Pilbara Minerals look set to become the world’s first Lithium producer with a direct investment by a global carmaker under an innovative equity, offtake and debt financing deal with China's Great Wall Motors. The deal will help underpin the Stage 2 expansion to 5Mtpa and could be the first of similar deals by global carmakers to secure Lithium supply for their rapidly expanding electric vehicle divisions.
China’s Great Wall Motors will help underpin the Stage 2 expansion of Pilbara Minerals’ Pilgangoora project as part of an innovative deal that paves the way for direct investment by global car markers in Lithium producers.
News of the deal with Great Wall, capitalised at $US18 billion and one of China’s largest carmakers, sent Pilbara shares even higher on Friday, in addition to an almost 50% increase since the start of September.
Pilbara Minerals announced this week it had executed a binding term sheet with Great Wall Motors for 75,000 tonnes per annum worth of spodumene off-take concentrate from the Stage 2 mine expansion.
But the deal has the potential to go way beyond that thanks to some clever structuring that capitalises on the fact that Lithium has become a seller’s market.
The starting point of the agreement is the offtake of 75,000 tonnes per annum for five years, with the ability to extend to up to 10 years. Pricing is linked to market prices for Battery Grade Lithium Carbonate.
Great Wall can also secure an additional 75,000 tonnes per annum by providing Pilbara with US$50 million in debt financing for the Stage 2 expansion either via a debt or offtake pre-payment facility.
The deal will also be sweetened with a AUD$28m equity investment by Great Wall in Pilbara Minerals at 50 cents a share. The equity investment, which is thought to be the first by a carmaker in a Lithium producer, is conditional on Great Wall taking up the full 150,000 tonnes per annum.
Pilbara’s Managing Director and CEO, Ken Brinsden, said the deal was a milestone for Pilbara and the Pilgangoora Project and a significant development for the rapidly evolving lithium-ion raw materials supply chain globally.
He said; “It highlights the strategic importance for the global automotive sector of securing access to large scale, consistent, high quality sources of battery raw materials in low-risk jurisdictions.”
“While this deal reflects the remarkable progress being made in China, we are also witnessing increasing interest from battery and automobile manufacturers outside of China looking to secure their future lithium requirements, in response to an increasing global market shift towards electric vehicles and off-grid storage.”
Pilbara already have a Stage 2 offtake agreement with Jiangxi Ganfeng Lithium Co, which together with the Great Wall deal will underpin the Stage 2 expansion, as well as provide offtake-linked debt financing for a significant proportion of the Stage 2 capital requirements.
Pilbara is targeting first shipments of spodumene concentrate in the second quarter of 2018 from its Stage 1 development, which will process 2Mtpa and produce 310,000 tonnes of concentrate per year.
The company recently stepped up its Stage 2 expansion plan, which has been boosted from 4Mtpa to 5Mtpa to capitalise on the booming global market for Lithium.