................................ 28 3.3.12. Public-private partnerships .............................................................................................. 28 3.3.13. Direct mining investment �� 29 3.3.14. Become a model for the circular economy �� 29 3.3.15. State strategic plan and objectives �� 30 3.3.16. Finite resources and intergenerational allocation �� 30 3.3.17. State Government policy on electric vehicles �� 31 3.3.18. European Union Critical Raw Materials (CRM) �� 31

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Lithium Valley Main Report 2018

4 ENERGY METALS AND POWER STORAGE: A GLOBAL PERSPECTIVE ................................................................................................................................ 33 4.1 Why Are Energy Metals So Important? �� 33 4.2 Batteries, Storage and Lithium: Understanding the Value Chain �� 34 4.3 Types of lithium ion batteries �� 39 4.4 The Importance of Rare Earth Elements to the Future of Power Storage �� 40 4.5 Rare Earth Permanent Magnets �� 43 4.6 Lithium Ion Battery Recycling �� 44 4.7 The current profile of the New Energy metals sector in Western Australia �� 46 4.8 Rare Earth Processing �� 48 4.9 Solution to the strategic fuel supply issue �� 48 5 STRATEGIC GEO-POLITICAL IMPORTANCE OF LOCATING AN ENERGY METALS AND POWER STORAGE VALUE CHAIN IN WESTERN AUSTRALIA ..................................................... 50 5.1 European Union assessment of Critical Raw Materials �� 51 5.2 EU and Western Australia Supply Agreements �� 54 5.3 Western Australia as the Preferred Supplier of Strategic Resources �� 54 6 STRATEGIC SITES FOR ENERGY METALS, POWER STORAGE AND RECYCLING ........................................................................................ 60 6.1 Primary Processing of Lithium and Rare Earths �� 60 6.2 The Western Trade Coast �� 61 6.3 Specialised Industrial Park �� 64 6.4 Western Trade Coast Industrial Park �� 65 6.5 Industrial Parks, Local Government and State Government �� 67 6.6 Strengths, Weaknesses, Opportunities and Threats for Lithium Valley at the Western Trade Coast �� 68 6.6.1. Strengths �� 68 6.6.2. Weaknesses �� 70 6.6.3. Opportunities �� 70 6.6.3.1. Port Infrastructure Development and Governance of the WTC �� 71 6.6.3.2. Develop Western Australia’s soft power �� 73 6.6.3.3. Development of Intellectual Property �� 73 6.6.3.4. Increased Mining Investment �� 73 6.6.3.5. Wastewater capture and re-use �� 74 6.6.4. Threats �� 74 6.7 Private Sector Investment and Public Private Partnerships �� 74 6.8 Oakajee: Future E-cycling Facility for the Indo-Pacific Region �� 76 7 ECONOMIC BENEFITS OF ESTABLISHING LITHIUM VALLEY ......... 81 7.1 Results of Economic Analysis .................................................................................................................. 81 7.2 Current and estimated future contribution to gross domestic product ...................................... 85 7.3 Actual and forecast employment in WA mineral sector - New Energy metals . ......................... 86 7.4 Indirect employment and multipliers . ................................................................................................. 87 7.5 WA royalties and sovereign wealth funds . .......................................................................................... 89

