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MinRes scraps lithiumdeal, puts foot on more gas

Mineral Resources and its Chinesepartner, Ganfeng, have torn up a deal involving downstream processing of lithium from their Mt Marion mine in Western Australia.

Chris Ellison-led MinRes announced the relationship reset and adowngrade in guidance for its lithium operations on the same day the companyhailed a new gas discovery in the Perth Basin.

Mr Ellison also welcomed drilling results that he said showdMinRes was “just scratching the surface” when it came to the potential size ofthe Mt Marion lithium mine.

MinRes said a tolling agreement with Ganfeng to convertspodumene from Mt Marion into lithium hydroxide had been terminated by mutualagreement effective June 1.

The company will now receive no payment for sales of lithiumbattery chemicals in calendar 2023 and withdrew guidance for lithium batterychemical sales of 19,000 to 21,300 tonnes for the financial year ending June30.

The scrapping of the agreement comes amid a softening of batterychemicals prices in China not reflected in spodumene prices.

It marks a big turnaround from thefirst six months of this financial year when MinRes reported record earningsfrom lithium hydroxide tonnes sold under the tolling agreement.

Last month, analysts at Citi suggested spodumene prices were sohigh that many hydroxide refiners in China would be losing money. Mr Ellisonsaid the early termination of the toll treatment agreement was “a sensibleoutcome given prevailing market prices”.

In a statement to the ASX on Friday, MinRes said: “The companywill continue to sell its share of spodumene concentrate to Ganfeng atprevailing market prices.”

MinRes said construction of the processing plant at Mt Marionwas completed this month and commissioning has started. However, a shipment ofspodumene that had been expected to leave WA this month is now scheduled to bedelivered in July.

MinRes reduced Mt Marion spodumene shipment guidance from thelower end of 160,000-180,000 tonnes to 145,000-150,000 tonnes. MinRes alsopulled back on expectations for shipments from its Wodgina lithium mine, ownedin partnership with New York-listed battery chemical giant and Liontown suitor Albemarle.

It said Wodgina volumes would be at the lower end of spodumeneguidance of 150,000-170,000 tonnes and lithium battery chemicals guidance of11,500-12,500 tonnes. The costs of producing spodumene at Wodgina have jumpedin another blow to the lithium operations, with guidance up from $850-$900 atonne to $925-975 a tonne.

On the plus side for Mt Marion, drilling results suggest theremight be potential to expand the open pit mining operation and to considerunderground mining.

MinRes said it had made significant natural gas discovery atNorth Erregulla in the Perth Basin, where its near neighbours include GinaRinehart’s Hancock Energy. MinRes is hailing it as the company’s second majordiscovery from three wells drilled over the past two years on its Perth Basinfootprint.

The latest drilling success is less than 9 kilometres from itsLockyer Deep discovery, with Mr Ellison keen to move into gas production afterappointing Darren Hardy to run the company’s energy division.

“His immediate focus is the successful completion of the PerthBasin drilling campaign and the development of these major discoveries intoproduction,” Mr Ellison said.

MinRes is hopeful the North Erregulla Deep-1 well represents anew field after intersecting an “exceptional quality” interval of gas.

The company’s gas ambitions suffered a blow in April withdisappointing follow up well at Lockyer Deep.