Ground Breakers: LG Chem snaps up some sweet ASX spodumene in US$75m Piedmont deal

LG Chem says lithium supply is more important than price right now
It’s backing that up with an offtake deal to receive Canadian spodumene from ASX-listed Piedmont
Deterra pays out $63m on back of BHP iron ore royalty

LG Chem, one of the world’s biggest battery makers and one which has taken a giant leap into the North American domestic battery market with billions invested in the supply chain, has been vocal this week about its desire to secure raw materials.

“Secure supply of raw material is more important than the price. What if you don’t have material to produce?” LG’s CEO Hak-Cheol Shin told Bloomberg this week.

More than hollow words those, with LG tipping US$75 million into an equity placement with ASX-listed Piedmont Lithium (ASX:PLL) which will see it commit to offtake 200,000t of SC6 spodumene concentrate over a four year term.

The deal will give LG a 5.7% stake in the New York and ASX-listed lithium miner, which is expected to begin producing spodumene for the first time this half through its 25% stake in Sayona Mining’s (ASX:SYA) North American Lithium JV in Quebec, Canada.

Piedmont is the major offtaker for NAL, with shipments to begin in the third quarter, with rights to the greater of 113,000t or 50% of the JV’s SC6 production with a floor price of US$500/t and ceiling of US$900/t.

PLL will supply LG with 50,000t of SC6 each year beginning in the September quarter on a formula linked to SC6 market prices.

While there are a number of price agencies who report different spodumene prices, currently producers are pulling in excess of US$5000/t, with Pilbara Minerals (ASX:PLS) selling at a 6% grade equivalent price of US$6273/t in the December quarter against costs of just $579/t (AUD).

Strong margins indeed.

Fastmarket’s last fortnightly SC6 spot price clocked in at US$7250/t, down US$395/t on its previous estimate.

Downstream deal in sight

Piedmont is also aiming to head downstream with the development of potential lithium hydroxide processing facilities in Tennessee or North Carolina.

The offtake deal and equity investment gives LG priority negotiations rights for 10,000 metric tonnes of hydroxide per year from a future refinery.

“We welcome LG Chem as a shareholder in Piedmont and are excited to partner with them to supply North American lithium that will meet the requirements of the IRA and support the development of the U.S. battery supply chain,” PLL CEO Keith Phillips said.

“LG Chem is a global leader with a commitment to U.S. EV battery manufacturing and plans to build one of the world’s largest cathode plants in Clarksville, Tennessee.

“We look forward to working with LG Chem as NAL comes online as an important source of lithium in North America.”

The agreement is an important one for LG, because it ensures it can use raw materials from a US free trade aligned partner in its batteries.

Last year’s Inflation Reduction Act provides tax credits to manufacturers who eschew the traditional Chinese supply chain with 40% or more of their raw materials coming from the US or nations with which it has free-trade agreements.

That hurdle will rise to 80% by 2027.

“This agreement allows LG Chem to provide differentiated values to North American customers with products that satisfy IRA standards by preemptively securing raw materials in the U.S., our key market,” Hak-Cheol Shin said.

“As we work to build various partnerships, including joint metal investments with automotive OEMs and battery makers, we’re pleased that our partnership with and commitment of funds to Piedmont will help support its development of US lithium projects.”

Piedmont will use the funding from LG to advance its 30,000tpa Tennessee Lithium hydroxide project, the Ewoyaa lithium project in Ghana with Atlantic Lithium (ASX:A11) and its integrated Carolina Lithium project, which has faced some opposition from within the local community and is yet to be permitted.

PLL was up 1.45% at 11.15am AEDT.

Sayona today said the NAL mine was on time and budget for its March 2023 restart, with a first shipment due in July this year with four shipments expected in the December half-year. It expects to produce 85,000-115,000t in that period.

Piedmont Lithium (ASX:PLL) and Sayona Mining (ASX:SYA) share price today:

Deterra living the good life of a royalty company

Not familiar with royalty companies? They get money for jam, living the good life raking in dough produced by other people’s labour.

As far as royalty companies go (and they are far more prominent on overseas exchanges), ASX-listed Deterra Royalties (ASX:DRR), a spinout from Iluka Resources (ASX:ILU) is an extraordinarily simple one.

It holds a 1.232% revenue royalty over BHP’s (ASX:BHP) Mining Area C deposits at its Pilbara iron ore operations.

That includes the new South Flank mine, which is still in its ramp up phase and will eventually produce for decades at a rate of 80Mtpa, with MAC as a whole to produce 145 million wet metric tonnes per annum by the end of FY24.

First half production was up 71% year on year, delivering DRR $96m in revenue, EBITDA of $92m (a 95% margin) and NPAT of $63m, paid out to shareholders in full in the form of a 12c a share dividend.

It’s not all admin though, Deterra is on the lookout for additional royalty streams in bulk, base and battery metals, targeting primary and secondary royalties for producing or near producing mines in established jurisdictions like Australia, North and South America and Europe.

“The broader inflationary environment continues to highlight the resilience that the mining royalty business model brings to investors. With high quality, high margin, top line exposure, Deterra offers an investment in the resources sector without the same cost or capital inflation risk as a traditional mining investment,” managing director Julian Andrews said.

“Our business is well positioned for growth. Deterra will continue to benefit as Mining Area C continues to ramp-up to full nameplate capacity of 145 million wet metric tonnes (Mwmt) and we continue to evaluate opportunities to add assets to our portfolio and our activity in that regard continues to increase as our pipeline strengthens.

“The company’s strategy remains to provide shareholders with the cash generated by existing assets, whilst also developing a broader range of bulk, base, and battery metal opportunities.”