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8 DRIVING THE RENEWABLES DEBATE �� 91 8.1 Residential scale interconnection in Germany �� 91 8.2 Commercial- and Utility-Scale Interconnection in Germany �� 91 8.3 New Energy sector in WA �� 92 8.4 Global New Energy �� 93 8.5 The long-term values for WA �� 95 9 CONCLUSIONS AND RECOMMENDATIONS .......................................... 97 9.1 Federal Government �� 97 9.1.1. Work with the State Government to establish a Special Industrial Park (SIP) over the entire Western Trade Coast. �� 97 9.1.2. Enable Australia to be a leader in the global transition from a fossil fuels-driven economy to a renewable economy through a wide variety of policies, mandates, legislation and regulation. �� 97 9.1.3. Create a New Energy Industry Co-operative Research Centre (CRC) in Perth. �� 97 9.1.4. Facilitate innovation in New Energy to be commercialised �� 97 9.1.5. Set high standards for refined products of New Energy minerals to promote quality. �� 97 9.1.6. Reform the GST model to enable New Energy industry �� 97 9.1.7. Include strategic resources as a new section for Foreign Investment Review Board approval. �� 97 9.1.8. Ensure the EU defines Australia as a Critical Raw Materials supplier. �� 97 9.1.9. Implement a harmonised nationwide recycling approach, potentially using the EU regulations as a guide and using E-waste as the exemplar. �� 97 9.2 State Government �� 98 9.2.1. Establish a branding and information program for Lithium Valley �� 98 9.2.2. Establish Federal and State bilateral agreements on the Kwinana and Geraldton sites for the New Energy industries especially Strategic Environmental Assessment. �� 98 9.2.3. A Parliamentary Inquiry to provide a whole of government and community response to Lithium Valley �� 98 9.2.4. Following gas policy, set aside key strategic minerals for domestic use. �� 98 9.2.5. Establish strategic minerals status for all New Energy materials. �� 98 9.2.6. Review the royalties scheme in the light of New Energy metals. �� 98 9.2.7. Investigate the provision of direct and/or indirect support to strategic industries using New Energy metals. �� 98 9.2.8. Establish a dedicated management authority to facilitate development for the Western Trade Coast (WTC) and Lithium Valley. �� 98 9.2.9. Develop energy metal recycling facilities at Geraldton as part of Oakajee as well as mineral processing in Kemerton, the Pilbara and Goldfields. .................................... 98 9.2.10. Ensure a timely framework for the transitional development of the new port in Kwinana �� 98 9.2.11. Renewable power with battery support should be a high priority for the Kwinana region and other parts of the South West Integrated System (SWIS) associated with this New Energy initiative. �� 98 9.2.12. Lithium Valley partnerships need to invite private investment �� 98 9.2.13. Review the involvement of the State Government in New Energy minerals and industries. �� 98 9.2.14. Develop a program to capture and recycle 100% treated wastewater to the southern groundwater aquifers. �� 98

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Lithium Valley Main Report 2018

9.2.15. Provide industry with a clearer view of how Lithium Valley industries fit into its strategic objectives .�� 98 9.2.16. Review intergenerational revenue allocations. �� 98 9.2.17. State Government review phasing out petrol and diesel vehicles by 2030, especially in metro areas. �� 98 9.2.18. WA initiate EU support over Lithium Valley through CRM status. �� 98 10 APPENDIX A - GLOSSARY OF KEY TERMS �� 100 11 APPENDIX B – AN ANALYSIS OF ENERGY METALS �� 104 11.1 Lithium ....................................................................................................................................................... 104 11.2 Cobalt ....................................................................................................................................................... 109 11.3 Nickel ....................................................................................................................................................... 112 11.4 Manganese ............................................................................................................................................... 116 11.5 Vanadium . ................................................................................................................................................. 117 12 APPENDIX C – CURRENT AND PLANNED ENERGY METALS INVESTMENT ..................................................................................................... 119 12.1 Current ....................................................................................................................................................... 119 12.2 Planned Activity – publicly available information . .......................................................................... 121 Table of Tables Table 1: Estimated Potential Employment Generation and Capital Investment From Developing the WA Energy Metals Industry �� 15 Table 2: Battery Chemistries by Company �� 39 Table 3 : Input value of typical NdFeB magnet �� 44 Table 4 : Critical Raw Materials Identified by the EU �� 52 Table 5: Estimated Potential Employment Generation and Capital Investment from Developing the WA Energy Metals Industry �� 82 Table 6: Export data: Energy metal commodities �� 85 Table 7 : Average annual employment in WA mineral sector - New Energy metals �� 87 Table 8 : WA Quarterly spodumene concentrate export growth (Mar’15 – Jun ’17) �� 105 Table 9: Forecast global growth rates – LCE kpta �� 106 Table 10: WA Key forecast volume changes for Spodumene Concentrate Exports �� 107 Table 11 : WA Key forecast export value changes for Spodumene Concentrate �� 108 Table 12 : WA Quarterly cobalt export growth (Mar’15 – Jun ’17) �� 110 Table 13 : WA Key forecast volume changes for Cobalt Exports �� 111 Table 14: WA Key forecast export value changes for Cobalt Exports �� 112 Table 15: WA Quarterly nickel export growth (Mar’15 – Jun ’17) �� 113 Table 16 : WA Nickel exports (FY2016-17) �� 114 Table 17: WA Key forecast volume changes for Nickel Exports �� 115 Table 18 : WA Key forecast export value changes for Nickel Exports �� 116

