China's Contemporary Amperex Technology Co. Ltd. paid 6.44 billion yuan, or about US$950 million, to secure exploration rights at a domestic lithium mine, as electric-vehicle and battery-makers scramble for the white metal that has hindered efforts to reduce battery costs.

The world's largest battery maker, commonly known as CATL, won court and creditors' approval to restructure Yajiang Snowway Mining Development, according to a Jan. 16 announcement by the local court of Yajiang County, Sichuan province. According to the plan, CATL would offer 1.64 billion yuan to settle Snowway's debt and pay 4.80 billion yuan for a 100% equity interest in the bankrupt company.

Snowway owns exploration rights to the Dechenonba lithium-tantalum mine in Yajiang, with estimated reserves of 293,154 tonnes grading an average 1.1762% lithium oxide. The exploration rights were valued at 974 million yuan as of June 30, 2021, representing only 15% of CATL's investment, according to court documents.

CATL is overpaying for the midsize mine to secure strategic resources at home, Chen Guanghui, senior analyst at Beijing Antaike Information Development Co., said in an interview, adding that it is China's largest lithium deal in recent years. China has limited lithium deposits, and resource nationalism by other major producers poses significant risks and uncertainties for overseas investment, Chen said.

The major mine deal comes as global EV makers and battery companies seek greater control of upstream resources to protect their costs and profitability against sharp fluctuations in battery metal prices, Chen said.

A 54.3% stake in Snowway was initially auctioned off for around 2 billion yuan — about 580 times the starting price of 3.4 million yuan in May 2022 — but the winner failed to finish the payment. Snowway attracted more than 3,400 bids at the time. Listed companies Chengxin Lithium Group Co. Ltd. and GCL Energy Technology Co. Ltd. competed with CATL in a second round of auctions in late 2022.

Lithium lifts battery costs

Skyrocketing lithium prices have reversed more than a decade of decreases in battery prices. Average prices for lithium-ion battery packs increased 7% year over year to US$151/kWh in 2022, and are expected to hold at US$152/kWh in 2023, further defying historical trends, according to BloombergNEF.

The price of lithium, a key component of mainstream batteries, skyrocketed by more than 7.5 times from the beginning of 2021 to late 2022 as production delays caused new supplies to fall far short of surging demand from the energy transition.

"During 2022, we have seen more aggressive hedging strategies from battery manufacturers and automakers, including partnerships with raw material providers and direct investments in mining and refining projects," Evelina Stoikou, battery technology associate for BloombergNEF, said in an email. "This trend will likely continue in the near future as demand for batteries and raw material inputs are growing.

"Lithium price hedging strategies that we've seen include lithium price indexing, financial hedging, long-term agreements, direct investment to projects, and even vertical integration with companies becoming involved directly into raw material production," Stoikou said.

A typical example is China's EV giant BYD Co. Ltd., which adopted a vertical integration strategy by expanding to lithium-iron-phosphate materials, lithium carbonate refining, and even lithium mines. The company outlined plans in August 2022 to invest 28.5 billion yuan in Yichun, Jiangxi province, to build a battery base of 30 GWh of annual capacity and a mining project that could produce 100,000 tonnes of battery-grade lithium carbonate and ceramic clay per year. It is in talks to buy six lithium mines in Africa while looking for lithium assets in Chile.

In June 2022, U.S. automaker Ford Motor Co. signed a five-year off-take agreement with Liontown Resources Ltd. and provided a A$300 million debt facility to secure 150,000 dry tonnes of spodumene concentrate from the preproduction-stage Kathleen Valley lithium project in Western Australia.

During the same month, European peer Stellantis NV agreed to invest €50 million to become the second-largest shareholder in Australian miner Vulcan Energy Resources Ltd. The companies also extended a binding off-take agreement from five years to 10 years, covering lithium hydroxide from Vulcan's Upper Rhine Valley property in Germany.

Investment goes on as lithium prices slip

Lithium prices have softened in recent months as ramped-up supplies might send the lithium market back to a short-term surplus in 2023. However, delayed project commissioning and strong demand are expected to keep lithium prices high.

The International Energy Agency expects lithium demand to grow 26-fold by 2050 to meet the global net-zero emissions target. S&P Global Commodity Insights projects lithium carbonate CIF Asia prices will drop by more than 17% to US$42,093 per tonne in 2026 from 2022, but that would still be more than three times higher than 2021 pricing.

Lithium supply will start to catch up with demand in the second quarter of 2023, but lithium prices will stay above 300,000 yuan per tonne through 2025, supported by stronger demand in the energy storage market in China, said Jared Zhu, consulting project manager at the new energy department of Shanghai Metals Market. Lithium demand is expected to grow at a compound annual growth rate of more than 10%, Zhu added.

"Chinese companies will continue to increase overseas investment in upstream resources to prevent supply chain bottlenecks, for example, [if] foreign miners might be unable to export to China due to geopolitical issues," Zhu said.

However, companies are becoming more prudent as the lithium frenzy has driven acquisition prices too high, Antaike's Chen said. Many companies still have interests in lithium assets, but they are also concerned that the aggressive investment may elevate leverage and affect future development and operations. Chen said that, for now, companies would prefer stock swaps to all-cash acquisitions.

As of Jan. 18, US$1 was equivalent to 6.75 yuan.

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