Australia-based battery materials company Liontown Resources Limited entered into a legally binding sales and purchase term sheet with electric vehicle manufacturer Tesla for the supply of spodumene concentrate. The agreement is for the supply of up to 150,000 dry metric tonnes (DMT) per annum of spodumene concentrate to be produced at Liontown’s Kathleen Valley Lithium Project in Western Australia and is expected to commence in 2024, representing approximately one-third of the project’s start-up SC6.0 (spodumene concentrate 6%) production capacity of ~500 ktpa.
The agreement with Tesla is the second offtake arrangement secured for Kathleen Valley following the foundational offtake arrangement with LG Energy Solutions. Together with the LG Energy Solutions arrangement, this means that more than half of Liontown’s planned production is now covered by long-term agreements with high-quality customers.
Kathleen Valley is a new, globally significant, lithium development project located 680 km north-east of Perth in Western Australia’s premier mining district. Underpinned by a world-class lithium deposit with a Mineral Resource Estimate of 156 Mt at 1.4% Li2O and 130ppm Ta2O5, Kathleen Valley is forecast to initially produce ~500 ktpa of SC6.0 spodumene concentrate expanding to ~700 ktpa.
The project also has an integrated and value-adding ESG focus with 60% renewable power at start- up and a strong working relationship with the traditional owners of the land (the Tjiwarl). A landmark Native Title Agreement was entered into with the Tjiwarl in November 2021, which provides the framework for collaboration during the development and operation of the Project.
Major construction of the A$473-million (US$340-million) project is scheduled to commence by Q4 CY2022 following the completion of a positive Definitive Feasibility Study (DFS) in late 2021 which outlined a post-tax NPV8 (net present value using a discount rate of 8%) of A$4.2 billion (US$3 billion) and IRR of 57%. The Ore Reserve supports an initial ~23-year mine life, with Liontown targeting further expansions.
Liontown is well-capitalized to forge ahead with development of Kathleen Valley following a A$450-million (US$323 million) equity raising completed in late 2021. The company is also evaluating a pathway through the development of a value-maximizing Lithium Hydroxide Downstream Processing Facility in Western Australia, which is currently at the Pre-Feasibility Study level.
Kathleen Valley Project location, infrastructure, existing mines, and regional geology.
Liontown has been disciplined in executing its offtake strategy for Kathleen Valley, targeting large foundation agreements which aim to deliver diversification both by geographic location and customer position in the global battery value chain, while at the same time retaining some capacity to sell into the rapidly growing spot market.
Under the agreement with Tesla, pricing is determined by a formula-based mechanism linked to market prices for lithium hydroxide monohydrate. Using today’s market pricing, the contract terms would deliver an SC6.0 price outcome for Liontown that is greater than the pricing assumptions used in the DFS. Notwithstanding this, investors should note that the pricing received by Liontown under the agreement with Tesla will be determined by market prices at the time of each shipment.
Liontown and Tesla will now work together to complete the negotiation and execution of detailed definitive agreements which must be completed and executed by 30 May 2022. Liontown cautions investors that there is no assurance that the definitive agreements will be entered into by this date and as a result, the Agreement may be terminated unless extended by mutual agreement of Liontown and Tesla.