The pricing of the binding offtake agreement will be determined by a formula-based mechanism linked to SC6% spodumene market prices at the time of each shipment.
The market price reference chosen by the parties is Fastmarkets’ published spodumene price assessments, the miner said.
LG Chem aims to use the spodumene acquired for key North American customers, complying with the requirements of the US Inflation Reduction Act (IRA). The South Korean company also plans to build a cathode plant in the city of Clarksville, in the US state of Tennessee.
The IRA, passed in the US in August and designed to encourage domestic mining and manufacturing and create more integrated supply chains for electric vehicles (EVs), which have typically relied on overseas countries for critical minerals and battery components.
Since its launch, the scheme has spurred hefty investment along the battery value chain in the United States, prompting the European Union to launch measures to facilitate investments in its own domestic battery value chain. Western economies aim to develop more independent and reliable battery value chains to support their energy transition goals and become less dependent on certain countries that at present have a dominant position, namely China.
Specifically, Piedmont has agreed to supply LG Chem with 50,000 tonnes per year of SC6 spodumene for four years, with shipments scheduled to begin in the third quarter of 2023, the miner said.
The spodumene will be sourced from Piedmont’s jointly-owned North American Lithium (NAL).
NAL is located in Quebec, in eastern Canada, and is a joint venture between Piedmont and Sayona Mining. Under the joint-venture arrangement, Piedmont is entitled to purchase 113,000 tpy or 50% of the venture’s spodumene SC6 production, whichever is the greater volume.
Commercial production at NAL was scheduled to start in the first half of 2023.
As part of the offtake agreement, LG Chem will make an equity investment of $75 million to acquire Piedmont Lithium common shares.
The subscription agreement was expected to be finalized by February 24 and will result in LG Chem holding a stake of 5.7% in Piedmont Lithium.
Piedmont Lithium will use the funding from LG Chem to advance its portfolio of junior lithium projects, including its planned 30,000 tpy lithium hydroxide project at Tennessee Lithium, the Ewoyaa Lithium Project in Ghana in partnership with Atlantic Lithium, and the fully integrated Carolina Lithium project in development in the US state of North Carolina.
It has also agreed to give LG Chem priority negotiation rights for 10,000 tpy of lithium hydroxide produced by the miner in either Tennessee or North Carolina.
Evolving pricing mechanism
The lithium market has historically been dominated by long-term contracts based on a fixed price negotiated between seller and buyer. But the uptrend in prices over recent years, alongside the unpredictability of future lithium prices, has prompted a shift along the lithium value chain to a pricing mechanism based on more transparent and up-to-date supply-demand dynamics.
Earlier this year, Piedmont Lithium announced that it had updated its supply agreement with EV maker Tesla to a floating-price mechanism, instead of the previous fixed-price contract.
The mineral for Tesla will also be sourced from the NAL project.
At the end of last year, junior miner Critical Minerals Group signed a binding lithium offtake agreement with carmaker BMW. This agreement secured the original equipment manufacturer’s first offtake of battery-grade lithium hydroxide to be sourced from the Wolfsberg Lithium Project in Austria. The pricing of the offtake agreement will be based on Fastmarkets’ spot price for lithium hydroxide, with a discount applied, the junior miner said.
Supply was expected to begin in 2026 and to last for six years, for a total supply of approximately 50,000 tonnes of battery-grade lithium hydroxide, it said.
Spodumene price volatility
Spodumene is the hard-rock mineral that contains lithium, and is a key input for the production of lithium-ion batteries for EVs.
The uptrend in spodumene prices has been tracking the surge in downstream lithium chemical prices since 2021. The ultralight metal has entered a new bullish cycle, supported by high demand for EV batteries.
This supported a price uptrend across the whole lithium industry, including technical grades, battery grades and spodumene concentrate feedstock.
But these gains seem to have slowed in recent months. Chinese lithium prices have been on a downward trend since the beginning of December 2022.
Fastmarkets assessed the spodumene, min 6% Li2O, spot price, cif China, at $6,500-7,000 per tonne on February 16, down by 6.9% from two weeks earlier but up by 80% from the corresponding time last year.
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