Tesla Deal Shows Wall Of Demand Coming At Australian Lithium Producers

By Barry Fitzgerald | More Articles by Barry Fitzgerald

Doubts expressed by some big name investment banks and others that over-supply would kill off the lithium boom have been swept aside in fine fashion by Kidman (KDR) and the leading marque for electric vehicles and battery storage of renewable energy, Elon Musk’s Tesla.

Having said that, the point of difference here is we’re talking about battery grade lithium which sells for anywhere between $US12,000 and $US20,000 at the moment, not the direct ship ore and spodumene concentrates being shipped out of Western Australia by others for $US100/t and $US900/t respectively.

Kidman has just signed a binding take-or-pay, fixed price, three year lithium hydroxide supply deal with Tesla, with two three year term options.

The other commercial terms are “strictly confidential’’ but it has got to be assumed Kidman has retained the right to negotiate the price in the last year of the first three year contract.

If it doesn’t like the price, it would presumably get the right to shop the volumes around the market, giving Tesla a first right of refusal.

So much for the mechanics of the deal. More interesting is what it says about the wall of demand coming at Western Australia’s lithium sector from the world’s auto makers, and lithium battery makers in general.

How come? Why else would Tesla agree to a take-or-pay and fixed price deal where first production of both mine product (Mt Holland) and lithium hydroxide (Kwinana) are still subject to feasibility studies.

Mt Holland is clearly a Tier 1 resource so it will be developed. Same goes for the Kwinana refinery proposal where margins on all-in sustaining costs of say $US6,000/t for a $US12k-$US20K/t product are as tempting as things get.

Plus, Sipa’s cracking JV with Rio highlights project’s potential. Read more +

About Barry Fitzgerald

Barry Fitzgerald has covered the resources industry for 30 years. His column highlights the issues, opportunities and challenges for small and mid-cap resources stocks - most recently penned his column for The Australian newspaper and before that, The Age.

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