Global pursuit of lithium bounty

Vulcan Energy Resources’ goal of becoming the first company in the world to develop a zero-carbon lithium operation has sparked intrigue.

In February, Perth-based explorer Vulcan crystalised the design and cost of the proposed €1.5 billion ($A2.4 billion) operation in a definitive feasibility study, outlining a plan to start producing an initial 24,000 tonnes per annum of lithium hydroxide from the Upper Rhine Valley in Germany by the end of 2025.

By managing director Francis Wedin’s reckoning, the project bears similarity to an oil and gas operation, an already well-established industry in the area, as opposed to traditional hard-rock mining.

In essence, the operation will pump brine to the surface from deep production wells, produce energy from the brine, extract the lithium, and reinject the brine into the reservoir.

It’s proposed that lithium will be upgraded to lithium hydroxide at a plant, which would then be sold to manufacturers for use in battery value chains.

In response to suggestions the project sounded complex and perhaps even ambitious, Mr Wedin said the former oil and gas workers who had come to work with Vulcan were not fazed by the engineering task they faced.

“There’s execution risk because it’s a decent-sized infrastructure project, hence why we bring in the smart execution people. Technically, it’s really not complex at all,” Mr Wedin said.

Among those recruits is Cris Moreno, an engineer who previously worked on the execution phases of Browse, Gorgon and Prelude LNG projects.

“All the elements have been done in various industries, we’re just bolting them together,” Mr Wedin said.

“This is not a moonshot, this is just execution.”

Speaking broadly, Canaccord Genuity senior mining analyst Tim Hoff said lithium was a difficult commodity to get right.

“There’s always an interesting level of scrutiny, however, lithium needs to be dragged out of the 20th century and into the 21st, so technology changes are required to solve the supply shortfall,” Mr Hoff told Business News.

“I’d say all extractive industry goes through this cycle.”

Mr Wedin acknowledged the company was not immune to criticism, which in the past has included being targeted by a short-selling report.

“Criticism is always welcome, as long as it’s honest scientific criticism; it keeps us healthy, it keeps us on our toes,” he said.

Vulcan has since gained the attention of multinational carmaker Stellantis, the corporation behind 16 car brands including Alfa Romeo, Chrysler, Citroen, Fiat and Maserati.

The company acquired an 8 per cent stake in Vulcan for $76 million in June 2022 and the pair have an offtake agreement in place.

Vulcan also secured the backing of Gina Rinehart’s Hancock Prospecting in February 2021, shortly after the release of a pre-feasibility study.

But with a €1.5 billion ($A2.4 billion) capital expenditure now on the table for the project, Mr Wedin said there was a funding gap to address.

Currently working with BNP Paribas on the debt side, Mr Wedin said the company was also in discussions with oil and gas companies.

“They are the ones who have the balance sheets to build projects like these and ultimately they are the ones we have to look to with decarbonisation because they have the financial wherewithal to do so,” he said.

Asked about the stringent environmental approvals process in Germany compared with the more pro-development approach in Western Australia, Mr Wedin is pragmatic yet confident about securing remaining approvals across the line.

“Comparing a hard-rock mine in WA with what we’re doing in Europe, I’d say they both follow well-trodden paths,” he said.

“We’re confident that we’re going to get all the approvals that we need,” he added, noting that it wouldn’t necessarily be a binary outcome due to the size of the brine reservoir; the largest in Europe, by Mr Wedin’s account.

“If we run into something difficult in a certain spots … we can move to another field, we can find the next industrial zone. That gives the model resilience and gives us flexibility,” he said.

Africa

More generally, Canaccord’s Mr Hoff said Australian investors had developed more of a risk tolerance towards companies developing projects in Africa.

“In some regards those risks are justified, but we’ve seen a re-emergence in African mining over the last two years,” he said.

“The risk levels have become more acceptable to Australian investors given the success of some companies in Africa.”

Among a new cohort of WA companies seeking to develop an asset there is West Perth-based Leo Lithium. Leo is expecting first production from its Mali hard-rock Goulamina project, which it owns in a joint venture with major Chinese battery company Ganfeng Lithium, within 18 months.

The company from which Leo was spun-out – embattled goldminer Firefinch – offers an example of the risk that can be involved when developing a project in countries with a higher level of geopolitical risk.

Firefinch is on the market after succumbing to cost pressures following the imposition of economic sanctions against Mali’s military government stopped the flow of equipment into the country and put production behind schedule.

As a result, whoever takes ownership of Firefinch will also take on a 17 per cent stake in Leo Lithium.

“We were always going to face that stake being sold sooner or later, that doesn’t worry me,” Leo managing director, and former Galaxy Resources boss, Simon Hay told media at a briefing event February.

Mr Hay acknowledged the company’s location would always be a risk but was upbeat about Mali’s planned return to democracy, expected in 2024.

“We’re in the best part of the country but security is a keen concern,” Mr Hay said.

“You’ll never get away from project development risk until you’re in production.”

Leo Lithium is planning to ship its first lithium cargo to Ganfeng later this year and is currently establishing what it believes would be the safest route to port.

It’s a costly exercise, expected to cost the junior $US365 a tonne, however, Mr Hay said the strong performance of lithium prices would comfortably absorb the outputs.

All up, Leo has estimated getting Goulamina to full ramp up of 831,000tpa will cost about $A490 million, the bulk of which is being bankrolled by Ganfeng.

Mr Hay also said Mali was not facing the same wage pressures as was being felt by miners in WA and that a pool of skilled gold workers in the country meant labour was largely available.

Wesfarmers, Pilbara Minerals, Liontown Resources, Mineral Resources and Tianqi Lithium have all disclosed cost increases or delays at their respective lithium projects during the past two months.

Also operating in Africa is one-time market darling AVZ Minerals, which piqued investor interest amid the potential of its Manono lithium and tin project in the Democratic Republic of Congo.

But the company has not traded since May 2022 when it first entered a trading halt after disputes arose over ownership of its flagship project.

The Democratic Republic of Congo issued two decrees in February this year cancelling two earlier decrees that granted a mining licence to AVZ subsidiary, Dathcom Mining, over the proposed Manono lithium project.

AVZ is in disputes with Chinese mining group Zijin Mining and Dathomir Mining Resources SARL over ownership of both Dathcom and the Manono project.

The latest ministerial decree referred to the ongoing disagreements, conflicts and disputes between shareholders in the Manono project and said harmonious cooperation was a precondition to achieving progress.

AVZ is also currently subject to a class action from shareholders for allegedly breaching its continuous disclosure obligations and misleading investors.

AVZ issued a brief statement in late December reiterating its belief that it has complied with its continuous disclosure obligations.

South America

Few Australian companies are targeting lithium opportunities in South America.

Among them is Sydney-based junior Lake Resources, which was also targeted by a short-selling report last year questioning the company’s proposed brine extraction technology for its projects in Argentina.

Lake has two conditional strategic investment and strategic offtake arrangements for up to 50,000tpa of lithium carbonate with self-described physical commodity merchant WMC Energy and South Korean battery manufacturer SK On.

Out of WA, Argosy Minerals is currently developing the Rincon Lithium brine project in Argentina’s ‘lithium triangle’, while Latin Resources is working on projects in Brazil, Argentina and Peru.

Mr Hoff said there remained a level of investor concern about geopolitical risk.

 “Investors still have questions about operators in South America,” Mr Hoff told Business News.

“I think it’s a bit of an education piece, [South America] is not necessarily always a high-risk jurisdiction but there are considerations you need to factor.”