Great Wall in direct deal with Pilbara Minerals for lithium

Lithium play Pilbara Minerals has locked in an offtake agreement directly with an electric carmaker.

Pilbara Minerals chief executive Ken Brinsden. Picture: Travis Anderson.

Lithium play Pilbara Minerals has become the first company in the sector to lock in an offtake agreement directly with an electric vehicle manufacturer, snaring a deal with Chinese heavyweight Great Wall Motors.

The deal, announced late yesterday, will see Pilbara supply Great Wall with up to 150,000 tonnes a year of source mineral spodumene concentrate from Pilbara’s Pilgan­goora lithium mine for use in the carmaker’s electric and hybrid vehicles.

While demand from electric vehicles, such as the Tesla, have been the catalyst for the boom in lithium in recent years, the industry’s offtake deals have largely been with chemical manufacturers and traders rather than the end-user carmakers.

Pilbara managing director Ken Brinsden said he expected the deal to be the first of many that see car manufacturers wade directly into deals with raw material suppliers.

“If you take a look across the lithium world, the two things are becoming clearer to the industry as a whole. Firstly, on the supply side, the raw materials are not coming online as quickly as many had assumed. Secondly, the demand growth is much bigger than people had previously shared,” he told The Australian.

“Now it’s becoming clearer just how big this story could be. People are realising they have to invest in what is happening in the raw material supply chain.”

Under the deal, Great Wall will take a $28 million placement in Pilbara, which will give it a stake of about 3 per cent in the company, and will also provide up to $US50m ($63.6m) in debt funding for a planned expansion of Pilgan­goora.

At current prices, the annual 150,000 tonnes of offtake to Great Wall has a market value of about $US135m a year.

The Great Wall offtake will help underpin Pilbara’s plans to lift the output of Pilgangoora from its initial processing capacity of 2 million tonnes a year to 5 million tonnes, at which point the enlarged mine should be pumping out more than 800,000 tonnes a year of spodumene concentrate.

Great Wall is already one of China’s biggest carmakers, producing more than 1 million cars a year mostly for the Chinese market, and has released its first electric and hybrid vehicles in the past year. Mr Brinsden said Great Wall was hoping to produce about 500,000 electric and hybrid cars a year by the early 2020s.

The Pilbara deal follows a report from UBS’s commodities team, based on its tour of lithium-ion battery suppliers in China and Korea, that noted the industry was “feverishly” adding capacity.

“Manufacturers are scaling ­capacity four to five times by 2020 and potentially up to 10 times by 2025,” UBS said.

“Securing raw material supply is taking precedence over price in supplier negotiations.”

The electric vehicle boom has increasingly gone mainstream. Recent reports out of China said it was planning to eventually have only electric vehicles on its roads as part of its long-term plans to address pollution.