Insatiable lithium demand is fueling Australia’s investment boom

“The appetite is insatiable,” said Dale Henderson, CEO of Pilbara Minerals Ltd., in an interview. “Any lithium producer is very popular right now.”

With all of the net growth in car sales last year coming from electric vehicles, the demand for raw materials in batteries has suddenly increased. China dominates the lithium supply chain, so Western countries have sought to develop their own production. Miners in Australia – home to around half of the world’s supply, according to the US Geological Survey – are now being courted by checkbook-wielding automakers.

Tony Ottaviano, CEO of Liontown Resources Ltd., is careful not to brag about his foresight.

“I don’t want to sound like we’re being lenient because we have tremendous respect for our customers, but the simple fact is that it takes five to eight years to bring the supply of new sites online in first level courts,” he said.

When the company first approached automakers and other manufacturers for its first purchase, “it’s safe to say that interest was low.” said Ottaviano. Most were unsure whether to get too involved in the metal sourcing process, he said.

“Move the clock forward and we’re seeing a completely different trade posture,” he said.

In July, Ford Motor Co. announced an agreement with Liontown for nearly a third of the miner’s expected production over the next few years, at an undisclosed value. The deal also saw Ford provide a A$300 million ($210 million) credit facility to Liontown to further expand its Kathleen Valley site.

This transaction followed Liontown’s earlier so-called offtake agreements with Tesla Inc. and South Korean battery maker LG Chem Ltd. It also came a week after European carmaker Stellantis NV took a stake in Australian lithium miner Vulcan Energy Resources Ltd.

Creative offers

As recently as 2020, few cared about the natural features of Pilgangoora, a remote Pilbara Minerals site where a red flower called Sturt’s Desert Pea and some cattle sit atop one of the world’s largest lithium ore deposits. of hard rock in the world.

Shares of Pilbara then traded at 13 Australian cents and have since risen to over 2.85 Australian dollars, giving it a market value of around $5.8 billion. Shares of Liontown have risen around 76x since the start of 2019, to a value of around $2.2 billion.

The increase is reflected in the price of lithium itself, which has gained almost 500% over the past year. The lithium market will be tight and prices are likely to remain high for the rest of the year, according to BloombergNEF. Tesla CEO Elon Musk lamented the price spike on Twitter, suggesting the automaker may need to get into the mining and refining game.

Globally, the industry will need $42 billion in investment by the end of the decade to meet demand, according to Benchmark Mineral Intelligence.

“The appetite for critical minerals from quality jurisdictions is currently the strongest we’ve seen,” said Campbell Cooper of investment bank Greenhill & Co., who advised Liontown on its recent deal with Ford.

“Given the competitive dynamics, deals need to be flexible and creative to be successful.”

(By Harry Brumpton and Annie Lee)

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