An Australian lithium mining project with an agreement to supply Tesla for its lithium-ion batteries for electric vehicles faces a legal obstacle.
That might delay a production start and potentially it could lead to lithium shortages, Bloomberg reports.
A Perth court recommended Western Australia’s mining ministry shouldn’t approve an exemption from past minimum exploration-expenditure obligations at the Mt Holland project, lithium giant SQM says. It says development of Mt Holland, owned by SQM and Kidman Resources, could be slowed if the ministry doesn’t award the exemption.
A small lithium surplus is expected in the next few years, but any snags at major suppliers risk throwing the market into deficit, according to Bloomberg NEF (BNEF).
Tesla signed a three-year supply contract with Kidman in May, with production expected in 2021.
“This is going to be a concern to Tesla — they had hopes to lock in supply by signing this off-take with Kidman,” BNEF analyst James Frith says.
Tesla has about three years to line up additional sources, but costs could rise for the automaker, according to analysts.
A spokesman at Palo Alto, California-based Tesla contacted by email and phone didn’t provide a comment on the possible mining delay, Bloomberg reports.
The lithium market will be in a small surplus until 2020 as SQM increases production capacity in Chile and two new mines are built in Australia, a BNEF report says. However, new lithium projects tend to encounter administrative hurdles or suffer longer-than-expected ramp ups, according to the report.
This could be the case with Mt Holland if Western Australia decides not to approve the exemption on properties necessary to develop the project, SQM says.
Under Western Australia’s regulation, mining prospectors have minimum expenditure obligations and reporting requirements.
“The recommendation from the Warden’s Court is not a final decision in regards to the requested exemption,” SQM says. “If it is followed, it could generate uncertainty or delays in the project’s development.”
The company plans to provide Tesla with an amount of lithium close to what the car-maker needs to feed its battery gigafactory annually.
