Ground Breakers: Knockout Vulcan investment sparks lithium frenzy, but is the sector playing rope-a-dope with your head?

Lithium sector off canvas, fighting fit after recent malaise
Vulcan leads miners thanks to $76 million equity injection from EU auto giant
Pilbara Minerals strongest large-cap performer one day after record spodumene sale

The lithium sector has been crunched and crunched again over the last few weeks but perhaps the title contenders in the space have taken a leaf out of Muhammad Ali’s heavyweight playbook with a classic rope-a-dope strategy.

With the chips down hard, the sector has risen, posting massive gains led by good news stories at Pilbara Minerals (ASX:PLS) and Vulcan Energy (ASX:VUL).

VUL, which dabbles in and doubles as a producer of geothermal energy in its home base of Germany, has most particularly lifted the sector after securing the first direct investment from a European carmaker.

Stellantis — the producer of major car brands like Peugeot, Jeep, Maserati, Opel, Alfa Romeo, Chrysler and Citroen — will tip $76 million in equity into Vulcan at its 30 day VWAP of $6.662 a share to secure an 8% stake in the company.

The deal confirms expectations from the market that OEMs want to secure more control over the supply chain amid a time of high prices, growing demand and the need to stimulate greater investment in supply to keep up.

While lithium stocks have been hammered in recent weeks by bearishness around prices, notably a report from Goldman Sachs late last month that lithium chemical prices would fall from US$75,000/t to just US$16,000/t within the year, the market remains tight.

Margins are still on the side of the miners, evidenced by a record spodumene sale by PLS yesterday garnering an astonishing 6% concentrate equivalent price of US$7017/t.

For reference, prices just two years ago were pushing at the margins of around US$500/t.

Zero Carbon Lithium

Most lithium traded to Asian chemical producers, battery and carmakers currently is sold as lithium carbonate from brine operations in South America or spodumene from hard rock mines in WA.

Vulcan is running a DFS currently testing a different process, using direct extraction to produce battery grade chemicals from lithium rich brines contained in geothermal energy wells.

Its claim is that this lithium will be produced free of the drawbacks of other waste and energy intensive production methods because the geothermal wells will actually generate more green electricity than the operations require.

Stellantis was already planning to be a customer before taking the surprise step of grabbing an extra stake in its proposed supplier and has extended its binding lithium hydroxide offtake agreement by five years to 2035.

The car manufacturer wants to have 100% of its European passenger car sales be battery EVs by 2030 and ramp up battery production capacity by 140GWh to 400GWh, supported by five manufacturing plants in Europe and North America.

Lithium is obviously a major requirement for all of that.

“We are fully aligned with Stellantis’ decarbonisation and electrification goals, which represent some of the most ambitious in the industry,” Vulcan MD Francis Wedin said.

“It is encouraging to see a leading automaker investing in local, decarbonised lithium production for electric
vehicles.

“As our largest offtaker, we look forward to deepening our relationship with Stellantis as a substantial shareholder in Vulcan and our Zero Carbon Lithium business.”

Stellantis boasts a market cap of almost 40 billion Euros, with CEO Carlos Tavares describing the investment as “highly strategic”.

“Making this highly strategic investment in a leading lithium company will help us create a resilient and sustainable value chain for our European electric vehicle battery production,” he said.

“We continue our quest of forming strong relationships with partners who share our values as we collectively fight against global warming and provide clean, safe and affordable mobility to our customers.”

Vulcan’s share price is down 41.05% year to date but staged a major comeback today, lifting the $850 million capped company by 27.8% at 12.20pm AEST.

It was not the only lithium stock on the rise, with the battery metals crew filling up the Ground Breakers leaderboard today.

Lake Resources (ASX:LKE) was up 17.86%, recovering some of the heavy losses it has copped since the announcement of managing director Steve Promnitz’ resignation earlier this week.

Arizona Lithium (ASX:AZL) gained 21.74%, Core Lithium (ASX:CXO) was up 8.33%, Sayona Mining (ASX:SYA) lifted 8.7%, Allkem (ASX:AKE) rose 4.15% and the aforementioned PLS was the standout large cap stock in early trade, up 7.07%.

The movement in lithium stocks was even more notable given the materials and energy indexes dropped on what was an otherwise solid morning for the Australian bourse.