Ganfeng Lithium agreed the purchase of SQM’s 50% stake in the Cauchari-Olaroz lithium project in Argentina. Minera Exar, the joint venture company formed between Lithium Americas and SQM in 2016, will remain the operator of the Cauchari-Olaroz project.
Ganfeng will pay US$87.5M to SQM upon closing of the deal, with a further US$50M payment to SQM upon achieving agreed criteria after the project has reached commercial production. An unsecured, limited resources, subordinate loan facility of US$100M will also be provided by Ganfeng for development of the project. As part of the agreement, Lithium Americas ownership of Minera Exar will increase from 50% to 62.5%, through the conversion of funds contributed to the development of the Cauchari-Olaroz, with Ganfeng Lithium holding the remaining 37.5% interest. The purchase of SQM’s stake is scheduled to be completed in Q4 2018.
The sale of SQM’s 50% shareholding in the Cauchari-Olaroz project has been attributed to SQM refocusing its attention on the planned expansion of the Salar de Atacama operation in Chile and the joint venture with Kidman Resources in Australia. At the end, SQM made a lot of profit from the deal, because they only invested 25 Mio USD to enter the partnership. From a more strategic view, the withdrawal is maybe not a good decision, because there are only a few promising salar projects under development. Diversifying from Chile to Argentina could also be positive, although Argentina is politically and economically more instable.
The loan facility provided by Ganfeng is expected to allow a smooth financing of project development under the proposed schedule.
From my point of view the overall purchase price is at the higher end. With Ganfeng as a partner, the likelihood that the project will reach commercial production is very high. It is one of the few salar projects with positive outlook. The main driver for Ganfeng to engage should be production cost related. Salar projects have significant lower cash cost compared to hard rock projects.
First production from the Cauchari-Olaroz project is scheduled for late-2020, with production capacity scheduled to total 25,000tpy LCE in stage 1.