Lithium Australia NL’s (ASX:LIT) (FRA:3MW) wholly-owned subsidiary VSPC Ltd has finalised its strategy for entering the battery supply chain, initially by producing lithium ferro phosphate (LFP) cathode powders within China.
VSPC intends to follow this up with subsequent expansion to other markets as demand increases as LFP batteries experience strong growth.
LIT's shares have been as much as 18% higher to 5.3 cents intra-day after opening at 4.5 cents.
Paving way for commercial production
Lithium Australia managing director Adrian Griffin said: “VSPC produces some of the most advanced LFP cathode powders available and has struck a number of deals to pave the way for first commercial production in the near future.
“The first stage of development will allow market penetration with minimal capital investment and is a convenient means of establishing a customer base.
“The second stage will enable delivery into expanding and more lucrative markets.”
LFP batteries provide significant benefits over other established lithium-ion batteries with lower production costs, more sustainable metal inputs, greater longevity and a wider operational temperature range.
Manufacturers driving demand
Major battery producers are investing in expanded production, not only for electric vehicle (EV) and energy storage applications but also for the lead-acid battery replacement market.
This environment has seen new investment in LFP batteries by Contemporary Amperex Technology Co Ltd (SHE:300750) and even LFP-powered Teslas planned for China where the market for LFP battery-powered trucks and buses is strong.
Competitive advantage
VSPC has undertaken cost analysis of competitive LFP production in China and anticipates being able to produce a product with better performance characteristics than those of competitors in the same cost bracket.
The low-capital market entry has an estimated payback of two years and an EBITDA of US$3.4 million per annum.
VSPC is confident that longer-term development outside China includes much more attractive financial metrics.
It is negotiating with Chinese process technology company Beijing Saideli Technology Incorporated Company Ltd (SDL) to produce LFP to VSPC specifications in an existing SDL plant.
The structure of the agreement will not only allow VSPC market entry with little capital expenditure but also meet the final cost hurdle in its agreement with DLG Battery Co. Ltd (DLG) and achieve preferred supplier status.
Next steps
VSPC plans initial production of up to 1,200 tonnes per annum to supplement Chinese supply and is in discussions with cathode producers for the supply of 500-1000 tonnes per annum by 2022.
While COVID-19 has had an impact on markets everywhere, a rapid recovery in China’s domestic market for LFP is likely.
VSPC will expand its strategy by conducting a definitive feasibility study on a commercial plant outside China in 2021.
The second stage of the company’s strategy is to expand to a 5,000 tonnes per annum cathode powder production plant that can service the fast-growing international markets.