Alliance Mineral Assets announced that it has, on 26 April 2019, entered into a non-binding memorandum of understanding (MOU) with Jiangxi Special Electric Motor to develop the terms on which the parties will cooperate in a 50-50 joint venture to produce and sell battery-grade lithium hydroxide.
The Hydroxide JV provides a unique opportunity for Alliance to participate in the downstream lithium products market within the next 6 to 12 months, without incurring capital costs and exposure to the risk associated with the construction of a conversion facility.
Strategic benefits of Hydroxide JV to Alliance include:
- Access to a nearly-completed lithium hydroxide circuit with an existing conversion facility (commissioning of hydroxide circuit to commence in September 2019)
- Exposure to a diversified, downstream customer base
- Alliance to further benefit directly from its own high-quality Bald Hill lithium concentrate
- Profit margin per tonne of spodumene concentrate expected to improve significantly when processed under the Joint Venture compared to selling raw spodumene concentrate(1)
- Further strengthens the relationship between Alliance and Jiangte, with both companies working together to build relationships with downstream customers and partners
MOU and Hydroxide JV Highlights
- Alliance will continue to own and operate the Bald Hill Mine and will supply the spodumene to the Joint Venture with the cost of production and transport recovered from sales of lithium hydroxide
- Jiangte will continue to own and operate its lithium hydroxide and lithium carbonate converter in Yichun, Jiangxi Province, China (Converter) following its completion. Alliance is not required to fund any of the capital cost of the Converter
- Spodumene contributed by Alliance will be processed at the Converter to produce lithium hydroxide which will be sold by the Joint Venture to third-parties
- The Joint Venture will work to develop long-term downstream partnerships for battery-grade lithium hydroxide and/or lithium carbonate
- Alliance and Jiangte will share equally in the margin from the sales of lithium hydroxide after recovering respective costs of spodumene production and conversion costs, with the specific terms of cost recovery to be formalised in the JV Agreement (as defined below)
- Concentrate requirements of the Joint Venture for 2019 and 2020 are expected to represent only 20% of Bald Hill production. However, once fully operational, the Converter will process approximately 100,000t of spodumene per annum, capable of producing up to 15,000tpa of lithium hydroxide
- The Company’s existing offtake arrangement with Jiangxi Bao Jiang Lithium Industrial Limited (JBJLIL)(2) remains unaffected and Alliance will continue offtake negotiations with third-parties for the remaining, unallocated Bald Hill spodumene concentrate of up to 80,000tpa in 2019 and up to 90,000tpa in 2020
- The parties will work towards executing a formal binding agreement in relation to the Joint Venture by 30 June 2019 (JV Agreement)
Commenting on the MOU, Alliance Managing Director, Mr Mark Calderwood, said: “The Hydroxide JV provides for a rapid, low-risk, low-cost entry into downstream production and sales of battery-grade lithium products. We see market demand for lithium hydroxide increasing. Aside from traditional industrial uses, a number of rechargeable battery manufacturers are now using lithium hydroxide in their products and this Joint Venture will enable Alliance to participate in this market. Over the next two months, Alliance and Jiangte will work towards completion of Joint Venture documentation and simultaneously continue talks with potential long-term downstream customers which may provide additional longer-term certainty around demand and pricing.
This downstream Joint Venture opportunity will enable Alliance to further benefit from its high-quality Bald Hill lithium product which provides for high-recovery and reduced conversion costs at one of the world’s largest and modern processing facilities with lower levels of emissions. We are proud of the relationship we have developed with Jiangte and the Joint Venture is a significant step forward in what is anticipated to be a long-term integrated relationship in the supply of battery cathode materials.”
Jiangte’s Chairman Mr Jun Zhu also commented on the MOU: “This cooperation between one of Australia’s premium spodumene producers and a large Chinese lithium salts producer combines the key strengths of both parties to create a competitive participant in the lithium hydroxide products market, making greater contributions to the development of the global lithium power industry chain, while potentially enhancing the market influence and profitability of both parties.”
Alliance’s entry into the MOU is not expected to have a material impact on the net tangible net assets per share and earnings per share of the Group for the current financial year ending 30 June 2019.
None of the Directors or controlling shareholders of the Company or their respective associates have any interest, direct or indirect, in the MOU and Jiangte, save for their respective shareholdings in the Company.
Jiangte, through its 100%-owned subsidiary Weier Antriebe und Energietechnik GMBH, is a 6.4% shareholder in Alliance.
Alliance will continue to update shareholders, as and when there are further material developments in connection with the MOU and the JV Agreement.
Source: Company Press Release.