China’s Ganfeng Lithium has clinched a US$342.7 million deal to raise its stake in one of the world’s largest lithium projects in Mali, West Africa, securing additional resources to feed the voracious appetite of the Chinese battery supply chain as demand for electric vehicles grows at a furious pace.
Xinyu, Jiangxi province-based Ganfeng, which said its lithium production capacity was the world’s third largest and China’s biggest last year, has agreed to buy a 40 per cent stake in Mali Lithium, which wholly owns the Goulamina project, from Australia’s Leo Lithium, potentially buying out the company. However, under a new mining code enacted last year, the government of Mali has the right to hold up to 35 per cent of the project.
“The board believes that the transactions are in line with the company’s strategy of upstream and downstream integration and the further development in the new energy vehicle industry sector,” Ganfeng said in a filing to Hong Kong’s bourse late on Tuesday.
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“It will also further strengthen the company’s control over Mali Lithium, secure supply of lithium resources, facilitate the business expansion of the company and enhance its core competitiveness.”
Analysts expect this move to help boost the company’s self-sufficiency in lithium production and reverse a profit margin squeeze brought about by falling product prices.
“We expect that the company’s [mining] development projects will boost the self-sufficiency rate for input materials from the current 40 per cent to 70 per cent, which could support its gross profit in the future,” DBS’ analyst Tina Ting Hu said in a research note in April.
China is the world’s largest electric vehicles (EV) market, with deliveries of battery-powered cars representing about 60 per cent of the global total. Lithium-ion batteries are the most valuable component of EVs, estimated to cost as much as 40 per cent of a new electric car.
Last September, Ganfeng, which already owned 50 per cent of Mali Lithium at the time, agreed to acquire an additional 5 per cent by buying newly issued shares for US$138 million.
Through that transaction, the company obtained the right to buy all of the output from the project’s first-phase capacity of 506,000 tonnes per year of spodumene – a mineral known for its high lithium content – in exchange for helping secure financing for the project. It also has 70 per cent offtake rights in the second-phase 500,000 tonnes of annual capacity.
In January, Ganfeng acquired another 5 per cent stake from Australia-listed and Perth-based Leo Lithium, the project’s developer.
The price for the latest acquisition by Ganfeng is based on negotiation with reference to recent transactions of comparable projects, with a discount applied to reflect sharp falls in lithium material prices last year and the fact that the Goulamina project has yet to be put into operation, the company said.
Analysts expect this trend to continue, although there would be compensating factors.
“We estimate lithium carbonate prices to decline to US$18,500 per tonne in 2024 from US$37,000 per tonne in 2023,” said DBS’s Hu.
“Consequently, we expect limited revenue growth ahead (compound annual growth rate of 3 per cent during 2023-2025), as the company’s sales volume expansion would be mostly offset by the slump in lithium prices,” she said while downgrading her recommendation to hold from buy while cutting the price target to HK$57 (US$7.3) from HK$25.
Spodumene prices paid by refiners are expected to linger between US$800 and US$1,000 a tonne, after plunging from a peak of US$6,000 late last year, Daiwa Capital Markets analysts Dennis Ip and Leo Ho wrote in a note on April 23. They cited lower-than-expected supply cuts globally. Spodumene is the most widely exploited mineral source of lithium.
Located in southern Mali, some 150km south of the capital Bamako, Goulamina is one of the largest undeveloped hard rock lithium deposits globally, according to Leo Lithium. The licensed mining area is 100 square kilometres, around a tenth the size of Hong Kong.
Lithium is also mined from salt lakes, especially in South America.
On Wednesday, Leo Lithium said in a statement that it had signed a US$60 million agreement to settle disputes with the Mali government over the Goulamina project.
Leo Lithium’s managing director Simon Hay said the 40 per cent stake sale to Ganfeng is in the best interest of its shareholders, considering rising risks associated with operating in Mali, the impact of the new mining code and the company’s financial position.
The Mali government has agreed to attend to all outstanding permits and approvals, and the Goulamina Project remains on track to start producing spodumene in this year’s third quarter, Leo Lithium said.
Ganfeng shares fell as much as 3.5 per cent underperforming the broader market decline of nearly 1 per cent.
SOURCE: NEWS AGENCIES
