Australian Lithium Going to Chinese Factories
China is taking an interest in hard-rock lithium supplies
China, the world's largest energy importer, is taking a special interest in the lithium mines of Australia, which has the world's third largest lithium reserves. And one Chinese company is offering to buy the majority of spodumene produced in the Mount Marion mine, the second-largest high-grade hard-rock lithium mine in the world.
Jiangxi Ganfeng Lithium (SZSE: 002460) has offered to buy 100% of the refined lithium product from Reed Industrial Materials, a company owned in part by Neometals (ASX: NMT) and Process Minerals International, a subsidiary of Mineral Resources (ASX: MIN). The spodumene will be sold to Ganfeng at a previously agreed-upon price, and Reed will have the option to keep and sell up to 51% of the product if there is an opportunity to sell it at a better rate elsewhere.
Not only is this a clearly profitable trade agreement for both companies, but each went a step further and offered share options. Neometals currently owns 70% of Reed, and Mineral Resources owns the remaining 30%. Under the deal, Ganfeng can acquire 25% of Reed's shares, leaving Neometals with 45%.
Neometals will receive $19.5 million in this transaction, with the chance to gain more if Ganfeng and Mineral Resources opt to buy up to 31.2% more of Reed's shares between them.
The financial and legal obligations to close this deal lie with Ganfeng, and there is no doubt the company will find this a mutually beneficial deal.
You see, Australia has the third largest lithium reserves, but managed to beat Chile, the country in the number 1 spot, at lithium production last year. Australia became the world's top lithium producer with 13,000 tonnes in 2014, and Mount Marion is expected to add another 5,500 tonnes per year.
Reed is one of only two companies in the world to produce highly-refined lithium hydroxide directly, and has patented its process. It would benefit Ganfeng to own a large portion of this high-grade producer.
And let's not forget the spodumene itself: this kind of hard-rock produces some of the purest lithium available in rock mining, and is an important source of lithium for ceramic work, nuclear power plants, and lithium batteries.
With lithium demand growing, especially in energy-heavy China, demand for this kind of product is here to stay.
To continue reading...
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
Energy Demand will Increase 58% Over the Next 25 Years
After getting your report, you’ll begin receiving the Energy and Capital e-Letter, delivered to your inbox daily.