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Table of Figures Figure 1: Global Annual Lithium Demand Projection to 2025 �� 11 Figure 2: Global Annual Use of Lithium Batteries �� 12 Figure 3: Global Renewables Capacity Projections �� 12 Figure 4: Country Reserves of Key Battery Materials �� 13 Figure 5: Value Leakage of Lithium Processing �� 14 Figure 6: Energy metals most impacted by new technology �� 34 Figure 7: Lithium 2017 consumption by end use �� 34 Figure 8: Lithium value chain in 2017 – 2025 Without Lithium Valley (AUD) �� 35 Figure 9: Global Consumption of Lithium from 2008 - 2016 �� 36 Figure 10: Falling price and increasing cumulative volume of batteries �� 36 Figure 11: Materials and Components for a Tesla 18-650 Lithium Ion Battery Cell �� 40 Figure 12: Growth of wind and solar capacity, and projected growth including storage to 2025 �� 41 Figure 13: Global projection annual car sales and transition to electric vehicles including Hybrids, PHEVs and BEVs to 2030 �� 41 Figure 14: Cumulative impact of electrification on lithium metal consumption �� 46 Figure 15: Countries accounting for the largest share of the global supply of CRMs �� 53 Figure 16: Global Lithium Mine Production vs Country Reserves 2017 �� 55 Figure 17: Global Cobalt Mine Production vs Country Reserves 2017 �� 55 Figure 18: Global Rare Earths Mine Production vs Country Reserves 2017 �� 55 Figure 19: Global reserves of key battery materials �� 56 Figure 20: Global battery value chain 2017 �� 56 Figure 21: Western Trade Coast – Reference - Kwinana Industries Council �� 63 Figure 22: Australian corporate governance compared to major trading partners 2017 �� 69 Figure 23: 2018 status of global and Australian industrial-scale LIB recycling technologies 78 Figure 24: Estimate of capital investment 2018 – 2025 �� 83 Figure 25: Energy Metals Industry Development Full Time Employee Forecast �� 84 Figure 26: Growth of onshore wind turbine size and numbers �� 93 Figure 27: Projected change in global vehicle fleet to 2040 with transition to electric vehicles �� 94 Figure 28: Cumulative impact on battery use for electric vehicles and stationary storage �� 94 Figure 29: Comparing actual and projected demand for solar with projected battery storage demand in the Western Australian market �� 95 Figure 30: WA Quarterly spodumene concentrate exports (Sept ’13 – Jun ’17) �� 104 Figure 31: WA Quarterly lithium concentrate price per tonne (Jul '12-Jun '17) �� 105 Figure 32: WA Forecast Volume of Spodumene Concentrate Exports to 2025 �� 107 Figure 33: WA Forecast Value of Spodumene Concentrate Exports �� 108 Figure 34: WA Quarterly cobalt exports (Sept ’13 – Jun ’17) �� 109 Figure 35: WA Quarterly cobalt price per tonne (Jul’12 – Jun ’17) �� 110 Figure 36: WA Forecast Volume of Cobalt Exports to 2025 �� 111 Figure 37: WA Forecast Value of Cobalt Exports to 2025 �� 112 Figure 38: WA Quarterly nickel exports (Sept ’13 – Jun ’17) �� 113 Figure 39: WA Quarterly nickel price per tonne (Jul’12 – Jun ’17) �� 114 Figure 40: WA Forecast Volume of Nickel Exports �� 115 Figure 41: WA Forecast Value of Nickel Exports �� 116 Figure 42: Tianqi battery grade lithium hydroxide processing plant, Kwinana �� 119 Figure 43: Nickel West – Nickel Sulphate Project, Kwinana �� 121

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Lithium Valley Main Report 2018

1 FOREWORD This report provides evidence and recommendations for why Lithium Valley could be established in WA just as Silicon Valley happened in California. The rationale is based on the science and engineering realities that show WA has all the basic raw materials, environment and expertise to make it happen. However, WA does not have a history of adding value to its raw materials before export. There are differences with Lithium (and the other battery metals) of the New Energy economy and they are: reliable quality, high value products, security of supply and access to other New Energy metals in a stable political environment. If WA can create global best practice environments that meet or exceed emerging users' demands, this will attract international companies to local specialised industrial regions around the State. That is the context for our report.

