The results of a May 21-22 auction for a controlling stake in a single-asset development company which owns a lithium mine in southwestern China underscores the tremendous demand for the silvery metal used in electric vehicle (EV) batteries.
The website supchina.com reports that GCL Energy Technology, a developer of clean energy projects and owner of an EV battery swap service, paid around US$437 million (including transaction commission fees and debt related to the transaction) for a 54.3% stake in the Dechenonba lithium mine in the Sichuan province of China. 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 winning bidder paid about US$1,112 per tonne of LCE reserves. This price represents about a 600% increase from US$152 per LCE tonne price paid earlier in May 2022 by Gotion High Tech, an EV battery maker, to acquire a lithium mine in China’s Jiangxi province. Keep in mind that the winning price in the May 21-22 auction probably 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.
A way to put the magnitude of the winning bid for the Sichuan province lithium mine in context is to compare it to Lithium Americas Corp.’s (TSX: LAC) flagship Cauchari-Olaroz lithium brine project in Argentina, which will start commissioning in the second half of this year. Lithium Americas owns 49% of Cauchari and China’s largest lithium company Ganfeng Lithium owns the balance, or 51%.
According to a Lithium Mineral Reserve estimate with an effective date of May 2019, Cauchari has total LCE reserves (proven plus probable) of 1.952 million tonnes. The price that GCL just paid for lithium reserves implies that the value of Lithium Americas’ share of Cauchari LCE reserves is (at least) US$1.06 billion (US$1,112 times 1.952 million times 49%).
This reserve value represents about one-third of Lithium Americas’ total enterprise value. Since Lithium Americas has spent ten years developing Cauchari, funded its share of US$641 million of capital expenditures incurred to date, and is simultaneously working to develop another lithium project — the 100%-owned stake Thacker Pass lithium project in the U.S. state of Nevada — Lithium Americas’ overall stock market valuation looks extremely reasonable when compared with the winning bid for a lithium mine that will take many years and capital expenditure dollars before it begins producing.
After rising tenfold from early 2021 through March 2022, lithium carbonate prices have retreated about 10% over the last two months.
Information for this briefing was found via Edgar, SupChina and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.