Australian mining firm Greenwing Resources announced on September 26 that it has reached a strategic financing agreement with electric vehicle firm NIO to accelerate exploration of a lithium salt lake project in Argentina. The move means that NIO has become the first of China’s EV startups to invest in mines.
Greenwing Resources, which is publicly listed in Australia, operates three major lithium mining projects in Argentina and Madagascar. NIO, through its wholly-owned subsidiary Blue Northstar, will pay $12 million to subscribe for 21.818 million shares of Greenwing Resources at $0.55 per share. Upon completion of the placement, NIO will own about 12.2% of Greenwing Resources and will gain the right to nominate board members.
NIO also received a portion, and is expected to have an exercise price between $40 million and $80 million. Under the agreement, Greenwing will provide NIO with a detailed prospectus for the San Jorge lithium project, with an option for NIO to exercise within one year. NIO‘s investment in Greenwing would be more than 600 million yuan ($83.7 million), based on the price of the maximum option exercised.
NIO‘s primary objective in investing in Greenwing is to accelerate the development of the San Jorge lithium project and become a priority customer of the project. At least 80% of the proceeds will be used for the San Jorge site. If NIO exercises the option, the payment will also be used for the outstanding option payment on the San Jorge project, and 80% of the remaining proceeds will be used pro-rata for Greenwing’s R&D expenses and working capital.
In fact, in the first half of this year, industry sources cited by 36Kr said that NIO is intensively investigating lithium mines, with a particular focus on salt lakes in South America. Considering that NIO has been determined to self-research batteries, investment in lithium is not unexpected.
Regarding the investment, NIO said in response to 36Kr, “We will evaluate and layout the upstream fields related to the core components of smart electric vehicles to ensure long-term competitive advantages.”
According to a report released by Ping An Securities in September, Australia has 38.8 million tons of lithium resources and a reserve of 21.98 million tons of lithium resources. Due to its high-quality resources, friendly development environment and relatively mature mining technology, Australian lithium has long been the main supply source for global miners. About 55% of global lithium production in 2021 was from the country.
Over the past year, the price of lithium materials has soared, and the cost pressure has spread from battery manufacturers to new energy vehicle companies. Battery manufacturers such as CATL, BYD and Sunwoda, as well as EV makers such as Tesla and Toyota, have all engaged upstream lithium suppliers to varying degrees.
In July, a joint venture involving Sunwoda proposed to pay $27 million for the Laguna Caro project owned by Argentinian lithium miner Goldinka Energy SA. At the end of 2021, GAC Capital, a subsidiary of GAC Group, joined with Shangqi Capital, a subsidiary of SAIC Motor, to invest 300 million yuan in Jiuling Lithium. Earlier, Great Wall Motor also secured exclusive rights to some lithium minerals through its investment in Pilbara Minerals, an Australian lithium miner.
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Car companies are rushing to invest in lithium due to contradictions between capacity expansion and insufficient supply. Given the nature of the lithium industry, an influx of more capital will hardly have an impact on current issues in the short term, but deeper ties will secure future supply and control costs.
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