confidence this inspires has underpinned the development of world-leading mining, petroleum and agricultural sectors, efficient and reliable logistics infrastructure, a high- quality education system and a workforce with diverse and advanced technical competencies and associated professional services. This is a solid foundation for industrial development and growth. WA has an unmatched array and depth of energy and mineral resources, shares direct ocean access to 2.5 billion people and has a sound long-term growth rate. WA also has abundant renewable energy resources – which are increasingly being harnessed for households and integration into industrial processes to resolve water constraints and reduce energy costs. WA’s location, small population and lack of capital have long stood in the way of greater industrial development. Historically, it was more cost effective to value add closer to large markets or in countries with large, low cost workforces. This is no longer the case. Information technologies, artificial intelligence, automation and new energy systems now favour manufacturing at the earliest point in the value chain where all the input materials can be brought together in a low, cost effective way. WA has this advantage with New Energy metals like no other place in the

The report sets out evidence in support of increasing the value added to New Energy metals prior to export, as the basis of the next stage of industrial development and economic expansion for Western Australia (WA). The transition to a New Energy economy is outlined as a global and local process where WA can help provide leadership and enjoy great benefits from the process. This will require policy support and infrastructure investment coordination from the Commonwealth, WA and local governments. The key enablers are all in place and the time is now otherwise the opportunity will be missed. WA is home to the world’s most accessible abundance of New Energy metals - lithium, rare earths, cobalt, vanadium, tin, tantalum, nickel, manganese and magnesium - essential components in energy storage devices, such as lithium ion batteries. The chemistry of energy storage devices continues to evolve, however the market for these elements is expanding rapidly and will continue to do so for the foreseeable future, due to a range of economic and environmental drivers. The market is for quality battery materials associated with Lithium Ion batteries. WA has a transparent, western democratic and free market system of governance, offering low sovereign risks to investors. The

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world and can offer reliable security of supply to local processing facilities. This is a unique opportunity for the State. WA also has a special ability to make quality minerals for export as it has developed the smart technologies, software and research capability that allows very precise determination of the mineral quality along the development chain, from discovery through exploiting the resource and transporting it to individualised markets – mostly overseas. With Lithium this can be extracted to create high quality mineral products that can be combined into electrochemical processes that are then made into batteries. There are good reasons why this should be done here. WA is coming of age as an Indian Ocean regional trading power and an important centre for future global trade and security operations. WA’s trading partners appreciate the developing strategic role the State has although Commonwealth and State policies do not yet reflect this shift, nor does the political debate suggest a proper appreciation of the scale of the opportunity for the State, Commonwealth and our alliance and trading partners. The first signs of Lithium Valley are being built with the first ‘second stage processing’ of Lithium being built at two sites in Kwinana and another under approval at Kemerton. These current investments were based upon business decisions made months or years ago. To build on this momentum a proactive approach is now required to influence further business decisions currently being made internationally and attract additional downstream processing to the State. This is an opportunity that should now be grasped. We welcome feedback on the ideas in this report on how to make this happen. Peter Newman, Ray Wills, Cameron Edwards and Colleen Yates

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Lithium Valley Main Report 2018

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2 Executive Summary Lithium Valley is a cluster of collaborating and competing New Energy industries that are based around the economy of Lithium Ion-based batteries. This report sets out why WA is the ideal location for Lithium Valley building on the abundance of critical minerals that are now being called New Energy metals. There will be various regional mining and processing locations but this report makes a case for secondary processing primarily in Kwinana, Geraldton, Kemerton with specialised processes in the Pilbara, Kimberley and Goldfields. New Energy metals are those critical to the manufacturing of batteries that are so critical to future society. These metals include lithium, nickel, manganese, cobalt, vanadium, tin, tantalum, magnesium, rare earths and others. Western Australia (WA) will continue to enjoy competitive advantages as an efficient and reliable supplier of most New Energy metals for the foreseeable future. By contrast, developing and advanced industrial economies have long held competitive advantages across much of the rest of the value chain. This has been a missed opportunity for WA because the economic value of goods increases sharply as they proceed up the value chain. For WA to continue its remarkable growth story it must capture more economic value per unit mined as the basis of future jobs, prosperity and strategic advantages as a trading partner. 2.1 What is the New Energy market? The foundation element of the new energy market is lithium. This metal is now being used in many products but increasingly in batteries for transport and electricity (Figure 1 ).

