European companies face losing out on sub-Saharan African lithium supply to Chinese companies moving quickly to secure the critical minerals needed for the country's decarbonization program.

The stakes are high for the European Union, which put lithium on its critical materials list in 2020 and is now scrambling to develop materials needed for renewable energy in order to wean itself off Russian gas. In 2022, the U.K. government also launched its critical minerals list and strategy.

Europe has no lithium refineries. The companies planning to build them hope to secure feedstock from nearby Africa as the combined established resources of Zimbabwe, Democratic Republic of Congo, Ghana, Namibia and Mali are already enough to rank Africa high among major lithium jurisdictions.

Yet European companies may be too late. China largely controls the lithium off-take agreements in Africa, according to a British Geographic Society report published in July.

"China has recently moved quickly to secure mining projects, often in conjunction with infrastructure development projects," Len Kolff, interim CEO of Atlantic Lithium Ltd., told S&P Global Commodity Insights. Atlantic Lithium plans to deliver its Ewoyaa project as Ghana's first lithium mine by starting construction in 2024.

A lack of available lithium mining projects could present a huge problem for Europe's energy transition aspirations.

"Without a localized supply of lithium chemicals, the automotive and battery manufacturing sectors in the U.K. and Europe will fail," Richard Taylor, founding director of Green Lithium Ltd., which hopes to build a lithium refinery in the U.K., said in an interview.

Global competition for lithium

Lithium is the main bottleneck for nearly all of Europe's battery cell production, Jon Ferris, head of flexibility and storage for research consultancy Delta-EE, told the U.K.'s Energy Storage News in July.

Europe will have 700 GW of gigafactories by 2025, which will need more than 325,000 tonnes of lithium hydroxide and carbonate annually, according to Alkemy Capital Investments PLC unit Tees Valley Lithium Ltd., which plans to bring Europe's first battery-grade lithium hydroxide capacity online in early 2024.

"There is currently no commercial lithium refining capability in Europe, leaving the continent's rapidly growing electric vehicle and sustainable energy storage sectors wholly reliant on China for critical battery metals," commodities trading giant Trafigura Pte Ltd. said in May upon agreeing to supply lithium feedstock and inject equity into Green Lithium.

Green Lithium is building what it said will be Europe's first large-scale merchant lithium refinery in the U.K., creating a supply of battery-grade lithium chemicals to sell into the energy storage and electric vehicle supply chains. But it, and others with similar plans, needs lithium to process.

"While Australia currently dominates hard-rock lithium supply, mines in Africa and the Americas will be critical additional sources of supply. Without such diversification, decarbonization plans will be stalled," Taylor said.

Race for African lithium

Africa hosts early-stage projects with potential lithium production to sell, unlike older projects in Australia with products that, to a large extent, have already been bought, Nicholas Rathjen, Prospect Resources Ltd.'s head of corporate development, told Commodity Insights.

John Walker, CEO of Alkemy Capital Investments PLC unit Tees Valley Lithium Ltd., echoed the sentiment. "There are several lithium projects planned in Africa [that] can support the needs of the European market," Walker told Commodity Insights.

While Tees Valley seeks feedstock from Africa, Brazil and Australia as it plans to build 96,000 tonnes of annual capacity — 15% of Europe's projected lithium carbonate-equivalent demand in 2030 — European companies face strong competition from Chinese competitors with a greater risk appetite and differing off-take priorities.

As many Chinese mining companies are state-owned or closely aligned with the government, "there seems to have been a lot more 'sovereign-to-sovereign' weight given to transactions in Africa, which is enabling project risk profiles to be absorbed a lot easier," Michael Blakiston, resources group partner for law firm Gilbert + Tobin, said in an interview.

"Chinese companies see all of Africa as an acceptable political risk and know how to operate on the continent," RK Equity partner and lithium specialist Rodney Hooper said in an email interview.

In Zimbabwe in 2022, for example, a subsidiary of lithium-ion battery material producer Zhejiang Huayou Cobalt Co. Ltd. bought Prospect Resources' 87% interest in the Arcadia lithium project. Sinomine Resource Group Co. Ltd. launched a $200 million plan to build a plant and expand existing mining operations at Bikita following its acquisition of Bikita Minerals Ltd. in January. And Sinomine established a joint venture with Shenzhen Chengxin Lithium Group Co. Ltd.'s local unit to drive lithium projects in the country. The Zimbabwean government is now looking at a 5% lithium royalty to cash in on all the interest.

In Democratic Republic of Congo, Zijin Mining Group Co. Ltd. launched the Katamba Mining lithium joint venture with state-owned La Cominiere SA in January.

"China does present strong competition to Europe on the basis of the speed at which they have moved on the ground and their focus and determination to get things done," Atlantic Lithium's Kolff said.

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