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VUL’s US $150M per year Lithium Offtake Deal

Our best performing investment Vulcan Energy Resources (ASX: VUL) announced a lithium offtake with tier 1 global electric vehicle battery producer LG – we calculate the deal to be worth US ~$150M per year to VUL.

VUL is developing its Zero Carbon Lithium Project from geothermal brines in Germany – right near all the major European car makers…

Europe is leading the charge globally for switching to electric vehicles – driven by all major european car-makers, EU law-makers and global battery producers.

At Wise Owl, we research and invest in ASX stocks and one of our key investment themes is the new European electric vehicle industry that is growing before our eyes – Our three key investments in the European battery metals are

  • Vulcan Energy Resources (ASX: VUL) – aiming to become the world’s first Zero Carbon Lithium® producer, from a combined deep geothermal and lithium brine resource. VUL has Europe’s largest lithium resource, in the Upper Rhine Valley of Germany.
  • EuroManganese (ASX: EMN) – developing a high purity manganese project in the Czech Republic from recycled mine tailings
  • European Metals Holdings (ASX: EMH) – developing the largest hard rock lithium resource in the EU, in the Czech Republic.

We initiated coverage on our investment in VUL in June 2020 – we liked VUL’s carbon neutral process, magnitude and quality of its Lithium Brine Project, proximity within the EU and access agreements in place.

VUL’s binding MoU with the world’s biggest battery maker LG, comes off the back of several offtakes announced by other “lithium from geothermal brines” companies around the world in the last two weeks, with a second offtake MoU rumoured to be with VUL…

Based on the number of “lithium from geothermal brines”  offtake deals announced over the last two weeks we think this could be the start of a global race to secure sustainable and environmentally friendly lithium supply

VUL has spent the last 18 months assembling a world class technical team specialising in a currently rare skill set of extracting lithium from geothermal brines and we are confident VUL is perfectly placed to capitalise on an upcoming surge in demand for this product. 

VUL’s binding offtake agreement announced yesterday is with the LARGEST lithium ion battery producer for EVs in the world – LG Energy Solution (LGES).

LGES is:

  • The biggest manufacturer of lithium ion batteries for electric vehicles in the world
  • Currently supplies many top car makers with EV batteries 
  • Last week committed to invest US $5.2 Billion into producing battery materials
  • Rapidly expanding European operations, and already has a battery factory in Poland.

By our calcs this is a US $150M per year deal for five years, with the potential to be extended for another five years, when commercial delivery begins in 2025.

LG will purchase 5,000 metric tonnes of battery grade lithium hydroxide for the first year of the supply term, ramping up to 10,000 metric tonnes per year during the second and subsequent years of the supply term.

Pricing will be based on market prices for lithium hydroxide.

10,000 tonnes per year At CURRENT lithium hydroxide price of ~US$15,000 equals US$150 million per year of revenue to VUL

Analysts are forecasting the price of lithium will continue to rise with nearly every car manufacturer in the world switching to sustainable, lithium batteries as they ramp up production of electric vehicles. We expect sustainably extracted lithium like VULs will attract a premium price

VUL is working to deliver success in sustainably sourced lithium from geothermal brines.

Its current Pre-Feasibility Study (PFS) says VUL will produce 40,000 tonnes of lithium with a net Zero Carbon footprint per year when in production – we expect this to increase along with global demand for sustainable lithium supply and leveraging VUL’s rare technical team to bring new projects online.

Rush of Lithium from Geothermal Brine deals globally in the last two weeks

Just a couple of weeks ago, General Motors (GM) – one of the biggest car companies in the world – announced that it had signed a “strategic investment and commercial collaboration” to secure supply of sustainably produced lithium from geothermal brines.

This was the world’s first offtake of lithium produced from geothermal brines, and a big vote of confidence in the concept.GM Article

Since then, there have been TWO MORE offtakes/MoUs for lithium from geothermal brines announced from Europe’s biggest car maker by volume Stellantis – one of which was rumoured (by Reuters) to be with VUL.

The LG deal is the fourth geothermal lithium brine offtake in the world ever.

LG (the biggest lithium ion battery maker in the world for EVs) just secured 25% of VUL’s total production for its CURRENTLY planned project – that’s 10,000 of VUL’s 40,000 tonnes per year.

VUL said in January it is also in talks with other potential offtake partners.

Our question now is: if demand for zero carbon, sustainable geothermal lithium explodes globally will VUL stop at the currently planned 40,000 tonnes per year? 

…probably not given last week VUL announced the acquisition of a new 108km2 exploration license that it considers “prospective for geothermal brines”.

We will be watching for more land acquisitions for VUL to leverage their world class lithium from the geothermal brines team, which is now one of the best in the world

Our other investments in the European Battery metals theme:

At Wise Owl, we research and invest in ASX stocks and one of our key investment themes is the new European electric vehicle industry that is growing before our eyes – Our three key investments in the European battery metals are

  • EuroManganese (ASX: EMN) – developing a high purity manganese project in the Czech Republic from recycled mine tailings
  • European Metals Holdings (ASX: EMH) – developing the largest hard rock lithium resource in the EU, in the Czech Republic.
  • Vulcan Energy Resources (ASX: VUL) – aiming to become the world’s first Zero Carbon Lithium® producer, from a combined deep geothermal and lithium brine resource. VUL has Europe’s largest lithium resource, in the Upper Rhine Valley of Germany.

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S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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