..this below is an expressed bank lending sentiment on the lithium sector in 2019, even when lithium pricing was soaring. Lithium projects would need to secure offshore financing which won't come cheap unless supported by sovereign related funding sources for mines located in offshore jurisdictions (namely USA, EU and perhaps Canada). Australian based lithium projects would be hard pressed to secure local financing and may need to resort to large discounted CR (similar as we've seen with Albemarle).
...this is why risk is high with local based lithium projects as they are unlikely to get off the ground on their own without access to capital financing. Their best bet would be to get acquired by larger players like Mineral Resources if it can still possess the appetite, sitting on a big debt.
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For small caps looking to build their first mining operation, securing project finance is a tough slog.
It’s even harder for companies with lithium projects because, unlike gold or base metals, lithium contracts are ultimately decided between buyer and seller behind closed doors.
Commercial banks aren’t willing to risk big dollars on such an opaque market.
And it’s not as simple as asking ‘what’s the price of lithium?’, either, because there’s numerous product categories adding another layer of complexity.
Benchmark Minerals Intelligence, for example, tracks about 11 different grade-specific prices for lithium carbonate, lithium hydroxide, and spodumene concentrate.
Independent corporate law firm Gilbert + Tobin has advised on almost all major lithium project developments in Western Australia in the past two years.
Partner Justin Little says the absence of published index prices for spodumene concentrate means banks are snubbing major lithium project investments, due to a lack of confidence in their ability to hedge in an ‘opaque’ market.
“With up to 30 different reporting agencies offering lithium price bulletins according to lithium content, chemical state, the location of the buyer and whether the lithium is sold on long-term contracts or the spot market, it is easy to understand why uncertainty exists in the market,” says Little.
“In our experience with lithium clients, we have seen this uncertainty result in Australian banks only opting to provide short-term credit provisions rather than major project investments.
“If banks maintain this reluctance to get involved in lithium projects prior to production, it has the inevitable consequence of pushing companies towards far more expensive offshore bond markets, large private equity groups, or pursuing funding options with customers, as many have already done.”