Figure 1: Global Annual Lithium Demand Projection to 2025 1

Global Annual Lithium Demand Projection to 2025

1000 1250 1500 1750 2000 2250 2500

Others Medicine Polymers Air conditioning Metal Alloys Grease / Lubricants Glass / Ceramics EVs Utility Behind meter Portables

0 250 500 750

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Source: Future Smart Strategies

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Lithium Valley Main Report 2018

The price of lithium ion batteries has been dramatically reducing as manufacturers gear up for electricity storage and especially electric vehicles (Figure 2 ).

Figure 2: Global Annual Use of Lithium Batteries 2

Global annual use of lithium batteries (Devices, Electric Vehicles, Storage)

1000

1250

800

1000

600

750

400

500

200

250

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Battery (GWh)

Battery Projection (GWh)

Price (USD)

Battery Price Projection (USD)

Source: Future Smart Strategies

Renewable energy from wind and solar requires battery storage. The projected growth in renewable energy and battery storage is shown in Figure 3 .

Figure 3: Global Renewables Capacity Projections 3

Global Renewables Capacity 2005 - 2017 with Projections to 2025

2500

6000

Wind Wind Projection Solar PV

5000

2000

4000

Solar PV Projection Solar CST Projection Batteries Projection

1500

3000

1000

2000

500

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: Future Smart Strategies

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2.2 Why is WA the best place for Lithium Valley? According to Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum, 1 the world is in the middle of the fourth industrial revolution (the fourth stage). Information technologies, artificial intelligence, automation and new energy systems are the fourth stage technologies that will underpin New Energy metals processing industry in WA, but the term also refers to social media, online communities, gaming, 3-D printing, genetics, breakthroughs in the materials sciences and virtual and augmented reality. Collectively, these technologies are fundamentally altering the way we live, work, and relate to one another. They are also transforming the global economy and WA’s position in it. Fourth stage technologies offer WA the opportunity to develop a much larger industrial base that is complementary to its world-leading resource extraction sector. These technologies shift the competitive advantage of early stage value adding away from low cost labour countries to the earliest point in the value chain where all the input materials can be brought together for highly automated manufacturing processes. Components are then shipped to the major global manufacturing centres for later stage manufacturing where proximity to markets or low-cost labour still afford an advantage. WA is in the unique position of having abundant quantities of almost all the New Energy metals, giving it a large advantage in electro-chemical processing. The abundance of New Energy metals in Australia, mostly in WA, is set out in Figure 4 .

Figure 4: Country Reserves of Key Battery Materials 4

Country reserves of key battery materials as a percentage of known global reserves

250%

200%

150%

100%

50%

Lithium Cobalt

Manganese Vanadium Iron ore Nickel

Copper

Bauxite Graphite Rare earths Ilmenite Rutile

Source: USGS; Future Smart Strategies (21 March 2018)

1 Schwabb, K (2015) “The Fourth Industrial Revolution”, World Economic Forum, Geneva, https://www.weforum.org/about/the-fourth-industrial-revolution-by-klaus-schwab.

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Lithium Valley Main Report 2018

