The offtake agreement includes an annual 12,000 tonnes of cobalt sulfate and 60,000 tonnes of nickel sulfate from the Sconi project in Queensland.
The deal will be for an initial period of seven years, and will allow SK Innovation to develop its manufacturing plants in Hungary and Korea, Australian Mines said in a statement. It could be extended by a further six years.
“The signing of the agreement with SK Innovation is a landmark occasion for Australian Mines and its shareholders,” Australian Mines Managing Director Benjamin Bell said.
“As the only Australian cobalt-nickel-scandium company to have secured an off-take for 100 percent of its expected cobalt and nickel output, the company has [shown that] … Australian Mines is unequivocally a leader in Australia’s cobalt sector,” he added.
The offtake agreement comes at a time when electric car manufacturers and battery makers are racing for long-term supply of cobalt, a key element used in electric car batteries.
More than 50 percent of cobalt is mined in the Democratic Republic of Congo (DRC), a politically unstable country where mining has been linked to human rights abuses and child labor.
Although analysts believe DRC cobalt is essential for future electric vehicle production, Australia is seen as a potentially safe jurisdiction that could add supply into the market in the near future.
In fact, Australia is the world’s third-largest cobalt-producing country, with output reaching 5,000 MT in 2017. The country also holds the world’s second-largest cobalt reserves, which stand at 1,200,000 MT.
“We signed the deal to minimize supply volatility and the long-term supply contract is a way to ensure stable supplies,” an SK Innovation spokesman told Reuters.
Under the agreement, the battery maker also has an option to buy up to 19.9 percent of Australian Mines’ ordinary shares.
“It remains to be seen if the Sconi project’s BFS (bankable feasibility study) will support production at this scale and how the economics of the project will shape up with regard to any requirement for scandium credits,” they said in a note.
On Tuesday (February 20), shares of Australian Mines closed up 26.37 percent in Sydney, at AU$0.11. The company’s share price has jumped more than 1,000 percent year-on-year.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.