Vulcan to fund lithium hydroxide plant with $265m cash injection

May 24, 2023

It is looking increasingly likely that Vulcan Energy may be able to build its proposed €322m (AU$530m) lithium hydroxide plant in Germany without putting its hand in its pocket. A freshly signed term sheet with big European chemical and energy producer Nobian GmbH will see Nobian tip €161m (AU$265m) into a 50/50 JV vehicle which Vulcan says should be enough to secure debt funding for the remainder of the capex required to build the plant.

Notably the proposed investment by Nobian into the lithium hydroxide plant JV vehicle values just one part of Vulcan's integrated geothermal and lithium brine operation at AU$530m - and according the company's DFS, the hydroxide plant is the smaller part, accounting for just 23 per cent of Vulcan's NPV.

Vulcan's current market cap is AU$823m however included in that market cap is a remarkable AU$223m pile of cash which gives the company an enterprise value of AU$600m.

That enterprise value covers both the lithium hydroxide plant and the company's proposed geothermal and lithium extraction plant – the latter of which speaks for 77 per cent of the integrated project NPV according to Vulcan's DFS.

Vulcan and Nobian anticipate definitive agreements for the new JV to be completed within ten weeks. Vulcan's unique Zero Carbon Lithium Project aims to produce both renewable geothermal energy and lithium hydroxide for electric vehicle lithium batteries from the same deep brine source in the Upper Rhine Valley, Germany. The hydroxide plant which is the subject of the proposed Nobian deal, is to be constructed in Frankfurt and converts Lithium Chloride to Lithium Hydroxide Monohydrate for sale to Vulcan for distribution to its intended customers in Europe.

Vulcan has split its Zero Carbon Lithium Project into two special purpose vehicles known as SPV1 and SPV2. SPV1 includes the production of renewable geothermal energy and lithium chloride from wells drilled into the deep, hot, lithium-rich brine resource which is pumped to the surface. After extraction of geothermal energy and lithium, the brine is reinjected to make a closed loop process. Lithium chloride from SPV1 will be sold as a feedstock for SPV2. Interestingly, the agreement is for phase one of the project and Vulcan plans multiple phases to expand production over time.

SPV2, the subject of agreement with Nobian, includes the plant that will convert the Lithium chloride feedstock from SPV1 into Lithium Hydroxide Monohydrate at the rate of 24,000 tonnes per annum and produces a saleable hydrochloric acid by-product.

Nobian claims a deep and long-standing expertise in the crystallization, electrolysis, and production of chlor-alkali products after starting its first chlor-alkali electrolysis plant in 1894. Nobian is a European leader in the production of salt, essential chemicals and energy solutions for industry. The SPV2 agreement seeks to leverage Nobian's expertise as part of Vulcan's Zero Carbon Lithium Project, which uses chlor-alkali type electrolysis cells to produce lithium hydroxide.

Subject to the definitive agreement the Term Sheet provides that Nobian will invest EUR 161 million (about AU$265m) in cash as equity to fund capital expenditure for the hydroxide plant to acquire 50 per cent of the SPV2 Joint Venture vehicle on the basis of an agreed pre-money valuation of EUR 322 million. This will likely see Vulcan fully carried for equity investment in the hydroxide plant as the Nobian contribution of 50 per cent exceeds Vulcan's 35 per cent equity funding target. The remaining debt funding for the hydroxide plant is now being sourced by BNP Paribas and Vulcan says there are already a number of banks and Government backed export credit funds that are possibly looking for a seat at the table.

Letters of Intent have already been secured from the French, Italian and Canadian government Export Credit Agencies and Vulcan intends to have the entire debt and equity project funding in place by the first quarter of 2024.

Vulcan intends to use a similar funding strategy for the geothermal and lithium extraction plant as it has with the hydroxide plant.

Upon execution of the definitive JV agreement, Nobian will pay EUR 15 million (about AU$25 million) with further payments being project milestone based.

Vulcan is advancing the broader project by leveraging its existing cash to advance engineering and undertake the ordering of commercial long lead items whilst financing for the full project capital expenditure is ongoing.

This is a positive step forward, as part of our stated strategy to prioritise project level equity investments for funding of Phase One of our Zero Carbon Lithium™ Project. We welcome this step towards Nobian's equity investment into our Central Lithium Plant (CLP) in Germany, to assist us with providing secure, sustainable and carbon neutral lithium chemicals into the European electric vehicle market, helping to enable the transition to fully electrified transport. It is shaping up to be a very exciting and transformational year for Vulcan.

Vulcan's Upper Rhine Valley Brine Field within its Zero Carbon Lithium Project covers 1583 square km and is Europe's largest lithium resource containing 26.6 million tonnes of lithium carbonate equivalent from 10 of its 15 licenses. It is also strategically located in the middle of the European battery industry. Vulcan is aiming to become the world's first integrated lithium chemicals and renewable energy producer with net zero greenhouse gas emissions as it will rely on its own geothermal power to run the project.

At face value Vulcan's deal with Nobian looks to have hit the mark – it secures enough equity to debt fund the lithium hydroxide project without the need for Vulcan to add to its miniscule pile of just 143m shares on issue and importantly, it starts to make the whole thing look real and provides some insight into how industry puts a value on one of Vulcan's two key projects – and that's just for phase one.

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