The price of lithium is at rock bottom – yet the lithium producer Rock Tech Lithium is planning a new multi-million dollar converter project in Guben. We asked for more details.
By Carsten Müller
August 27, 2024, 12:16 PM | Updated August 27, 2024, 12:32 PM
[Original Version of this Interview was published in German; translation by Rock Tech]
At a glance:
- Has the lithium price bottomed out?
- Rock Tech Lithium with 3 projects in the pipeline
- What is the status of the financing for the Guben project?
- Rock Tech Lithium focuses on recycling
- Will valuation be updated soon?
The prices for battery-grade lithium have plummeted over the past year and a half. However, there now seems to be the possibility of some stabilization. We discussed whether there could be a trend reversal with Dirk Harbecke, CEO of the German-Canadian lithium producer Rock Tech Lithium. We also discussed how his company handles the current market situation, its strategic plans for the coming years, and why the first lithium production facility is being built in Guben, Germany.
Finanztrends: Mr. Harbecke, although global demand for electric vehicles continues to rise, the lithium price on the world market has been on a downward trend since the beginning of 2023. What are the key factors influencing this price pressure, and could this change in the near future?
Dirk Harbecke: To understand this, we need to look back a bit further. Initially, prices rose very high with extreme volatility, which in the raw materials market always means that many mines and raw material sources start producing, even those that normally aren’t competitive. This leads to oversupply, which in turn causes prices to fall again, and that’s exactly what we’ve seen in the last year and a half. For example, in China, many mines with lepidolite lithium deposits, which have high production cost, became profitable because raw material prices and eventually the prices of lithium chemicals for battery cells rose extremely high, probably too high.
Lithium Supply and Demand: Can We Meet It? (visualcapitalist.com); LCE = Lithium Carbonate Equivalent
This situation has now corrected itself, and we’ve seen a clear downward overcorrection over the last twelve months. Current market prices are so low that they are no longer sustainable, as even very efficient mining projects can barely operate profitably. This indicates to me that we have reached a low point. I believe that a shortage will re-enter the market, and thus the lithium price could rise again in the coming months.
What’s the state of e-mobility?
Finanztrends: How do current trends in the electric vehicle market, particularly in China and Europe, influence this?
Dirk Harbecke: In Europe, we’ve seen that the approach hasn’t been as committed as it has been in China and other Asian markets. In China, two-thirds of all electric cars are now cheaper than comparable gasoline vehicles. In Germany, however, electric cars are being sold at higher prices, which I believe are too high.
This dampens demand. Additionally, there have been negative effects, especially in Germany, where the electric car subsidy was cut or eliminated overnight last year. However, we can see that good markets work without subsidies, as evidenced by the unbridled growth of electric vehicles in China. In Europe, we’ve noticed that the high battery cell and raw material prices made it difficult for car manufacturers to achieve price parity. Until recently, prices per kilowatt-hour in the battery cell sector were over $100.
Now, global production costs, including raw materials, are around $60 per kilowatt-hour. There is broad industry consensus that price parity between batteries and conventional combustion engines is achieved at around $100. We are now significantly cheaper and will remain below $100 permanently. It is now a question of conviction, particularly for the European auto industry, on how quickly they can not only produce these affordable electric cars but also bring them to market at competitive prices.
Light-house Project Guben
Finanztrends: Your company currently has three concrete projects in planning or under construction: two converters and a mine. One planned converter and the lithium mine are in Canada. The highlight, likely to garner the most attention in Germany, is the planned converter in Guben near the Polish border. What are the reasons for choosing this location, and how far along is the project?
Dirk Harbecke: We are now in the final financing phase, and by the end of the year, we expect to make the so-called Final Investment Decision (FID) and immediately start construction. About three years ago, we began a very extensive selection process for a suitable location across Europe. We decided that our first converter should be built in Europe. The main reason is that we believe in regional value chains, especially in e-mobility. Over 100 criteria, such as energy supply or access to employees, must be met for a location to be perfect for us. There are also regional criteria. Guben is a European city, with half in Germany and the other half in Poland, giving us direct access to the Polish market, which was very important to us.
Additionally, we are in Brandenburg, a region known for electromobility. Tesla has its Gigafactory there, and BASF is involved in battery cell recycling. To my knowledge, over 50 or 60 electromobility companies operate in Brandenburg. Guben ultimately also was chosen because there were no public objections to the settlement, which positively influenced the approval process.
Regarding the project’s status, over the past two years, we have worked with up to 200 engineers on detailed engineering and the approval process. This was a huge effort, with around 50 million euros invested solely in the Guben project to show the scale of what it takes to plan and implement such a facility. As for financing, we’ve also applied for federal funding.
Finanztrends: Could you elaborate on that?
Dirk Harbecke: Certainly. Last summer, when the international location competition for converters like ours began, Germany’s Ministry of Economics launched a funding program under the European directive TCTF (Temporary Crisis and Transition Framework) to ensure a level playing field internationally, similar to what’s offered in other regions like the USA. This was a great opportunity for us to apply for funding comparable to what we could receive abroad.
To make it transparent, in Canada, we are applying for grants covering over 30% of our total CAPEX for our Canadian converter. In Germany, our CAPEX is 730 million euros. Applying similar values, we’re looking at over 200 million euros. So, last summer, we applied for up to 200 million euros under this program at the Federal Ministry of Economics.
However, I want to emphasize that it wasn’t about needing the 200 million euros to successfully implement the Guben project. That’s an important point, often misunderstood or criticized in the media. The application process simply required us to apply for the amount we would receive internationally. The real issue was that this selection process took much longer than initially promised.
