Australian firm launches $120m share placement to fund zero emissions lithium plant

ASX-listed lithium producer Vulcan Resources will raise $120 million in a new share placement, as the company progresses plans to develop one of Europe’s first major sources of lithium to meet surging demand from automakers shifting to electric vehicles.

The Perth headquartered Vulcan Resources will raise the $120 million to from institutional investors to fund the development of a new zero emissions lithium production facility in Germany after feasibility studies into the lithium production facility showed that the project would be highly profitable.

The proposed facility would have the potential to produce as much as 40,000 tonnes of lithium hydroxide each year, the usable ingredient for battery production. The plant would be looking to tap into an identified deposit of 1.12 million tonnes of lithium carbonate equivalent in the Upper Rhine Valley of Germany, Europe’s largest.

The planned €1.74 billion (A$2.7 billion) project, which would tap into one of Europe’s largest lithium deposits, would operate on geothermal energy drawn from the deposit itself, allowing the facility to run entirely on renewable energy. It would position the project as a producer of lithium with zero embedded greenhouse gas emissions, with the project proposal including plans for a 74MW geothermal plant.

Initial analysis suggested that the lithium production facility could achieve an internal rate of return as high as 31 per cent – with the additional investment in the geothermal power plant generating a 16 per cent rate of return.

The additional funds will be used to fund the ongoing development of the project, including the completion of a definitive feasibly study, the securing of necessary permits, and drill site acquisition and preparation.

Vulcan Resources managing director Dr Francis Wedin said that the company had been attracting significant interest from investors looking for environmentally friendly opportunities.

“We received overwhelming support for the Placement from both domestic and international ESG-focused institutional investors,” Wedin said. “This demonstrates clear support for our strategic plan to develop the world’s first Zero Carbon Lithium project.

“Proceeds from the Placement provide us with a runway to final investment decision and enables Vulcan to accelerate project development, including targeted delivery of a [Definitive Feasibility Study] by Q2 2022.”

Under the plan, Vulcan Resources will issue almost 18.5 million new shares at $6.50 each – around a 17 per cent discount to the recent share price.

The company said that it had already secured a keystone investment from Gina Rinehart’s Hancock Prospecting. Notably, it comes just days after it was revealed that Rinehart would be building a 30MW solar farm at the Roy Hill Iron Ore mine in Western Australia – another play into the clean energy space by the mining magnate who has been a significant critic of Australian climate policy.

Shares in Vulcan Resources surged more than 20 per cent higher on the news in Thursday trading. Shares in the company have increased almost four-fold since the start of the year.

The global market for lithium has grown exponentially over the last decade as demand for lithium ion batteries, for use in both energy storage devices and electric vehicles, has exploded as prices fall.

One of the world’s largest battery producers, EV giant Tesla, issued a desperate call for increased production of raw materials used in battery production last year, as the company sets its sights on the massive ramp up of production to meet the surging global demand.

Vulcan Resources said that it estimated that 400 kilotons of lithium hydroxide would be required in Europe by 2030, as major European automotive companies begin producing significant numbers of electric vehicle models. Tesla itself is also currently constructing a new gigafactory in Berlin, with plans to build 500,000 vehicles annually within Germany.

Global production of lithium is currently dominated by Chinese producers, with virtually all lithium used in Europe imported into the region. The establishment of a local source of lithium, Vulcan said in a presentation to shareholders, would significantly reduce supply and price volatility, as well as allowing for more sustainable supplies of the material in demand from EV manufacturers like Tesla and Volkswagen.