Value Leakage of Lithium Processing

Figure: 5 Value Leakage of Lithium Processing

Refining Leak 1.5%

Value captured by Australia 0.5%

Electrochemical Leak 10%

Production Leak 15%

Assembling Leak 73%

Source : InfraNomics 2018

Lithium is a critical component of energy storage devices and WA has the largest hard rock reserves of lithium globally and its consistency is most suitable to high quality manufacturing. Figure 5 shows that almost the entire value of this important strategic resource is captured in other countries and by other processes. Currently Australia captures approximately 0.5% (A$1.1bil) of lithium’s ultimate value mainly as simply processed exported ores. 99.5% (A$213bil) of the value of lithium products is paid to Australia’s trading partners for value added through electrochemical processing, battery cell production and product assembly by WA’s trading partners. Secondary processing in WA alone would capture an additional 12-27% of the value available. This report recommends a review of how royalties are calculated and applied as part of a holistic suite of policies that positively encourages local secondary processing while improving productivity and efficiencies. WA’s Western Trade Coast in Kwinana offers another important advantage. It is one of the most integrated, efficient and productive industrial estates globally. It services world scale oil and gas, resources and agricultural sectors through a concentration of a highly skilled work force, refining, fabrication, chemical, research and innovation, service and supporting companies. The chemical precursors and other requirements for electro-chemical processing are already in place. It has one of the best global examples of industrial ecology with over 158 continuous exchanges between industries. This is based on a strong collaborative approach represented by the Kwinana Industries Council and can be a major building block for creating Lithium Valley as outlined in the governance recommendations below. The availability of the existing synergies to incoming companies enhances their international competitiveness. Global competition for the emerging New Energy metals market is vigorous. Other countries recognise the importance of New Energy metals and storage devices for future growth and are concentrating significant resources to control these supply chains. WA still has the advantage of being upstream of all of them, but this will erode rapidly if competitors are able to establish long term trading arrangements and attract processing facilities to their shores. Ensuring this does not happen requires an integrated policy and infrastructure response at all levels of government to establish the logistics and industrial infrastructure, the research and development base, as well as the policy levers that will attract proponents to the State.

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2.3 What are the benefits for WA? The cost of missing the New Energy metals industry development opportunity, the New Energy transition, would be high for WA. The direct losses per unit of New Energy metals exported are substantial. The indirect losses through an opportunity forgone to expand WA’s industrial and logistics infrastructure for further development by future industries would be much larger. Research conducted as part of this report estimated the following potential employment generation and capital investment from a fully developed New Energy metals industry in WA. Table 1: Estimated Potential Employment Generation and Capital Investment From Developing the WA Energy Metals Industry

Energy metals - lithium, cobalt, nickel, rare earths and vanadium Employment Current employment in the New Energy metals sector – 2017

7,291 21,480

Actual

Expected growth in direct employees until 2025

Estimate

Forecast employment in the New Energy metals sector - 2025 Direct – Full Time Employment 2025

Estimate Estimate

28,771 71,927

Indirect employment 2025– multiplier 2.5

Total New Energy metals sector employment 2025

Estimate

100,698 A$3.33

Employee wages in 2025

Estimate billions per annum Estimate millions per annum

A$183.30

Payroll taxes 2025

Economic contribution from the New Energy metals sector Economic contribution of New Energy metals 2016/2017

A$2.97

Estimate billions per annum Estimate billions per annum

A$56.52

Potential Economic contribution mine, refining and 10% of electrochemical production per annum 2024/2025

Capital investment for the New Energy metals sector Capital investment forecast for new mines, refining facilities

A$13.81

Estimate billions until 2025 Estimate billions until 2025

A$34.11

Capital investment forecast for new mines, refining facilities, secondary processing and recycling

Source: InfraNomics 2018. All estimates are in nominal values.

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In addition, approximately 12,275 construction jobs are expected to be created by 2025. WA is no longer remote nor positioned at the far end of global supply chains. It is at the beginning of many of them and convenient to the largest global markets. This strategic and economic advantage will likely continue to improve as the economic rise of many nearby nations continues and Indian Ocean Regional economies drive the next global growth super-cycle. The New Energy metals or New Energy industries opportunity is not just about the domestic Australian market, it is almost solely focused on exports to fuel WA’s trading partners in a win-win trade deal. Commonwealth and State policies are yet to reflect WA and Australia’s coming of age and its changing strategic role and associated opportunities. There is good reason to redress this oversight urgently. Trade routes are constrained, even as next generation freight vessels are poised to outgrow them. Trade flows are changing as new technologies change where it is best to refine and manufacture. Rising strategic tensions risk disruptions along the most heavily trafficked trade routes. Energy metals are at the centre of this realignment as nations race to secure access to these resources and leverage control of supply chains for economic and strategic advantage. WA, in addition to its arrival at the centre of current and future trade and development, can service the development of a complementary and comparatively secure southern trade route. WA is one of only a few locations around the world that can guarantee freer trade in New Energy metals while securing supply. This would be transformative for WA and Australia and represents an opportunity for WA’s trading partners to participate in and benefit from investments in supporting infrastructure and resulting regional growth if the Federal and State Governments can participate with the necessary urgency. The need for security of supply is a large strategic issue but so is the need for ethical supply chains which companies today must make part of their business case for location of their investments. WA has the second largest reserves of cobalt in the world. The largest cobalt reserves are in the Democratic Republic of Congo where ongoing social and security issues influence the ethical and sustainable supply. Western Australia, being a highly stable environment can claim to have largely overcome historical ethical issues in mining, processing and manufacturing. The wide spread in- digenous employment programs, strong environmental laws and proactive social justice initiatives make New Energy metals from WA, equal to the most ethically mined and processed in the world. As well as the economic driver in this New Energy metals and industry opportunity there is an element of strategic importance for Australia in the management of these vital resources that are becoming critical for the global economy. These issues are pursued in the report.

