LG Chem bags half of Kidman Resources’ planned lithium hydroxide production

LG Chem Kidman Resources ASX KDR lithium hydroxide production
With the LG Chem offtake agreement in place, Kidman Resources now has buyers for 75% of its planned lithium hydroxide production from Mt Holland.

Kidman Resources (ASX: KDR) has tied up 50% of its planned lithium hydroxide production after announcing an offtake agreement with LG Chem – a major global battery supplier to the surging electric vehicle sector.

The non-binding memorandum of understanding paves the way for LG Chem to purchase 12,000 tonnes per annum of Kidman’s lithium hydroxide production for an initial 10-year term.

According to Kidman, LG Chem will pay prevailing market prices and on arm’s length terms.

The parties expect to cement negotiations with a binding strategic supply agreement by the end of July 2019.

“Today’s announcement is a significant milestone towards Kidman’s objective of securing offtake arrangements over approximately 75% of our share of production in the initial years of the project,” Kidman chief executive officer and managing director Martin Donohue said.

“Having such a high-quality offtake counterparty provides further support for our ongoing discussions in relation to the provision of debt facilities with prospective lenders,” Mr Donohue added.

Kidman’s share of lithium hydroxide production will be 22,600tpa and this latest agreement follows contracts inked with other lithium-ion battery majors including Tesla and Mitsui & Co.

Once all agreements have been made binding, Kidman anticipates it will have locked-in offtake partners for 75% of its planned production.

Ducks in a row

News of the offtake agreement comes after an integrated pre-feasibility study confirmed Kidman’s strategy for developing an integrated mine-to-refinery project for producing battery grade lithium hydroxide by processing ore mined from the Mt Holland project in Western Australia.

The integrated pre-feasibility study estimates a 47-year operation that would initially produce 45,254t of lithium hydroxide a year, with Kidman’s share being 22,627tpa.

Kidman’s portion of the expected capital expenditure is forecast at US$368 million to generate life of project earnings before tax depreciation and amortisation of US$10.6 billion.

Lithium will be mined from the Mt Holland project, where a maiden reserve for the Earl Grey deposit of 94.2 million tonnes at 1.5% lithium has just been released.

“The study provides further support for the attractive economics of our long-life, vertically-integrated lithium hydroxide project,” Mr Donohue said.

He added the company was funded through to a final investment decision, with negotiations with traditional debt financiers “progressing well”.

The company expects to make a final investment decision by the end of June 2019 after the definitive feasibility study has been completed.

Mt Holland is operated under a 50:50 joint venture between Kidman and the world’s largest lithium producer Sociedad Quimica y Minera de Chile (SQM).

SQM made its final milestone payment of US$25 million on 18 December, which cemented its 50% equity in the project.

Federal Government needs to act

As Kidman’s final investment decision looms to generate a lithium hydroxide product in WA, pressure continues to intensify on the Australian Government to act now so that the country does not lose this “once in a lifetime opportunity” to capture a larger slice of the $213 billion lithium-ion battery value chain.

Industry stakeholders have been canvassing the Federal Government for months to take immediate action claiming the opportunity only has a narrow window.

The lithium-ion value chain is purported to be worth more than $2 trillion by 2025 and currently Australia only captures 0.53% of the chain, despite possessing most of the necessary resources.

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