Is General Motors the second blue chip company to call the lithium price floor?
Insight
20 October
This week, Lithium Americas (NYSE/TSX: LAC) announced the formation of a joint venture with General Motors’ (NYSE: GM) to develop the Thacker Pass lithium project in Nevada, US – making it the second global giant to back lithium in as many weeks following Rio Tinto’s (ASX: RIO) $US6.7 billion Arcadium Lithium (ASX: LTM) deal.
Thacker Pass is North America’s largest lithium resource and has a projected mine life of more than 40 years. GM’s US$625m investment in Thacker Pass has largely secured Phase 1 Capex, and significantly de-risked the project as LAC progresses toward Final Investment Decision – targeted for late CY24.
Under the JV, GM would acquire 38% project level ownership. Importantly, GM also agreed to extend its existing offtake agreement for 100% of phase 1 production and a new 20-year offtake for up to 38% of phase 2 output.
LAC investors lapped up the news, with the shareprice jumping 23% overnight on the back of the announcement.
For Deterra Royalties (ASX: DRR), the 1.05% Gross Revenue Royalty it acquired over the project in early-September is shaping up to be an early countercyclical payoff. And when tracked against global demand forecasts, first forecast royalty payments in CY27 couldn’t be timed better.
Deterra is the only pureplay royalties company listed on the ASX. It was spun out of Iluka (ASX: ILU) in 2020 with a dual remit of unlocking value from the MAC royalty over BHP’s (ASX: BHP) Southflank iron ore operation and pursuing growth through diversification of its royalties assets portfolio.
The $276 million acquisition of Trident Royalties, completed in early-September, was Deterra’s first major deal. The company’s portfolio now includes 28 assets and 15 paying royalties and offtakes. The crown jewel being Thacker Pass, and also gold offtakes that provide immediate cashflow.
As far as royalties go, few compare with the MAC cornerstone asset. But savvy investors will be closely watching iron ore prices and the outcomes of Chinese stimulus measures – which have so far failed to entice property investors back to the market.
Deterra has consistently communicated its intention to pursue growth through smart acquisitions, and its decision to grow and diversify already seems a well-timed bid decouple company performance from iron ore’s macro-economic thematics.
Julian Andrews, Managing Director and Chief Executive Officer of Deterra said,
“[Thacker Pass is] a high priority asset with considerable strategic value for the United States.
“Once finalised, the JV Agreement with GM, coupled with the DOE Loan, will see capex for Phase 1 largely secured. As a key development asset within Deterra’s portfolio, we look forward to further updates as LAC and GM progress to FID.”
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