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Liontown and Tesla enter into lithium supply deal

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Global Mining Review,

Liontown Resources Ltd has entered into a legally binding sales and purchase term sheet with electric vehicle manufacturer Tesla for the supply of spodumene concentrate.

The agreement is for the supply of up to 150 000 tpy of spodumene concentrate to be produced at Liontown’s Kathleen Valley Lithium Project in Western Australia and is expected to commence in 2024, representing approximately one-third of the project’s start-up SC6.0 production capacity of approximately 500 000 tpy.

Kathleen Valley is a new, globally significant, lithium development project located 680 km north-east of Perth in Western Australia’s premier mining district. Underpinned by a world-class lithium deposit with a Mineral Resource Estimate of 156 million t at 1.4% Li2O and 130 ppm Ta2O5, Kathleen Valley is forecast to initially produce 500 000 tpy of SC6.0 spodumene concentrate expanding to approximately 700 000 tpy. The project also has an integrated and value-adding ESG focus with 60% renewable power at startup, and a strong working relationship with the traditional owners of the land (the Tjiwarl). A landmark Native Title Agreement was entered into with the Tjiwarl in November 2021, which provides the framework for collaboration during the development and operation of the project.

Major construction of the AUS$473 million project is scheduled to commence by 4Q22, following the completion of a positive Definitive Feasibility Study (DFS) in late 2021, which outlined a post-tax NPV8 of AUS$4.2 billion and IRR of 57%. The Ore Reserve supports an initial approximately 23-year mine life, with Liontown targeting further expansions.

Liontown is well capitalised to forge ahead with development of Kathleen Valley following a AUS$450 million equity raising completed in late 2021. The company is also evaluating a pathway through the development of a value maximising Lithium Hydroxide Downstream Processing Facility in Western Australia, which is currently at the Pre-Feasibility Study level.

Liontown has been disciplined in executing its offtake strategy for Kathleen Valley, targeting large foundation agreements which aim to deliver diversification both by geographic location and customer position in the global battery value chain, while at the same time retaining some capacity to sell into the rapidly growing spot market.

The agreement with Tesla is the second offtake arrangement secured for Kathleen Valley following the foundational offtake arrangement with LG Energy Solutions. Together with the LG Energy Solutions arrangement, this means that more than half of Liontown’s planned production is now covered by long-term agreements with high-quality customers.

The company continues to receive very strong interest from a range of parties for the remaining production from Kathleen Valley.

Under the agreement with Tesla, pricing is determined by a formula-based mechanism linked to market prices for Lithium Hydroxide Monohydrate. Using today’s market pricing, the contract terms would deliver an SC6.0 price outcome for Liontown that is greater than the pricing assumptions used in the DFS. Notwithstanding this, investors should note that the pricing received by Liontown under the Agreement with Tesla will be determined by market prices at the time of each shipment.

Liontown and Tesla will now work together to complete the negotiation and execution of detailed definitive agreements which must be completed and executed by 30 May 2022. Liontown cautions investors that there is no assurance that the definitive agreements will be entered into by this date and as a result, the Agreement may be terminated unless extended by mutual agreement of Liontown and Tesla.

Commenting on the Agreement with Tesla, Liontown’s Managing Director and CEO, Tony Ottaviano, said:

“Securing our second offtake sales agreement is another fantastic milestone for Liontown towards the development of the Kathleen Valley Lithium Project, and we are absolutely delighted to have signed this agreement with leading EV manufacturer, Tesla.

“Tesla is a global leader and innovator in electric vehicles and having it sign up to become a significant customer is a tremendous achievement and another huge vote of confidence in the quality of the Kathleen Valley Project. This means that we now have two of the premier companies in the global lithium-ion battery and EV space signed up as foundational customers, marking a significant step towards realising our ambition to become a globally significant provider of battery materials for the clean energy market. Our shareholders should be proud that future Tesla cars will be powered by Liontown lithium”.

“We look forward to working with Tesla as long-term partners for many years to come.

“We are also continuing to progress discussions with additional potential customers for the remaining available production and we are looking forward to announcing additional arrangements in the weeks ahead as we continue to implement our strategy to develop the project and deliver value for our shareholders”.

Greenhill & Co is acting as financial adviser and Allens is acting as legal adviser to Liontown.

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Australian mining news Lithium mining news