Ground Breakers: Leo Lithium bags cool $106m in Ganfeng placement in plan to make Goulamina a 1Mt mega mine
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Lithium stocks have been on the comeback trail amid rising prices and a flood of corporate interest in recent months.
Now African lithium developer Leo Lithium (ASX:LLL) is bagging a cool cash injection from its JV partner on the Goulamina lithium mine in Mali, with China’s Ganfeng tipping $106.1 million into its 50-50 partner for a 9.9% stake.
At 81c per share that comes in at a 6.5% premium to Leo’s 5-day VWAP and just 1c below its all time high.
Well, previous all time high. Leo shares are up 14.8% to 83.25c this morning, taking its market cap beyond $800 million.
That remains a far sight south of the $6.12b valuation of Liontown Resources (ASX:LTR), which will open its similarly sized Kathleen Valley mine in the admittedly more attractive jurisdiction of WA mid-2024, the same time as the 500,000tpa Goulamina should be producing its first concentrate.
There is more upside coming in the Ganfeng transaction should it get approval from Chinese authorities.
The companies will look to increase the scale of the mine’s second phase to 500,000tpa, raising the prospects of turning Africa’s first spodumene operation into a million tonnes per annum producer before the end of the decade.
An offtake deal for its second stage has also been amended to include the potential development of a lithium hydroxide facility.
Ganfeng and Leo, which will have $177m in cash once the placement is settled on a pro-forma March 31 basis alongside US$93m cash and US$40m undrawn debt in the JV account, will look to pursue a joint conversion facility in Europe or another region close to West Africa.
The European lithium and battery chemical market is famously low on current and future supply compared to advanced markets in Asia.
The arrangement will see Ganfeng and Leo look to accelerate the timing of Goulamina’s now larger second stage, an indication of where the industry’s biggest players see demand growth going.
It jives with the growth hungry actions of Liontown’s stalker Albemarle, which also recently approved a ~US$1.5 billion doubling of its Kemerton lithium hydroxide plant near its 49% owned Greenbushes mine in WA despite ramp up delays and cost blowouts at its first two 25,000tpa trains.
Allkem (ASX:AKE) and Livent’s scale play to create the world’s third largest lithium producer via a friendly $16 billion merger is another hint of the fertile EV growth environment the majors see in the decade to come.
As part of the Leo placement Ganfeng will have offtake rights to 350,000tpa of the stage 2 capacity over Goulamina’s life of mine.
Leo will have 150,000tpa, to be tolled in China by Ganfeng until a downstream conversion facility jointly owned by the companies is established. Ganfeng will deliver 200,000tpa into the JV facility once built.
If it isn’t constructed within five years, Leo will be free to sell its 150,000tpa offtake share as it deems fit.
“As a Condition to the Strategic Placement, Leo Lithium and Ganfeng will enter into a binding Cooperation Agreement. The Cooperation Agreement will deliver a range of key strategic benefits to Leo Lithium, including a commitment to expand the capacity at Goulamina Stage 2, as well as a framework for further cooperation on a downstream conversion facility and other business opportunities,” Leo MD Simon Hay said.
“The proposed tolling arrangement with Ganfeng provides Leo Lithium with a highly beneficial, low-risk solution to gain exposure to lithium hydroxide production and the attractive margins that are available from moving further downstream.
“Ganfeng has long operated a number of conversion facilities in China and is already producing a large volume of high-quality battery grade product that is being supplied to tier 1 OEMs.
“By utilising the tolling arrangement with Ganfeng, Leo Lithium stands to benefit from Ganfeng’s existing strong market relationships and technical reputation, enabling enhanced cost savings and operational efficiencies in tolling the Goulamina Stage 2 product to lithium hydroxide.
“This is an exciting chapter for Leo Lithium with a number of near-term deliverables also underway, including our first spodumene product in 2024 and accelerated revenue from Direct Shipped Ore with shipments planned in the fourth quarter of this year.
“We are proud to be partnering with Ganfeng, who are a recognised global leader across the lithium value chain and look forward to continuing to build on our strong existing relationship.”
Ganfeng has existing operations with Aussie companies in WA. It owns half of the Mt Marion mine near Kalgoorlie, where it and Australian 50-50 JV owner and operator Mineral Resources (ASX:MIN) are looking to scale up to 900,000tpa.
Those lithium stocks are all on a run this morning, with battery and future metals players Lynas (ASX:LYC), MinRes, Liontown, Pilbara Minerals (ASX:PLS), IGO (ASX:IGO) and Allkem all lighting the bourse green.
Materials stocks were up 1.63% with the majors also in fine form. BHP (ASX:BHP) rose 1.99% this mornin’.
It came after iron ore and copper prices rebounded to end the week, flipping the tables on their early week wobbles to end above psychological US$100/t and US$8000/t levels respectively.