Lithium mine auction result highlights huge demand for EV battery metal

Results of a May 21-22 auction for a majority stake in a single-asset development company that owns a lithium mine in southwest China underscore huge demand for the silver metal used in electric vehicle (EV) batteries.

The website reports that GCL Energy Technology, a developer of clean energy projects and owner of an electric vehicle battery swap service, paid approximately $437 million (including commission fees from transaction and transaction-related debt) for a 54.3% stake in the Dechenonba lithium mine in China’s Sichuan province. GCL outbid 20 other bidders in an auction that garnered a remarkable 3,448 bids.

Dechenonba has 724,000 tonnes of lithium carbonate equivalent (LCE) reserves, so the successful bidder paid approximately US$1,112 per tonne of LCE reserves. This price represents an increase of approximately 600% over the price of USD 152 per ton LCE paid earlier in May 2022 by Gotion High Tech, an electric vehicle battery manufacturer, to acquire a lithium mine in the Chinese province of Jiangxi. Keep in mind that the winning price in the May 21-22 auction likely reflected a discount since the mine is located in China; a similar mine in a Western country would likely have commanded an even higher winning price.

One way to put the magnitude of the winning bid for the lithium mine in Sichuan Province into context is to compare it to Lithium Americas Corp. (TSX: LAC) flagship Cauchari-Olaroz lithium brine project in Argentina, which will begin commissioning in the second half of this year. Lithium Americas owns 49% of Cauchari, and China’s largest lithium company, Ganfeng Lithium, owns the remaining 51%.

According to a lithium mineral reserve estimate with an effective date of May 2019, Cauchari has total LCE reserves (proven and probable) of 1.952 million tonnes. The price GCL has just paid for the lithium reserves implies that the value of Lithium Americas’ share of the Cauchari LCE reserves is (at least) US$1.06 billion (US$1,112 times 1.952 million times 49%).

This reserve value represents approximately one-third of Lithium Americas’ total enterprise value. Given that Lithium Americas has spent ten years developing Cauchari, has funded its share of the US$641 million in capital expenditures incurred to date, and is concurrently working on the development of another lithium project – the Thacker Pass Lithium Project 100% owned in the US state of Nevada – Lithium Americas’ overall market valuation looks extremely reasonable compared to the winning bid for a lithium mine that will take many years and capital expenditures before it begins production.

After increasing tenfold from early 2021 to March 2022, lithium carbonate prices have fallen by around 10% in the past two months.

Lithium carbonate price in Chinese yuan per ton. Source: Trade Economics.

Information for this briefing was found via Edgar, SupChina and the companies mentioned. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.

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