Tesla switched on to securing lithium

TESLA struck a lithium hydroxide supply deal with a junior Australian miner that won’t start production until the next decade, underlining the scramble for the raw materials needed to meet forecast demand for electric vehicles.

Kidman Resources will supply Tesla from a planned refinery in Western Australia for an initial term of three years, the company said yesterday, without disclosing financial terms. The fixed-price agreement also contains options for a couple of three-year extensions.

It’ll be 2021 before Kidman begins producing the much-sought-after lithium hydroxide under a joint venture with Chile’s giant Sociedad Quimica y Minera de Chile.

A mine to feed the plant at Mt Holland – the world’s third-largest hard rock lithium deposit – won’t be built until next year, according to a presentation this month.

“The fact that this is a deal for a product that won’t be available for three years shows the urgency in the sector,” Reg Spencer, a Sydney-based analyst at Canaccord Genuity Group, said by phone.

“Carmakers are increasingly willing to go all the way upstream, even to the individual mine, to secure supply.”

Car and battery manufacturers, including Elon Musk’s Tesla, are on a global hunt for sources of lithium, cobalt and other raw materials, with BMW forecasting in December that its requirement for the key metals will surge 10-fold by the middle of the next decade. Production of lithium alone probably needs to quadruple within a decade to meet demand for EVs, the Goldman Sachs Group said last year.

Tesla plans to announce the location of a new gigafactory in China as early as in the third quarter as it seeks to produce batteries and cars in the world’s biggest electric vehicle market.

The company declined to comment on its deal with Kidman.

Kidman closed 2.8 percent higher in Sydney yesterday. The developer’s shares have surged more than 400 percent in the past year. Lithium producer Galaxy Resources rose 8.4 percent, as Orocobre jumped 7.1 percent.

Kidman is seeking to agree about three supply deals and has held talks with battery manufacturers, car makers and trading houses, chief financial officer Charles McGill said in an interview last week.

The company aims to also retain some material for sales in the spot market. – Bloomberg