Shares in Piedmont Lithium (ASX, NASDAQ: PLL) have rocketed following confirmation the smallcap lithium explorer has secured Tesla Inc (NASDAQ: TSLA) as a flagship customer under a binding 5-year supply agreement.
The agreement will see Piedmont supply spodumene concentrate (SP6) to Tesla from their North Carolina project and represents one-third of their planned 160,000 tonnes per annum production under a fixed-price purchase commitment.
“We are excited to be working with Tesla, which represents the start of the first US domestic lithium supply chain and a disruption to the current value chain,” said Piedmont CEO, Keith Phillips.
“The Agreement highlights the strategic importance of Piedmont’s unique American spodumene deposit and confirms the trend toward spodumene as the preferred feedstock for the lithium hydroxide required in high-nickel batteries.”
“We will now accelerate our mine/concentrator development to support Tesla’s plans, work to further expand our mineral resources, and potentially increase our planned annual spodumene concentrate production capacity.”
Although the planned supply to Tesla represents one third of production, Piedmont forecasts the revenue to represent only 10-20% of revenue from its proposed mine-to-hydroxide project, maintaining other commercial opportunities for remaining supply to be negotiated.
The Tesla agreement is also conditional upon a start date for spodumene deliveries between July 2022 and July 2023 with Piedmont still needing to construct production facilities, of which funding will be securable under the premise of Tesla’s purchase commitments.
From a business case perspective, North Carolina is one of the world’s most favourable mining locations in the world where the State has zero State mining royalty fees and a corporate tax rate of 23%.
The project has been scoped to contain 764,000 tonnes of lithium carbonate equivalent (LCE) however Piedmont will be seeking to increase this with further drilling over the next 12 months while also releasing a Definitive Feasibility Study.
According to Piedmont, Electric vehicle (EV) penetration is projected to grow from ~3% to ~30% by 2030
Upon resumption of trade following their ASX trading halt for the announcement of their Tesla agreement, PLL shares surged to an intraday high of $0.275 which represented an 83% rise on their previous $0.15 close.