Ganfeng Lithium announced that its wholly-owned subsidiary Ganfeng International plans to use its own funds of up to 65 million USD to acquire a stake not exceeding 5% in Mali Lithium, a subsidiary of Leo Lithium. After the transaction, Ganfeng Lithium will hold no more than 60% of Mali Lithium's shares, indirectly holding up to 60% of the equity in the spodumene Goulamina Project.
Notably, Ganfeng Lithium's additional investment in the Mali spodumene Goulamina Project dates back to September 6, 2023, when Ganfeng International subscribed to new shares in Mali Lithium with an investment not exceeding 138 million USD to fund subsequent construction and capital expenditure of the Goulamina Project. After the investment, Ganfeng International held 55% of Mali Lithium's shares, thus indirectly owning 55% equity in the Goulamina Project. According to the announcement, Leo Lithium's main business involves the exploration and development of lithium resources in Mali. Its key asset is the spodumene Goulamina Project in Mali, with an area of 100 square kilometers and a validity of 30 years. Based on the JORC Code-compliant resource estimates for the Goulamina spodumene mine announced by Leo Lithium, there are 13.1 million tons of proven mineral resources, with 210,000 tons of lithium oxide at an average grade of 1.59%. The controlled mineral resource is 89.2 million tons, containing 1.28 million tons of lithium oxide at an average grade of 1.43%. The total resource amount is 2.11 billion tons of ore, containing 2.89 million tons of lithium oxide at an average grade of 1.37%. Currently, construction of the first phase of the Goulamina Project with an annual production capacity of 506,000 tons of spodumene concentrate is underway, with the first phase planned to commence production in 2024.
According to the previous project cooperation agreement, Ganfeng Lithium will have the right to underwrite up to 100% of the annual production capacity of 506,000 tons of spodumene concentrate from the first phase of the Goulamina Project; it will enjoy underwriting rights to 70% of the annual production capacity of the second phase's 500,000 tons of spodumene concentrate; and for the third phase of the expansion of spodumene production, Ganfeng Lithium and Leo Lithium will have underwriting rights in proportion to their respective equities in the project. Regarding the purpose of this transaction, Ganfeng Lithium stated that it is beneficial to promote the development and construction of the Goulamina spodumene mine project, further secure the company's demand for lithium resources, benefit business expansion, enhance core competitiveness, and align with the company's upstream and downstream integration and the development strategy of the new energy vehicle industry. At the same time, Ganfeng Lithium also said that although this transaction will result in a net cash outflow, it will not significantly affect the company's normal operating funds, and it is expected to have a positive impact on the company's future financial condition and business results. After the announcement, on the first trading day, January 18, Ganfeng Lithium’s stock price fluctuated and rose during the session, closing at 42.2 yuan per share, an increase of 2.7%.
In response to media inquiries about why Ganfeng Lithium is still increasing its spodumene purchase volume against the backdrop of an oversupply in the overall lithium-ion industry, Ganfeng Lithium candidly stated that regardless of market prices, enterprises still need to produce normally and securing raw material supply is a top priority. Although there are fluctuations in the lithium-ion industry, the overall trend is still positive, with an annual increase of 150,000 tons of raw materials, corresponding to about 200,000 tons of lithium salt products – not a significant increase.
With lithium prices still low, there have already been reports of production cuts and suspensions from overseas lithium mines, exemplified by the sudden announcement on January 5 by Australian lithium miner Core Lithium, which decided to suspend mining operations at the Finniss Lithium Project in response to the continuing decline in lithium prices. Against this backdrop, Ganfeng Lithium's move is undoubtedly a counter-cyclical investment in lithium resources. Although the current fundamentals of the lithium industry maintain an oversupply, the future development prospects for the new energy industry are considerable, especially as global focus on the environment intensifies. The previous boom and bust of lithium prices have caused volatility in the performance of companies relying on external procurement of lithium concentrate; securing lithium resources to stabilize supply and reduce costs is crucial for companies committed to integrated layout. Previously, due to the drop in lithium prices, Ganfeng Lithium's net profit for the first three quarters fell by 59.38% year-on-year. In terms of self-sufficiency in lithium resources, Ping An Securities research reports showed that Ganfeng Lithium's self-sufficiency rate of lithium resources increased to 44.7% in 2022 and is expected to further increase to 58.6% in 2023. According to Ganfeng Lithium's estimates, the company's own resources supply ratio is expected to reach around 70% in the future.
