By Andrei Khalip and Sergio Goncalves
LISBON (Reuters) - Portugal intends to launch a tender of lithium exploration licences by the end of the year under a plan to become Europe's top supplier of the metal used in the batteries that power electric cars.
In an interview with Reuters, Jorge Seguro Sanches, the secretary of state for energy, set out the plan to sharply increase prospecting and output to meet an expected surge in global demand for lithium as electric car sales grow.
He set no date for the tender but said the licences to explore for commercially viable lithium would cover several areas of the country and that he was confident of interest from foreign bidders. (Graphics on 'Lithium demand growth' - https://tmsnrt.rs/2NEVCqZ)
The government would look in the tender for commitments to invest in local refining and battery manufacturing, he said.
"We intend to launch the tender by the end of the year," he said in the ministry's elegant 18th century palace at the heart of the capital, Lisbon. "There will be various different areas on offer."
Portugal is the world's sixth-largest lithium producer, and Europe's biggest. But its miners sell almost exclusively to the ceramics industry and only now are gearing up to produce the higher-grade lithium that is used in electric cars.
Interest in lithium mining has been spurred by an expected growth in sales of electric vehicles, which are cheaper to run and more environmentally friendly than other cars.
But Portugal will face fierce global competition, led by China, and warnings of a bubble and oversupply have pushed lithium prices down from record highs this year.
Seguro Sanches is upbeat despite the potential obstacles, especially following recent lithium finds that are likely to increase its reserves.
"Portugal is one of the countries with the largest potential" for lithium production, he said. "We've had contacts (with companies) on all levels ... we are very optimistic that there will be a lot of competitors."
A government study last year identified 2,500 square km (9,650 square miles) of territory as likely to contain lithium-bearing minerals. It cited 11 areas in central and northern Portugal, and put the potential investment in five of the most attractive areas at 3.3 billion euros ($3.88 billion)
Seguro Sanches said the government had received more than 40 prospecting applications, and miners from countries including Australia, Canada and the United States have shown interest in acquiring licenses.
The government has also been talking to automakers, particularly those already making conventional cars in Portugal, about joining in, he said. But he declined to give more details or name any of the companies that have shown an interest so far.
Volkswagen has a large plant in Portugal. The German company, which plans to begin mass-market production of electric cars in the next few years, declined to say whether Portugal figured in its plans for electric cars.
But it said it was holding discussions with suppliers on ways to secure a long-term and sustainable raw material supply for its electro-mobility programme, and was monitoring capacity and demand.
Global demand for lithium, a silver-white metal that is also used to make lithium-ion batteries used in phones and laptops, is set to more than double in 2019-2025, according to metals consultancy CRU Group.
But the European Union is concerned that its carmakers will be over-reliant on imports as they produce more electric cars.
Asia dominates the supply of batteries, using refined lithium made from concentrates sold by miners in countries such as Chile and Australia. So far there are no facilities in Europe to refine lithium to battery-grade purity, and no large-scale battery production for cars.
Keen to capture a European car battery value chain that according to analyst estimates could be worth 250 billion euros ($290 billion) by 2025, the European Commission, the EU's executive body, launched an alliance of European companies last year aiming to build 10-20 huge battery factories.
Sweden's Northvolt and Germany's TerraE have plans for large lithium-ion battery factories in Europe, while some leading European carmakers have already struck deals with Asian suppliers setting up in Hungary and Poland.
Portugal could vie for battery plants planned by the four-way European battery alliance of France's Saft, Germany's Siemens and Manz, and Belgium's Solvay, or by some of the Asian players looking to produce in Europe.
The country of about 10.3 million people in southwestern Europe mined 400 tonnes of lithium in 2017, making it Europe's top producer.
Portugal's known lithium reserves of 60,000 tonnes make up 0.4 percent of the world's total, according to the U.S. Geological Survey. The recent finds could boost that share closer to 2 percent if confirmed as reserves.
Even so, Portugal could soon face competition from other European countries, Finland or Serbia, as both are trying to develop their lithium reserves.
STABLE RULES PROMISED
In the tender, bidders will offer mining royalties to pay to the state, which the government will consider in picking the winners. But the decisive factor will be bidders' readiness to set up electrochemical refining and battery plants, Serguro Sanches said.
Aside from cars, batteries for home energy storage are also in the government's sights as it looks to boost solar power.
Seguro Sanches said regulatory stability would be an important selling point and that nothing would change for firms already drilling for lithium under licenses that have already been awarded. Portugal previously granted licenses on a case-by-case basis to miners of quartz and feldspar, a mineral used in glassmaking and ceramics, such as London-based Savannah Resources
Savannah this month raised its lithium-ore resource estimate in Barroso, in northern Portugal, by 44 percent, with the potential to add another 45 to 75 percent. The mineral spodumene found there is, along with brine, the source of most battery lithium.
Savannah aims to supply overseas lithium refineries, at least until Europe builds them. It estimates its project will cost 110 million euros, with a final decision due by mid-2019.
"We're very pleased with the level of support we are receiving broadly for lithium. It really has the potential to create a new industry in Portugal," said CEO David Archer.
Although the costs of mining spodumene are higher than lithium extraction from brines, which has become a major industry in Chile, Savannah believes it can successfully compete with Australian spodumene miners selling to China.
But Archer warned that there was still an "enormous amount of risk" involved, as illustrated by a sharp drop in prices this year from record highs due to an oversupply.
Lusorecursos wants to build an on-site chemical plant to refine its estimated 30 million tonnes of petalite lithium ore, which is mainly used in glass and ceramics, to battery-ready purity, "so the added value stays in the country", said the company's chief executive, Ricardo Pinheiro.
Lusorecursos also expects to draw foreign partners to help fund the 400-million-euro project, he said.
(Reporting by Andrei Khalip, Editing by Mark Bendeich and Timothy Heritage)