Core Lithium could face compounding financial liability due to unmet offtake obligations with Ganfeng and Yahua

Australian lithium producer Core Lithium released the half year financial report and the step down of CEO on 12 March. Disclosures point to multiple challenges ahead, including financial loss, inability to fulfill offtake agreements, and management executives reshuffle due to the downturn in lithium prices.

Core Lithium reports an interim loss of AU$167.6 million, with an impairment loss of AU$119.6 million recorded regarding non-financial assets such as stripping activity assets and mine properties as a result of suspending mining at the Grants open pit during operational review earlier this year.

Core Lithium further mentions that the suspension of mining operations may affect its ability to meet offtake agreement obligations.

In 2019, the company went into a binding offtake agreement of delivering 75,000 tonnes of spodumene concentrate per annum over four years to Sichuan Yahua, followed by another agreement with the same volume with Ganfeng in 2021, which, ideally, contracted 80% sales of Finniss' stage 1 production over the first 4 years of mine life.

In reality, the project achieved the first concentrate production in February 2023, and produced 67,803 tonnes of spodumene concentrate and 64,000 tonnes of lithium fines material sold as a ~1% lithia product in the whole calendar year 2023. Also considering the half year report lowers the FY2024 production guidance to 90,000 to 95,000 tonnes of concentrate, Core Lithium has difficulties in meeting these contractual obligations.

If the situation occurs, Core Lithium is obligated to pay the customer the difference between the agreed price and the price of customers' actual payment for the replacement supply of spodumene concentrate. These potential liabilities further add to the disadvantages faced by Core Lithium.

Author: Hongqiu Su | Battery Metals Analyst Associate | London Office, Shanghai Metals Market

Email: lilysu@smm.cn