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2.4 Top priorities 1. Quality priority in all steps in the value chain – the fundamental driver in bringing value added New Energy-based industries to the state will be the commitment to high quality products. This will require technical and research capability, financial awareness of the opportunities to invest in quality, and governance processes that ensure this outcome. 2. Designation of strategic resources – strategic resources are fundamental to the long-term sustainability of WA. Strategic resources must be clearly identified and have additional focus and protection by government. 3. Establishment of a Specialised Industrial Park (SIP) in Kwinana – the establishment of a SIP in Kwinana will stimulate broad industry economic activity and generate jobs through the development of New Energy metals manufacturing and processing capabilities, development of secondary supporting industries, trading of goods at lower prices, and improving international competitiveness. It can also be the structure for a series of other governance arrangements including Strategic Environmental Assessment, that can enable the rapid development of New Energy industries on the site and become the base for Lithium Valley. 4. Branding – WA has the raw resources of minerals and skilled people to make Lithium Valley a reality. It will require significant support from industry, the community and government but can become a great source of pride and value for the state. It is recommended that the state adopt a branding exercise to position Lithium Valley. 5. Smart royalties – It is estimated that Australia loses up to $90B per year in resource royalties. 2 The royalties system must be reformed to capture this value for strategic resources at both the State and Federal levels. Dynamic, rather than flat rate royalties, may also help to incentivise secondary processing and disincentivise (but still permit) the direct export of raw materials. International examples abound of how this can be done. 6. Domestic reservation – to ensure a long-term supply of raw materials, a minimum analytically-determined percentage of strategic resources designated for potential local value adding should be reserved. This guarantees local supply security for processing. The minerals should be valued at market price to ensure mining companies are not disadvantaged. 7. State strategic vision and strategy - a roadmap with milestones and timelines for up to 20 years to underpin commercial investment decisions. Infrastructure WA could integrate this into its 20-year infrastructure strategy, to help prioritise public and private sector investment linking industrial, logistics and service infrastructure for maximum effect. 8. Parliamentary Inquiry into New Energy Metals Industry – all aspects of the development of the Lithium Valley concept as well as how the local energy system can transition into being a model for electricity and transport using the New Energy metals for the transition in electricity generation, transmission and retail as well as the integration of electric vehicles. This can build on the existing Economics and Industry Standing Committee Inquiry into Microgrids and Associated Technologies that is showing the importance of distributed generation. 3 9. Regional Lithium Valley – it is recommended that a globally significant e-waste recycling facility be developed at Geraldton with its port linked to the European, Asian and Indian Ocean markets and its Oakajee Industrial Estate linked by rail to the South West and eastern states. Industrial processing is likely to be viable in Kemerton, the Pilbara, Kimberley and Goldfields if quality New Energy mineral products are created with some potential for the Kimberley across rare earths. All such places need to see their energy as facilitating the solar and battery transition in their own services. The top priorities identified in this report are:

2 Bagshaw, Eryk (2018), “‘Staggering’: $90 billion lost in resources tax”, The Sydney Morning Herald, March 12, 2018, https://www.smh.com.au/politics/federal/staggering-90-billion-lost-in-resources-tax-20180305-p4z2uv.html. (Accessed: 01 May 2018)

3 Economics and Industry Standing Committee (2018), Inquiry into Microgrids and Associated Technologies in WA, 21 February 2018, Legislative Assembly of WA, http://www.parliament.wa.gov.au/Parliament/commit.nsf/ (EvidenceOnly)/8C9FB0B8AA10E88D4825823B0019BAA3?opendocument (Accessed: 01 May 2018)

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