Australian mining firm, European Lithium Ltd (ASX:EUR, OTCQB:EULIF), and Saudi industrial titan, Obeikan Group, are collaborating on a balanced joint venture to inaugurate a lithium processing facility in Saudi Arabia. As per an announcement by European Lithium, this joint venture aligns with Saudi Arabia’s strategic diversification plan and its aspiration to nurture a vibrant supply chain for electric vehicle (EV) batteries.

The upcoming plant is slated to process lithium spodumene concentrate extracted from European Lithium’s Wolfsberg mine in Carinthia, Austria — Europe’s inaugural fully licensed lithium mine. Under a standing supply agreement, BMW will receive the lithium hydroxide generated at this facility. European Lithium is committed to delivering 9,000 tonnes of lithium hydroxide to the German automotive giant annually from 2027.

However, the intricate logistics add layers of complexity. Lithium concentrate excavated in Austria will journey to Saudi Arabia for processing into lithium hydroxide. Post-processing, the lithium hydroxide will be freighted to Germany for incorporation into EV batteries. These elaborate logistics necessitate considerable coordination and compliance with environmental and safety regulations, potential tariff implications, and the extra carbon footprint from intercontinental shipping. These factors will be crucial in evaluating the project’s feasibility and impact.

With a projected investment ranging between $350 million and $400 million, the processing facility marks Saudi Arabia’s second lithium processing initiative. It forms part of a larger strategy to develop a robust battery supply chain and mirrors the Kingdom’s commitment to diversifying its economy from oil dependence. The facility is expected to commence lithium hydroxide production in 2026.

The joint venture will exclusively procure spodumene from the existing resources of the Wolfsberg mine. This arrangement will enable European Lithium to sell lithium spodumene concentrate to the JV at discounted rates, ranging from $3,000/tonne to $7,000/tonne over Wolfsberg’s current resource lifespan.

The establishment of floor pricing is crucial in invigorating the lithium industry. Such structures present a lucrative financial environment for lithium companies, ensuring exceptional profitability. This guaranteed pricing provides stability and assurance to all stakeholders, thereby reinforcing the project’s financial foundation.

This might trigger a positive ripple effect on the valuation of global lithium development companies. With augmented profitability and financial stability, these firms could entice a larger investor pool, possibly instigating a worldwide investment surge in the lithium sector.

European Lithium’s Chairman, Tony Sage, predicts substantial operational and economic benefits from this strategic collaboration, including notable reductions in energy costs, financing expenses, and taxation. He underscored the need for global lithium processing diversification — presently controlled by China — and voiced concerns over potential global energy transition setbacks if China ever limits its lithium exports.

Saudi Arabia’s investments in American EV manufacturer Lucid Motors and its own EV brand, Ceer, further underscore its commitment to the EV industry.

European Lithium estimates that the total capital expenditure for developing the Wolfsberg mine, a nearby ore concentrator, and the Saudi plant will range between $800 million and $900 million. The company also aims to secure a secondary Nasdaq listing through a special purpose acquisition company, or a blank cheque merger, shortly as part of its growth strategy.

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Sources:

• European Lithium: https://wcsecure.weblink.com.au/pdf/EUR/02672442.pdf
• Mining.com: https://www.mining.com/european-lithium-signs-deal-with-obeikan-group-for-hydroxide-processing-plant-in-saudi-arabia/
• Financial Times: https://www.ft.com/content/89b26197-87e9-4aa6-adde-797131af3d8a