By Rhiannon Hoyle


Battery maker LG Energy Solution and Australian lithium company Liontown Resources will jointly consider developing a refinery for producing battery-grade lithium, as companies plot new supply chains that bypass China even amid a collapse in prices for the critical mineral.

The collaboration is part of an expanded partnership between the pair that includes an investment of $250 million by LG Energy Solution in Liontown via convertible notes, and an expanded supply deal for lithium-rich spodumene concentrate from the Australian company's Kathleen Valley project.

Liontown is developing one of the world's largest and highest-grade hard rock deposits of lithium, a metal used in batteries for electric vehicles, smartphones and other gadgets. The mine is expected to be in production by the end of July.

Liontown has been building the Kathleen Valley project amid a backdrop of sharply falling prices, as lithium companies have started producing more at a time of lackluster demand. One benchmark price for refined lithium carbonate in Asia is a third of what it was a year ago.

Even still, battery producers and car manufacturers have continued to lock in deals with miners that can future-proof their supply chains. More than half of all lithium is mined in Australia but most is shipped to China, which plays a dominant role globally in lithium refining and battery-cell production.

LG Energy Solution and Liontown said they will begin studies for the development of a refinery that would process spodumene from Kathleen Valley into battery-grade lithium chemicals and be compliant with the U.S. Inflation Reduction Act. U.S. auto manufacturers are facing a series of escalating requirements that electric vehicles exclude critical minerals and other materials from some foreign countries, including China, to benefit from tax credits.

LG Energy Solution wants to ensure it has a stable supply of IRA-compliant critical minerals, said David Kim, the South Korean company's chief executive.

"The agreement represents another significant step in our value chain investment strategy aimed at enhancing its resilience to market uncertainties," said Kim.

The companies' existing five-year supply deal for spodumene concentrate was expanded to 15 years. Liontown said the five-year convertible notes, if converted today, would give LG Energy Solution a roughly 8% stake in the company.

Shares in Liontown closed more than 7% higher Tuesday.

Liontown's large lithium resource has attracted rival mining companies seeking to increase their exposure to the critical mineral. Liontown was last year pursued by Charlotte, N.C.-based lithium giant Albemarle, but its roughly $4 billion takeover plan fell apart after a company owned by Gina Rinehart, Australia's richest person, acquired nearly 20% of Liontown's stock.

Liontown already has a partnership with Japan's Sumitomo to explore options for producing battery-grade lithium in Japan, a process that will continue in parallel. The Kathleen Valley resource is large enough to feed multiple refineries, Liontown executives said on a conference call Tuesday.

"The world wants diversity of supply," said Liontown Chief Executive Tony Ottaviano.


Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com


(END) Dow Jones Newswires

07-02-24 0345ET