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VUL Signs ANOTHER Lithium offtake - this time worth up to US$255M per year


Published 02-AUG-2021 11:34 A.M.


6 minute read

Our best performing investment Vulcan Energy Resources (ASX:VUL) today announced ANOTHER offtake agreement - the second in the space of 14 days... yes seriously.

By our rough calcs this one could be worth up to US$255M per year to VUL for 5 years.

Offtake agreements are what every aspiring metals producer strives for - an “offtake agreement” means somebody commits to buy the metals you plan to produce in the future which makes big investors more comfortable to fund development of the project.

This time VUL has signed a five year strategic partnership with major European auto company Renault Group for between 6,000 and 17,000 tonnes per annum of lithium hydroxide.

This binding term sheet is conditional on the execution of a Definitive Agreement on materially similar terms by 20 November 2021.

The Renault Group is part of the Renault–Nissan–Mitsubishi Alliance, that together sell more than 1 in 9 vehicles worldwide.

The Alliance is also one of the world's leading electric vehicle manufacturing groups, with global sales of over 800,000 electric vehicles since 2010.

Renault is rapidly accelerating its EV strategy and wants to have the greenest mix in the EU market by 2025 - VUL can definitely help them achieve this goal.

In July we predicted that the VUL + Stellantis Group offtake rumour might spark urgency and “fear of missing out” (FOMO) amongst other potential offtakers who would start rushing to secure offtake of ZERO CARBON lithium from VUL. Well it looks like it has started...

To service this surging demand, VUL has recently been acquiring more lithium brine ground to potentially increase their future production. This makes sense to us given most of VUL’s planned lithium production is being sewn up AND because VUL has assembled the best geothermal lithium team in the world to deliver more similar projects.

Here are the key takeaways about VUL’s strategic partnership with Renault Group:

  • Minimum of 6,000, maximum of 17,000 tonnes per annum lithium hydroxide (exact numbers will be defined in a Definitive Agreement),
  • Five year initial term, with start of commercial delivery in 2026,
  • Pricing will be based on a Price Reporting Agency contract index.

The lithium hydroxide price can fluctuate, especially over a multi year time horizon, and the market is quite opaque. However, if we apply a current estimate price of US$15,000 per tonne, and multiply by the minimum volume of 6,000 tonnes, we get US$90M in revenue to VUL, a maximum offtake of 17,000 tonnes from Renault would equate to US$255M PER YEAR revenue.

VUL’s Pre Feasibility Study earlier in the year estimated a production volume of 40,000 tonnes per annum of lithium hydroxide - so under the strategic partnership volumes Renault Group could be taking between 15% to 42% of VUL’s annual production.

The five year strategic partnership with Renault comes just a week after VUL signed an offtake with tier 1 global electric vehicle battery producer LG Chem for 10,000 tonnes that we calculate to be worth US ~$150M per year to VUL.

Combining the LG Chem offtake and Renault partnership maximum case gives us US$405M per year to VUL (this is our rough calcs on a conservative lithium price of US$15,000 per tonne).

And we still haven’t seen anything from the Stellantis rumour yet... AND keep in mind that the price of lithium is predicted to keep rising as every car maker in the world is publicly shamed into rushing to full electric vehicles only.

So that’s over US$405M in annual revenue essentially locked in for VUL once production begins, and a big chunk of VUL’s lithium is already spoken for.

All of these offtake agreements are going to help VUL secure financing for capital costs that will be required to begin production. Later stage investors want to see end customers ready and waiting before committing their capital to a project.

VUL is developing its Zero Carbon LithiumTM 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.

Today’s agreement is in line with Renault Group’s strategy to offer competitive, sustainable and ‘made in Europe’ electric vehicles.

This is also in line with the European Union’s new “Green New Deal”, which aims to make Europe climate neutral by 2050 - leading with electrification of its vehicle fleet.

So Europe is the heartland of automakers - and all of them are switching to producing EVs.

After VUL released probably the most significant announcement in its history - its first official offtake and with Tier 1 battery producer LG Chem, VUL has done it again a few weeks later, this time with Renault Group.

Renault Group is seeking to secure up to 17,000 metric tonnes per year of battery grade lithium chemicals from VUL and this partnership will allow Renault to avoid from 300 to 700 kg of CO2 emissions for a 50-kWh battery.

Renault wants to achieve carbon neutrality worldwide by 2050 and has accelerated its EV strategy to reach the greenest mix in the European market by 2025.

Over 65% of electric and electrified vehicles will be in Renault’s sales mix, and up to 90% battery electric vehicles will be in the mix in 2030.

We reckon today’s Renault strategic partnership, the LG Chem offtake and the Stellantis offtake MoU rumour will flush out all of the other potential offtakers that may have been dragging their feet to finally put pen to paper and sign up for VUL’s remaining output.

What’s next for VUL?

Our question now is: if demand for Zero Carbon, geothermal lithium explodes globally, will VUL stop at the currently planned 40,000 tonnes per year at its current project?

We are going to guess the answer is: No.

VUL recently announced the acquisition of a new 108km2 exploration license that it considers “prospective for geothermal brines”. We will be watching for developments there.

We will also 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.

We think that VUL will commence a geothermal lithium brine land grab over the coming years - securing any yet to be developed projects and underexplored brines...

VUL has so far has been our best investment - we are delighted today to be able to tick off the milestone for offtake #2.

We are now watching out for for increasing land and projects owned by VUL - we want to see them increase the planned 40,000 tonnes/year production give the surging global demand and VUL’s in-house team to execute.

Also keen to see more additions to VULs world class geothermal team to deliver any potential increased production.

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