European Lithium eyeing Saudi Arabian downstream hub

Only days after releasing an interim value for its Austrian Wolfsberg lithium project of US$1.5bn (a statement ASX compliance forced the company to retract only hours later), European Lithium (ASX:EUR) has today hit the bourse with a fresh announcement on the project. 

This time, European Lithium says it has executed a non-binding Memorandum Of Understanding (MOU) with a Saudi Arabian investment outfit towards the construction of a lithium hydroxide plant in the Arab jurisdiction.  

Under the MOU, European Lithium and OIG would participate in a 50:50 JV structure to manage the hydroxide plant. 

OIG is one of Saudi Arabia’s top 100 companies and operates in over 15 countries. 

“We are pleased to announce this MoU, a great step ahead in further strengthening the Saudi Australian economic collaboration,” OIG chief Abdallah Obeikan said. 

“[This MOU is] in line with OIG strategy [to] accelerate sustainability within energy.” 

Cheaper opex 

The ultimate motivation behind the proposed build out is the lower Arab benchmark energy costs which are borne from oil and gas supplies. 

Cheaper oil and gas means less cost to produce electricity in those power plants which require hydrocarbon feedstocks, as well as cheaper logistics. 

This would ultimately be a benefit to European Lithium shareholders, the company perceives, given the lower overall opex spend by setting up its plant in Saudi Arabia. 

“The JV with Obeikan will allow EUR to focus its efforts on building the facilities to start mining concentrate in addition to benefiting from the JV opportunities,” European Lithium chief Tony Sage said. 

“The huge energy cost savings will make Wolfsberg even more robust.”

No explicit move towards binding agreement 

Whether or not European Lithium’s counsel have experience in the Kingdom remains unclear, as well as whether or not the companies intend to move towards a binding agreement. 

Worth consideration: the deal was struck at a mining conference, and so could be more of a PR move than anything else. 

However, the prospect of energy savings in Saudi Arabia as opposed to the current state of European energy markets is a very real selling point. 

The Dutch TTF gas benchmark remains raised following Russia’s invasion of Ukraine and UK businesses do not currently expect meaningful energy relief. 

Considerations 

• European lithium has a market cap of $115m 

• Share price is 8c at 1115AM AEST Friday 13 Jan 2023 

• One year returns down -42.8% 

• Year to date performance up 8.11% 

• Average 4 week volume of 3.061m shares 

• Ranked 206 of 942 constituents in the materials sector 

• Market Index broker scan shows 4 rate “Buy”, 1 rates “Hold” 

• The company had $31.9m in cash at end of September quarter 

• It spent $1.4m in opex over the same period 

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