It wasn’t until May of this year that we were informed that due to budget constraints at the federal level, there was no significant financial support available. However, I had already received signals – which is also very important – that the state of Brandenburg could step in under the TCTF program. Ultimately, Brandenburg and other sources provided about 100 million euros. This, plus guarantees, is enough to meet the threshold for our overall financing. So, it was never necessary for us to receive 200 million euros in cash.
Finanztrends: Does that mean all the financing components for the Guben converter project are now secured?
Dirk Harbecke: That’s indeed the most crucial point, as we are assembling a total financing package of 800 million euros: 730 million euros in CAPEX, as I mentioned, plus 70 million euros to cover cost overruns and the start-up of the converter. For all involved parties, including the banking consortium and various global equity partners, it was important to see a signal from Germany, specifically the state of Brandenburg, that we are receiving public support.
With that signal, we have been able to intensify our negotiations with banks and equity partners significantly. We are close to reaching an agreement with equity partners, including global corporations. We are very confident that we will have our total financing in place by the end of the year.
This is also important because there have been reports in the press, and we’ve been unfairly criticized in my view, that the subsidies are formally only approved until the end of the year. But this has to do with budgeting. We’ve had intense discussions with the ministry and the state government. They need to fit this into an annual budget, and we’ve said we’ll get everything done this year. They have agreed to provide us with these funds in 2024. But I’m confident that the subsidies and the entire project won’t be jeopardized even if we take an extra week or two to finalize our financing. That won’t happen because this project is genuinely supported in Brandenburg and Germany.
Recycling as a Key Focus Area
Finanztrends: Regarding your future business, you’re putting a significant emphasis on recycling. What is the business rationale behind this?
Dirk Harbecke: From day one, we’ve placed a strong focus on recycling. The rationale is twofold: Firstly, once enough lithium and battery raw materials are in the supply chain, it makes no sense to discard them after just one use. We want to promote recycling and establish a circular economy.
Secondly, especially with the regionalization in Europe, we do not have sufficient raw materials available domestically. Several projects are underway, but they are still years away from production. We have made it clear that we are building our facility in a way that allows us to accept and process raw materials from around the world. But, as soon as the first recyclable lithium becomes available in Europe, we intend to be the primary buyer of recycled lithium.
Many parties in Europe are working on recycling. For example, BASF is planning a large recycling plant in Spain. Companies like Aurubis and Umicore, Europe’s largest cathode manufacturer, are also actively involved. Recycling itself is a complex business with many participants. It involves collecting battery cells, shredding them, and producing a dark dust known as black mass. So far, nickel, cobalt, and manganese are extracted from this black mass, with the rest being discarded.
This is changing thanks to technological developments, enabling the extraction of lithium from the remaining black mass. Typically, this results in a low-grade lithium chemical, usually lithium sulfate. We are better equipped than Umicore to further process this material because this process is complex and costly, and our facilities are specifically designed for it. In other words, we will purchase this material from them and process it further in our converter to produce battery-grade lithium.
I personally expect that by 2030, we will be able to replace 25 to 30 percent of our raw materials through recycling, and by the mid-2030s, we could reach a 50 percent recycling rate. Achieving 100 percent will take much longer, but it’s important to note that Rock Tech will produce enough lithium for approximately 500,000 cars annually. This means that in ten years, we will already be able to build a complete recycling and circular economy for 250,000 electric vehicles in Europe, with our involvement.
Financial Performance and Outlook
Finanztrends: A few days ago, you released figures for the second quarter and the first half of 2024. Rock Tech Lithium remains in the red, but losses have noticeably decreased compared to last year. What were the key factors in this reduction?
Dirk Harbecke: We began significantly reducing costs in Q4 2023. After completing the planning for our Guben converter and submitting all the necessary approval documents, we downsized our team and drastically cut costs related to our external engineering service providers. These cost reductions became fully effective from Q2 2024 onwards—we managed to reduce personnel and service provider costs by around 60% compared to the previous quarter. It’s also worth noting that in the last quarter, a large one-time expense accounted for about 50% of our total expenditures: the permit fee to the state of Brandenburg for our final construction and operational permit for Guben. Our cost base is now very low.
Valuation and Future Prospects
Finanztrends: Lastly, let’s discuss valuation. Currently, the stock price primarily reflects the weak lithium market. Are there any initiatives from Rock Tech that could boost valuation independently of lithium prices?
Dirk Harbecke: Absolutely, and this is closely tied to our Guben project. As I have mentioned a few times, with such a large total financing package of 800 million euros, the valuation of each of our assets, where we bring in investors, will be higher than the current overall valuation of our company. The investors involved will value each individual asset higher than our holding company.
We have three assets (two converters and a mine), and I believe each one is already valued higher than our current stock price suggests. This alone implies that a fair value is at least three times the current stock price. For Guben, we’ve disclosed that we have a Net Present Value (NPV) of approximately 1.2 billion euros. After subtracting project financing and subsidies, we arrive at an equity value of 600 million euros. In large negotiations, you typically offer your global partners, who come on board, a certain discount. However, this discount isn’t 80 percent—it’s more like 20 to 30 percent. You can already see where this would lead us in terms of valuation.
We are on the verge of reaching an agreement with the first of our international partners. This is a global lithium company, one of the largest in the world. I believe this will be the proof of concept the market has been waiting for—to see that it’s not just me talking about possibilities but that there is a real proof of concept with a global corporation that is willing to pay for this valuation and contribute lithium, know-how, etc. We will finalize this agreement shortly. However, I can’t promise that we will be able to announce it immediately.
That’s an important component because, typically, in large financing deals, everything is announced together once all equity and debt partners are on board. However, we understand that the market is not just waiting for our statements but for clear signals backed by facts. We will make every effort to quickly disclose as much of these negotiation results and signed agreements as possible. This will undoubtedly have a significant impact on our valuation.
Finanztrends: Mr. Harbecke, thank you very much for the conversation.