Galan Lithium (ASX: GLN) has signed a memorandum of understanding (MoU) with China-based Chengdu Chemphys Chemical Industry Co., paving the way for a US$40 million (AU$58.94 million) funding and offtake package at its Hombre Muerto West (HMW) lithium brine project in Argentina.
The package, subject to due diligence, will be in exchange for a five-year purchase agreement for Galan to deliver a total of 23,000 tonnes of lithium carbonate equivalent material to the Chinese firm.
Galan’s 100 per cent-owned flagship HMW, which features a recently-updated resource estimate of 8.6 million tonnes grading a lithium carbonate equivalent (LCE) of 859 milligrams per litre (mg/l), has been making steady progress towards nameplate capacity for phase-one production. The company recently reported that it is close to completing its fourth and fifth evaporation ponds and once they are operational, they are expected to produce 5400 tonnes per annum (tpa) of lithium concentrate.
Future plans involve the project moving to phase-two production of 21,000tpa and ultimately, phase three, which will deliver a mighty 60,000tpa of concentrate.
Despite delays caused by a drawn-out funding process, today’s news is a positive development. Management believes that once the deal with Chemphys is finalised, export licenses should also be immediately issued.
The permitting process for the project’s second phase is progressing steadily and the company says its applications for both the HMW operation and its earlier-stage Candelas project are receiving staunch support from the Catamarca Government.
The high-grade, low-impurity lithium chloride samples Galan has been producing from the HMW pilot plant have been very well received by lithium converters leading to this agreement with Chemphys. The offtake partnership and the financing prepayment will be foundational agreements for the HMW project and Galan.
Galan Lithium Managing Director Juan Pablo Vargas de la Vega
De la Vega described Chemphys as a leader in processing lithium products in China and a “trusted partner” to some of the world’s biggest battery manufacturers.
Headquartered in Sichuan Province’s capital city of Chengdu, the company has been at the forefront of producing high-grade lithium chemicals since 1998 and its founder played a key role in introducing spodumene to China almost 30 years ago. Interest in the location of the Chemphys’ operations has also intensified recently after the province confirmed it wanted to become a “world-class lithium battery production base” within the next five years.
On signing the MoU today, Chemphys management says it places strong importance on the quality of lithium supply and the visibility of its supply chain and believes Galan will be a “great” partner for it going forward.
It also comes at a time when China is encouraging battery manufacturers to switch to the newer lithium ferrophosphate (LFP) batteries given the improved weight, reliability and superior charging speed qualities they command over the older lithium-ion versions.
The LFP battery is produced using a lithium carbonate feedstock – which is cheaper to produce from the product that Galan is aiming to export. By avoiding the costly step of acid-roasting spodumene before it is refined into a carbonate, brine producers have a significant advantage over hard rock producers.
Notwithstanding the current low lithium prices, Galan appears to be on the cusp of unlocking a long-lasting cash flow that should be sufficient enough to fund the majority of its future growth plans as it seeks to restore shareholder value.
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